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Why Cheaper Cable Opens A Pandora’s Box

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That Time Warner Cable (NYSE: TWC) is even considering a discounted offering like the TV Essentials package it will test in select markets might seem a big win for the industry.

But a better bet is there’s more Maalox than Moet being passed around at Time Warner (NYSE: TWX) Cable right now.

That’s because these smaller tiers are perched on the edge of a slippery slope that few ever want to go down: a la carte programming.

Just that phrase is enough to make a cable executive freeze in his or her tracks, and a thousand-yard stare sets in. Memories of 2006, when the FCC fixated on the possibility of allowing consumers to choose their channels, trigger shivers up and down spines. That’s because a la carte nearly became a reality despite protestations that it would destroy the business model that enriched the industry for so long.

But a la carte is not the same thing as a discounted tier, you might say. True, but they’re close enough. Consider the first question that will occur to any potential subscriber considering purchasing Essentials: Gee, what channels will I be getting? Then when they see what they are getting and not getting, the next natural question will be, well, why can’t TWC just let me order the channels I want?

Keep a close eye on the suicide rate of TWC customer service representatives these next few months. It won’t be easy processing these orders that will inevitably beg inquiries like, “Yes, ma’am, I know you’d rather have Bravo than Bloomberg News, but that’s not what we’re offering today.”

Shrinking the number of channels even at a reduced price prompts the consumer to be conscious of the very thing the operator would rather they not notice: the absurd ratio between the number of channels viewers get and what they actually watch. Bundling channels may be the foundation of the cable business model, but it’s the bane of many consumers’ monthly credit-card bill.

The funny thing is that the channel in and of itself is a bundle, a quiver that holds a set of arrows we call shows. And yet when you think about even your most beloved channel, how many shows do you watch from any one channel?

If operators thought they had a headache on their hands with a la carte, just imagine if consumers started to question the very nature of the channel in and of itself. Perhaps a tier of the future could be VOD-only, where you purchase programs either individually or on a metered basis rather than accept them in a linear stream.

But let’s not get too far ahead of ourselves. TV is still a passive pleasure for most folks. We pay for the privilege of being bombarded with possibilities available with a click or two of the remote–no endless selections necessary. If that wasn’t the essence of cable’s appeal, it’s hard to believe existing tiers would have gotten so much traction in the marketplace in the first place.

2 Responses to “Why Cheaper Cable Opens A Pandora’s Box”

  1. The argument for al a carte pricing is generally made on behalf of consumer choice. It’s logical that cable will have to move to some kind of consumer driven model in the face of internet delivery options that delight consumers with choice. But there’s another interesting point to why cable bundles should end.

    Doesn’t the Food Network compete against Food and Wine magazine and Ladies Home Journal for advertising? That advertising is purchased based on the reach and quality of the content these different mediums produce. And the Food Network can pour millions of dollars into programming because of the subscriber fees they get through the cable bundle.

    Why should the network be subsidized with subscriber fees that are not a true reflection of its demand? Maybe the network would have the same revenues if they unbundled, because they have such a passionate following that their per subscriber fee would rise to match the same revenues they get today. Or maybe not. The point is that magazines, newspapers, books and websites dedicated to developing high quality food content must compete for consumer dollars and attention without the assistance of drafting off any kind of forced bundle. They have to create a high quality product and get consumers to open up their wallets. Would the Food Network command the attention of advertisers who compete with other media if they were required to do the same? I wonder.