McCain Going After Cable TV

John McCain is taking a break from advocating yet another war in the Middle East to make war against cable television companies.

cable-tv-bundles

John McCain is taking a break from advocating yet another war in the Middle East to make war against cable television companies.

The Hill (“McCain working on bill to allow for ‘a la carte’ cable TV packages“):

Sen. John McCain (R-Ariz.) is working on legislation that would pressure cable and satellite TV providers to allow their customers to pick and choose the channels they pay for, his office confirmed on Wednesday.

Consumers have long complained about the rising costs of cable TV packages and having to pay for dozens or even hundreds of channels just to gain access to the few that they watch.

[…]

In addition to pressuring cable providers to offer channels a la carte, McCain’s new bill would bar TV networks from bundling their broadcast stations with cable channels they own during negotiations with the cable companies, according to industry sources. So for example, the Disney Company, which owns both ABC and ESPN, could not force a cable provider to pay for ESPN in order to carry ABC.

The industry officials said the bill would also end the sports blackout rule, which prohibits cable companies from carrying a sports event if the game is blacked out on local broadcast television stations.

[…]

Color me skeptical. While I have no philosophical objection to Congress getting involved—the very limited number of service providers in most markets and a variety of anti-competitive practices on the part of the networks make this a legitimate governmental concern—it’s far from clear that they won’t muck it up.

On the surface, bundling seems like an outrageous practice—and it’s one that every cable and satellite service uses. DirecTV delivers hundreds of channels, of which I watch programming on less than a dozen. Because the sports channels in particular command high prices—both because there’s extraordinarily high consumer demand and because the networks have to pay enormous sums to the leagues for broadcast rights—they constitute a hefty portion of the cost of basic service. That’s patently unfair to those who don’t watch sports.

On the other hand, it’s far from clear that, at least for those of us who do watch sports, that an a la carte approach would be cheaper. A recent WSJ piece (from which I got the top graphic) notes:

There has long been intense debate about whether unbundling would save consumers money. Two studies by the Federal Communications Commission in the past decade came to opposite conclusions. A Temple University study, meanwhile, concluded only incremental savings for consumers, and that was before accounting for the higher costs for customer service and programming that distributors would likely pass along.

Big media companies also argue that a la carte would be bad for the consumer in the long run. “A la carte—maybe a little counterintuitively—raises prices and reduces choice because it increases the costs,” said Mike Fricklas, general counsel at Viacom, explaining that “now you have to worry about whether they are subscribing and watching.” He said a lot of money would be siphoned out of programming investment and into marketing dollars because there wouldn’t be assured distribution.

Executives at media companies say they would be forced to raise prices on their channels to maintain how much they spend on sports rights, original programming and other content.

Gizmodo‘s Brian Barrett argues that the rates for individual channels–particularly the most popular ones–would almost certainly be much higher. ESPN, far and away the most popular channel, was charging providers $5.54 per subscriber per month a couple years back. But that’s the wholesale price that the can pass on to everyone who gets cable. Fewer people would pay for ESPN under an a la carte model but they’d pay much, much more. Barrett speculates that it could be $20, which is what people pay for HBO.  Barrett also notes that several of the cable companies actually own some major individual channels. That complicates their delivery on competitors’ platforms.

Further, as MoneyBox (it’s Matt Yglesias’ beat but doesn’t have his byline) points out, people are almost by definition not over-paying now:

Say you pay $60 a month for your cable package. Lots of channels come with the package, but you really only watch MSNBC, the Food Network, SyFy, Bravo, and USA. Sure, every once in a while you flip to Fox to see hilarious conservative coverage of Obama speaking, and every couple of years you watch a few Olympic events on other cable networks. And perhaps from time to time scrolling the channels you find yourself watching a Law & Order rerun on TNT. And, okay, you’ve seen a few reality shows here and there on other channels. But if you could keep getting the broadcast networks without needing to futz with an antenna and watch MSNBC, the Food Network, SyFy, Bravo, and USA you’d be happy. So why can’t you ditch the sports networks and get a discount?

Well, because the hypothesis here is that you’re already paying $60 a month for a cable package that really only offers five channels you watch. You would rather have access to those five channels than have $60. So since those channels are worth $60 to you, even if unbundling happens your cable provider is going to find a way to charge you approximately $60 for them. Because at the end of the day, you’re paying your cable provider for access to the channels you do watch—not for access to the channels you don’t watch. The channels you don’t watch are just there. If the channels you do watch are worth $60 to you, then $60 is what you’ll pay for them.

Similarly, if Disney is able to force cable companies to pay, say, $20 a month to bundle ABC, ESPN, and the various Disney kids’ channels because customers would balk at not having access to those channels, why wouldn’t they be able to get that much a la carte? If ESPN is the must-have, they’d just charge $15 for it, $3 for ABC, and $2 for the Disney packages. The only thing that would change would be the transparency.

Yglesias argues that the obvious solution is for Congress to simply dictate prices. But that surely goes beyond the reasonable scope of government power, especially for what is, after all, a luxury good rather than a necessity.

So: How do we protect consumers from legitimately anti-competitive practices without forcing them into a bewildering and potentially more expensive set of options? How do we regulate an industry whose very nature makes a truly free market difficult to achieve without unduly hamstringing them? It’s not at all clear and I don’t have any confidence that McCain has the answers.

UPDATE: The Atlantic’s Derek Thompson is skeptical this will pass and more skeptical that it would work:

“A la carte” is not a synonym here for “vastly cheaper.”

Why’s that? Your bundle pays each channel in two ways. First, it pays directly. For example, ESPN “costs” about $5 a month; that is, about $5 from every cable bill goes to ESPN. Second, the bundle pays indirectly through advertising. If ESPN is in fewer households (i.e.: only the households that pay directly for ESPN), they’ll project less ad revenue. As a result, buying ESPN could cost as much as $20 a month as the company seeks to make up revenue in the interim. Even if you don’t watch ESPN, you’ll still have to pay more per channel that you do today because of the economics of bundling and the dual-revenue model for networks.

On the bright side for consumers, perhaps you could see the dissolution of the cable bundle squeezing networks and programming costs and show budgets, leading to a deceleration of overall TV costs. But if customers had to pay more than expected for individuals channels, it’s hard to know if they would view these savings as a bargain or just a less-for-less exchange.

Third catch: Logistics. Let’s talk about something really practical. How many times a year could you switch your channel line-up? Once a year? Four times a year? It’s a serious question.

Let’s say you don’t want A&E on its own. Sounds sensible. Then a show like “Duck Dynasty,” one of the biggest hits in cable history, debuts and suddenly you want A&E. ‘Easy,’ you say, ‘I’ll just subscribe to A&E for a few months and cancel after Duck Dynasty is over.’ But that just won’t do. Channels like AMC won’t survive if a handful of people only sign up for the few weeks that ‘Mad Men’ is airing. A la carte sounds like a pain-free option, but 100 million households adding and dropping channels mid-year is a recipe for a logistical and strategic disaster for the industry.

The incentives could work both ways, though. AMC and A&E used to air nothing but re-runs; now, they produce original programming. Would they be less likely to do that without the sustained revenue that comes from bundling? Or more likely, since people would be unlikely to subscribe to a channel without some compelling reason. Then again, it might not make sense for AMC to bother having a channel at all without bundling–just make Mad Men and sell it to various distribution outlets.

FILED UNDER: Economics and Business, Entertainment, US Politics
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Uh, here’s an idea: instead of forcing cable companies to give a-la carte programming – something the market should (but isn’t) dictate – how about instead passing that network neutrality legislation that would prevent Comcast from prioritizing all of their own streaming services at the cost of others? Or that could potentially force ESPN to actually sell their streaming service (ESPN3) instead of making it bundled in with cable access (I.E.: as it is, you have to be a subscriber to one of a few cable packages, or you cannot stream ESPN content, period; you have no option to buy); this is specifically intended to prevent “cutting the cord”. Both of these – especially network neutrality – are better than McCain’s shortsighted idea.




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  2. JoshB says:

    I’m on the cusp of canceling cable entirely. I’ve starting subscribing to Hulu+ and most of the shows I watch are available there. The funny thing is I watch a lot more ads (and tolerate them!) than I do on cable. If we could pay per network, I would be in my TV sweet spot.




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  3. James Joyner says:

    @JoshB: As noted in another thread, I not only pay top dollar for DirecTV (four HD-DVRs, NFL Sunday Ticket, HBO, etc.) but also do a lot of Netflix streaming. But I’m a fairly unusual case in that I watch a lot of NFL games and spend pretty much every night at home with the girls, so it’s almost the entirety of my entertainment budget.




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  4. James Pearce says:

    How do we protect consumers from legitimately anti-competitive practices without forcing them into a bewildering and potentially more expensive set of options?

    The market will do most of the heavy lifting. If ala carte ESPN becomes prohibitively expensive, then people won’t watch it. There will be pressures to reduce costs, but not so much that they go out of business. Pro sports may find itself a less profitable enterprise, but hey….that’s okay. Their profitability has been artificially boosted by “anti-competitive” practices for decades.

    We are rapidly approaching the day when the TV business is drastically different than it is now. I haven’t had a cable package for years now and most of my “TV” watched is a combination of Netflix, Hulu, and stuff on my Roku box. It’s great, but even then I must still endure these “anti-competitive” practices. Redbox gets this movie delayed, this studio pulls their movies off Netflix, can’t watch anything live on Hulu….

    In a sense, I already have ala carte pricing. And Comcast, Dish, or DirectTV don’t get a cut.




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  5. Moosebreath says:

    A side problem with bundling is that you are supporting providers whom you disagree with. My Comcast basic cable package includes at least 5 religious channels (all Christian) whom I have not merely no interest in watching, but I object to supporting financially.

    Given that cable originally was a governmentally created monopoly (with satellite it is not any more), I am surprised that I have never seen a challenge to this on establishment grounds (it is possible there were some that I never heard of).




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  6. JWH says:

    About ten years ago, I would have been completely on board with this. But now? I think the “cable bundling” issue is completely outdated. Today, the question isn’t whether your cable company will provide you a la carte channel service. The question is when content providers (studios and channels) will offer their streaming content independently rather than requiring you to pay a tax to the cable company.




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  7. Argon says:

    As James Piece says: Eliminate bundling *and* channel subscriptions…. Just pay per show.

    And start treating cable like a utility. They shouldn’t be in the content production business.




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  8. Rob in CT says:

    Cautiously optimistic here…




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  9. john personna says:

    I think Brian Barrett has the economics of it wrong. The tremendous money flows into professional sports are powered by cable tv bundling. They are hidden fees for infrequent ESPN watchers.

    For most people there is never a direct question “how much will you pay for professional sports?”

    Should McCain prevail, the question does become direct. And if the answer is low, team budgets and player salaries would have to fall. Otherwise they’d face a negative feedback loop. Higher prices would shrink their user base, wash, rinse, repeat.

    It’s kind of moot though, because me and the kids have already chosen this. We’ve cut the cord and stream the shows we want. Indeed, I was reading yesterday that there are millions of young adults who have never paid for cable. When they got their first place they paid for internet only.

    (If you want to talk alternate realities, I wouldn’t mind the idea of a national cable network regulated as a common carrier … but that’s a road not taken.)




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  10. john personna says:

    @Christopher Bowen:

    This is not a “market.” My cable company enjoys a government enforced monopoly, with the narrowly defined competition of satellite only. (i.e. no second cable service can arrive to compete.)




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  11. Latino_in_Boston says:

    If McCain succeeds with this, it will be the first useful piece of legislation this decade. Good for you, Senator.




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  12. Franklin says:

    John McCain is taking a break from advocating yet another war in the Middle East to make war against cable television companies.

    I think our commenters have missed the entire point. McCain is distracted, please don’t interrupt him!




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  13. aFloridian says:

    There are competing cable companies in my market, but I have opted to support none of them (outside of paying Comcast for its bottom-barrel internet service) and have really enjoyed being free from cable.

    I subscribe to Amazon Prime, which offers a decent assortment of movies and television (heavily British) shows for a very low yearly price that includes other benefits. I don’t have a television right now, so I watch either on my laptop or Kindle Fire.

    When I DID have a television, I could also stream ESPN3 through my Xbox360 because of the Comcast service. I never really saw the point though, as all the college football games I might be interested in were blacked-out. I did, however, watch a good bit of cricket, soccer, Australian Rules football, Canadian football, and other obscure (to Americans) sports.




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  14. john personna says:

    I really do want to emphasize this, because it isn’t immediately obvious … when people think of the pricing of channels they naturally think of the shows they watch, and the implication that their fees pay for them.

    That’s not actually the way it works. (I think Felix Salmon explained this to me.)

    There are two different negotiations. The first, your cable company with you, is all about how much they can charge for the “basic” bundle, and then how much they can get you to add on. The game is to artfully distributed channels so that everyone is unsatisfied with “basic” and wants at least one more.

    When the cable company turns to negotiate with channel providers they need to get enough “good stuff” to populate the higher price tiers. Here popularity becomes a disproportionate value. Even if Smithsonian only draws a sizable minority it becomes valuable as an anchor, and has say 10x the cash value of a channel half the size.

    I don’t actually know ESPN’s percent viewer share on cable networks (I think it is all secret) but even if they “only” had 52% share, in the sense that just over half of viewers “value” the channel, they’d still be the biggest fish in the pond, and be able to demand 20x the median channel compensation.

    The idea that a 0.5x popularity brings 20x compensation works now because the bundling allows it. And because the motivation of the cable provider (an “agency issue” in economics) is to structure bundles for maximum return.




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  15. john personna says:

    @aFloridian:

    Wow. That surprises me. You must live in a sweet spot.

    US Cable Companies Are Monopolies, Expert Says




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  16. rudderpedals says:

    @Moosebreath: The reason you have 5 religious channels (only 5???) is due to broadcasters’ successfully lobbying for “Must Carry & Pay/Can’t Carry” laws. Must Carry lets over the air broadcasters strongarm cable providers into carrying their transmission. I think there’s a little bit of cable co flexibility in choosing to either pay them whatever they want or giving them a channel # they select but little beyond that. This is one reason the Aereo product (racks of tiny little TV antennas and receivers streaming over the net) is driving broadcasters to distraction.

    @Argon nails the integration problem. If only there were antitrust regulators and enforcement 🙁




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  17. Gromitt Gunn says:

    We have four carriers in the Austin area (Time-Warner, Comcast, Grande, and AT&T U-Verse), depending on where you live. Unless you live in a HOA or an apartment complex that has an exclusive contract, you can usually choose between two or three of them.




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  18. OzarkHillbilly says:

    Yawn….. I set myself free of the boobtube a little over a decade ago. the only thing I miss is the occasional ball game.




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  19. john personna says:

    @Gromitt Gunn:

    I obviously have one, Time Warner.

    I know that Verizon FiOS is “just across the river,” but it might as well be a million miles away.




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  20. MarkedMan says:

    It seems to me that without bundling we would never have had shows like The Sopranos, Game of Thrones, Battlestar Galactica, etc. Maybe I’m wrong, and other models would arise, but the fact that 2-4 million people really, really wanted to see Tony and the gang allowed HBO to charge cable companies huge bucks and they, in turn, could afford to pay those bucks because they could distribute the costs over a hundred million subscribers or so.

    I don’t mean this as a warning, simply an observation.




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  21. Andre Kenji says:

    @john personna:

    They are hidden fees for infrequent ESPN watchers.

    It´s the opposite: ESPN(And people that watch sports) subsidize all the other channels. Take out sports and there is little reason to watch cable.




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  22. grumpy realist says:

    If McCain wants to be really helpful, how about squawking about the cost of internet alone being more than the cost of internet + cable? That is, if you can get internet alone in the first place.




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  23. Matt says:

    @john personna: THat needs to change desperately. There’s no reason for government enforced monopolies when it comes to cable providers. It’s ridiculous that even in a city the size of Chicago you’re pretty much stuck with comcast for cable…




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  24. Matt says:

    @john personna: Depending on where you live in my area you can have the choice of time warner (crap) or Grande (good local). Some areas you can only have one and other areas you can’t get either but Grande is expanding their coverage.




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  25. john personna says:

    @Andre Kenji:

    That argument doesn’t make the least bit of sense. In order to argue some “subsidy” you have to believe that there is a “natural” cable tv subscriber fee, and then that sports “owns” this natural fee.

    Mad About the Cost of TV? Blame Sports




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  26. Andre Kenji says:

    In fact, there are a few points:

    1-) The problem of the a la carte model is thay you can´t stream specific channel to the subscriber. What you usually do is to is to stream ALL channels to the subscriber and just *block* the channels that are not being subscribed.

    2-) The BIGGEST problem is that the companies that produces content forces cable companies to buy channels that no one watches if they want to subscribe to popular channels. Several of these carriage disputes are motivated by that, and there is a good case that should be banned by law.

    3-) That´s discussion is so last century. Today, you can stream you channel directly to the consumer. Sky News, a channel that no cable package offers in the American Continent, does that.Watching Al Jazeera on the Ipad is better than watching MSNBC on TV.




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  27. george says:

    While I have no problem with regulation in general (its vital in many areas), I have to admit I don’t think cable/TV is important enough to warrant the government getting involved. I also am one of those who think it will sort itself out fairly soon in any case because of streaming. I’m also speaking from a Canadian perspective (here its the CRTC that has to get involved), but from what I see in my visits down south to the old homestead, its the same.

    Sports are the only TV shows I watch with any frequency at all, and even with that its typically at a sports bar with friends. Anything else I tend to just buy afterwards on iTunes or the like – Deadwood, Game of Thrones etc are just as good a year late, and any regular series (The Simpsons years back for instance) can be bought the same way. I’m not sure if there’s any saving in money buying them that way, but its certainly more flexible.




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  28. Andre Kenji says:

    @john personna:

    In order to argue some “subsidy” you have to believe that there is a “natural” cable tv subscriber fee, and then that sports “owns” this natural fee.

    No, what I´m arguing is that the main reason that most subscribe to cable is to have access to live sports, and that most people don´t want to subscribe to endless repeats of Friends or something like that.

    Sports broadcasting rights are expensive because they are worth the price. Murdoch is so successful on the TV business precisely because of that. BSkyB is a juggernaut because they have the exclusive rights to Major League and other sports in Britain(Without at, with BBC, few Brits would fell compelled to pay for satellite), Fox only became a real network when they gained rights to the NFL.

    In countries where there are fewer sports that are exclusive to pay TV the Pay TV market is smaller.




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  29. Gromitt Gunn says:

    @john personna: I should have broadened my point – while a lot of places in the US grant exclusive cable contracts, in Texas, the cable market is deregulated, and so cable is generally only a monopoly where the population isn’t large enough for there to be competition between multiple providers or in situations where a non-municipal stakeholder (such as an HOA or landlord) signs an exclusive agreement.




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  30. john personna says:

    @Andre Kenji:

    I understand that you are assuring me that you understand all American TV subscribers, and their motivations …

    I think that falls in the category of “difficult to defend” positions.




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  31. john personna says:

    Speaking of surveys …

    30% Of Internet Users In The U.S. Would Consider Becoming Cable Cutters: Survey

    30% is a pretty sizeable minority. And if they understand that they are leaving the sports value network, it follows that they are consciously removing 30% from cables sports revenues.




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  32. PD Shaw says:

    @john personna: Can you be more condescending? Particularly since you are at best just voicing an opinion with legitimate differences in opinion. At worst, you are simply wrong, there is no reason to think that Top Chef is subsidizing football.




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  33. @john personna:

    That argument doesn’t make the least bit of sense. In order to argue some “subsidy” you have to believe that there is a “natural” cable tv subscriber fee, and then that sports “owns” this natural fee.

    Actually, you’re the one making that argument. The Atlantic article you point to seems to believe all cable channels earn the same natural subscription price, so that if ESPN is getting way more than MTV, then MTV viewers must be subsidizing ESPN viewers, rather than it just being evidence that way more people watch ESPN than MTV.




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  34. john personna says:

    @PD Shaw, @Stormy Dragon:

    I’m really confident of my economics, and that this is a case where direct observation proves my case.

    When 30% of viewers are willing to leave the system, they are not being “subsidized.”

    I mean, you have to contort yourself to believe that these people who do not value cable sports, but pay for cable sports, are the ones getting the favor.

    It is almost as if you think non-sports viewers are paying a lower rate or something, or getting free tv from sports viewers. That is not the case at all.

    Again, the principle-agent problem is that cable companies are selling bundles.




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  35. john personna says:

    @PD Shaw:

    BTW, remember that when you say top-chef, you are speaking of a show.

    Cable tv does not sell shows. They do not in fact even care about viewership.

    Viewership is secondary to their revenue model.

    Cable tv cares about total subscribers first, and then secondary services. It is (usually) a one-time decision to get a viewer into a tier with ESPN or FoodTV. After that .. they have them.




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  36. john personna says:

    The shortest way to say this is that in cable tv “subscribers” and “viewers” are intersecting sets, but not identical sets.




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  37. Andre Kenji says:

    @john personna:

    I understand that you are assuring me that you understand all American TV subscribers, and their motivations …

    That´s not something limited to American TV subscribers, it´s something that happens in the ENTIRE WORLD. BSkyB is only the juggernaut that it is because they bought exclusive rights to the Premiere League. Until that, few Brits cared about cable or anything like that.




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  38. john personna says:

    @Stormy Dragon:

    BTW, that article made no assertion that the price was natural, arising in a free market.

    It was an estimate of prevailing prices in largely monopoly conditions.




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  39. john personna says:

    @Andre Kenji:

    I am certainly not going to make an assertion about the whole world. Pricing is going to emerge out of the regulatory regime in each location. Does any country have a la carte pricing? If so that would tell you the the truly natural price for these services.

    Note also that the argument “sports channel have pricing power” is not in conflict at all with my position. I understand that they have pricing power. I am taking that to the next step, which says that their pricing power extends beyond their actual viewership.




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  40. @john personna:

    It is almost as if you think non-sports viewers are paying a lower rate or something, or getting free tv from sports viewers. That is not the case at all.

    No, the problem is you seem to be assuming non-sports viewers make up the vast majority of cable viewers when all the actual viewership statistics suggest they’re in the minority. The cable systems provide more money to the sports providers because they bring in by far the most viewers.

    Take last week’s cable ratings. The number one channel (TNT) got 68% more prime time adult viewers than #2. This is because they were airing the NBA playoffs, which accounted for 9 of the top 25 cable shows.




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  41. john personna says:

    @Stormy Dragon:

    Huh? Isn’t 68% exactly the flip side of the 30% considering an exit?

    I’d say that is exactly where I am.

    Remember, Andre’s claim is that the 30% are somehow being “subsided” by this.




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  42. wr says:

    @MarkedMan: “It seems to me that without bundling we would never have had shows like The Sopranos, Game of Thrones, Battlestar Galactica, etc. Maybe I’m wrong, and other models would arise, but the fact that 2-4 million people really, really wanted to see Tony and the gang allowed HBO to charge cable companies huge bucks and they, in turn, could afford to pay those bucks because they could distribute the costs over a hundred million subscribers or so.”

    With all due respect, that’s entirely wrong. HBO was always going to be carried by cable operators because it’s a premium channel that customers specifically pay for. (And you can bet the cable companies get a piece of that fee every month.) And it’s self-supporting — the carriers don’t spread the cost of HBO over anyone but HBO subscribers.

    You could make a stronger case for Battlestar Galactica, since Syfy is an ad-supported network, as are AMC and F/X, the homes of most of the best new dramas. But until they were popular, these channels were not able to charge the cable operators big bucks for carriage…




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  43. @john personna:

    I don’t get why you put so much importance on that poll question. For one, it makes no sense to begin with (Streaming media services exist. So then why HASN’T this 30% cut cable? And since they haven’t, what is this significance of them “would consider”ing it?) Secondly, why do you assume this group consists entirely of people who don’t watch TV sports?




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  44. john personna says:

    It is really important to remember the sales process in this. Cable TV comes to you and sells you “basic” and then “bundles” or “tiers.” We each have a set of channels we like, and so they put them in a spreadsheet. Their goal is NOT to most efficiently match channels to viewers. Their goal is to maximize SUBSCRIPTION FEES. And so if ESPN and FoodTV work well in a tier, they are placed in one. If subscription fees are higher ESPN in tier 1 and FoodTV in tier 2, they do it that way.

    It’s kind of a just-so story, and one I do not accept, that cable companies are selflessly maximizing viewer return. That some how FoodTV’s revenue is related to their peak viewership, rather than the subscription preference shoppers feel for the channel as they choose their tiers.




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  45. Andre Kenji says:

    @john personna:

    I am certainly not going to make an assertion about the whole world. Pricing is going to emerge out of the regulatory regime in each location. Does any country have a la carte pricing? If so that would tell you the the truly natural price for these services.

    Yes, it´s an assertion for the whole world. In most markets where there is a considerable demand for pay TV the biggest factor for that demand is precisely live sports. That´s why Murdoch spent considerable money buying sports rights in most markets where he has considerable presence. In fact, that´s a considerable problem, because if one provider manages to get a monopoly over an important live sports rights they manage to have a monopoly over pay TV.

    You don´t need to have a la carte channels to precise that: take out sports, and there is considerable less demand for pay TV.




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  46. john personna says:

    @Stormy Dragon:

    Dan Ariely’s MOOC on irrational behavior, especially in the economic domain, has been very good.

    I would say that all subscription systems, from cable tv, to satellite, to gym memberships, benefit from status quo bias.

    It takes extra effort to break out of an established pattern.




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  47. john personna says:

    @Andre Kenji:

    You are almost there. Seriously. Your argument that majority interest in sports produces pricing power pretty much leads to them reaping disproportionate spoils.

    Somehow you think that ~70% want sports, but that sports provides “under bid” when negotiating with cable companies, leave money on the table, to “subsidize” cooking shows.




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  48. john personna says:

    @Andre Kenji:

    Note that your argument is a bit different than Tyler Cowen’s, linked by PD, above.

    Cowen claims a just-so story, that cable companies end up paying channel providers exactly proportionally to viewers. I don’t buy that, because as I say, I think the dynamics for “subscribers” and “viewers” are quite different.




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  49. john personna says:

    (McCain’s bill would of course force the equivalence between individual channel subscription and individual channel preference. We still might subscribe to a channel for one must-have show, but the granularity of decision would be greatly improved over the current “bundle” system.)




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  50. Andre Kenji says:

    @john personna:

    Somehow you think that ~70% want sports, but that sports provides “under bid” when negotiating with cable companies, leave money on the table, to “subsidize” cooking shows.

    No, what I´m arguing is that sports is the biggest motivation that people have to subscribe to TV. Take that out and there is a considerable smaller amount of people paying for it. And in fact, channels like MSNBC and Fox Business only manages to get wide carriage because their parent companies have live sports to force cable companies to do it.




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  51. john personna says:

    @Andre Kenji:

    Doesn’t what I’m saying truly follow from what you are saying?

    If a majority, but not a universality, of subscribers desire sports, then sports will use that to extract fees from all subscribers.




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  52. Gromitt Gunn says:

    @wr: And, ultimately, BS:G didn’t really pay off for SyFy – or at least they didn’t feel like the payoff was enough. Their original programming since BS:G ended has been much less expensive production-wise.

    AMC and FX obviously have had better luck with “premium” shows. But it is important to consider that the networks that are producing the Mad Mens and Breaking Bads are usually only providing one night per week of original content. Also that Showtime, AMC, FX, HBO, etc., try to arrange their schedules so that, for example, Game of Thrones, The Walking Dead, and True Blood are not airing at the same time, even if they all air on Sundays.

    (interesting side note, but I can not search AV Club at work and I am pretty sure that is where I read the article – CBS intentionally moved “The Good Wife” to Sundays after its first season as a signalling mechanism to Emmy voters that it is (their only) serious drama and not CBS Formulaic Procedural #532.)




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  53. john personna says:

    @Gromitt Gunn:

    Until and if SciFi becomes an independent purchase item, they have a disincentive to “over spend” on program development. Sure, higher numbers mean they can argue to providers that they “should” get higher fees but there is no automatic mechanism to increase their return.

    The decline of many channels into easy-to-produce and low-cost “reality” derives from this.




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  54. Gromitt Gunn says:

    @john personna: Hmm. But you could say the same thing about Mad Men, Breaking Bad, The Walking Dead, Sons of Anarchy, American Horror Story, etc.




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  55. john personna says:

    @Gromitt Gunn:

    Those have broken into the top tier. It is a long tail scenario:

    The top twenty cable networks ranked by subscriber fee

    Even in the top twenty fees fall off very rapidly. ESPN at $7.77 (for the top two spots) and Discovery at $0.37

    We don’t know SciFi’s cut but it doesn’t look good.




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  56. john personna says:

    (I think McCain’s system would let long tail channels “bootsrap” a bit more naturally. They could do more direct ROI calculations, based on attracting channel subscribers, rather than arguing for their share with the provider.)




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  57. @john personna:

    Of course an argument could be made that ala cart pricing will hurt niche channels.

    If you’re a cable company, you have a finite number of channel slots to fill. If you have 100 slots, how you choose those channels is going to be very different depending on the pricing model.

    If it’s the current buffet model, slot one hundred is going to be the station you think attracts the most people not already attracted by channels #1-#99. That is, since sports people are already coming for ESPN and ESPN2, another sports channel is unlikely to net further subscribers. So you can afford to add the Scifi channel to appeal to geeks who hate sports.

    If it’s an alacarte model, all you care about is which channel is going to get the most people to pony up the extra $5/month. If that’s ESPN 8, then we’re gonna have eight channels of sports even if that means there’s no room for Scifi anymore.

    Alcarte pricing is likely to make cable more like the broadcast networks in the long run: largely homogenous programming designed to appeal to the lowest common denominator amd all that matters is what gets the most numbers.




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  58. john personna says:

    @Stormy Dragon:

    I imagine it would be shaped by fee structure. It’s similar to the eBook and music wars. Would the provider have the power to set SciFi’s fees, or would SciFi have freedom to aim high or aim low?

    Certainly a flat fee per channel would hurt the small fry, but if they can bid for subscribers it would get very interesting

    (I really doubt that any a la carte system would price ESPN and SciFi equally.)




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  59. @john personna:

    eBooks and music downloads don’t have the same bandwidth limitations. There’s no effective limit on the number of books Amazon can offer at once or the number of osngs iTunes can offer at once. Since cable can only provide a limited number of simultaneous channels, it’s not going to behave the same way.




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  60. john personna says:

    @Stormy Dragon:

    I was speaking purely of business models there. Amazon and Apple are gatekeepers and have power to shape final prices. If they don’t want a band or author to come in and undercut established brands, they can just set a minimum price. They might do that because they fear too many undercutters would reduce their total sales.

    As long as the cable company monopoly stands, they are gatekeeprs. They may not want SciFi to undercut Fox by too much, because it might cause people (at the margin) to abandon fox.

    (I’m not sure bandwidth is a constraint in many markets. My cable interface showed 800 channels. Some were repeats, but the number of unique channels was really high.)




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  61. Gromitt Gunn says:

    @john personna: But the question isn’t “where are they (AMC, FX, etc.) now,” but where were they at the point that they chose to pursue the strategy of producing expensive original “premium”-quality dramas. Under your scenario, if they were not part of the long-tail to begin with, they shouldn’t have even tried to make a Mad Men or American Horror Story, yes, because they would have been disincentivized from doing so (especially on the backs of expensive productions by SciFi such as Farscape and BS:G)? Or am I misunderstanding?




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  62. Tyrell says:

    Our cable company started treating people like trash years ago. We switched to satellite. If they mess up, it will be on line services or antenna, which gives us very clear reception for free. Antenna tv is a potential gold mine waiting to happen for someone. People are fed up with the high handed, arrogant cable companies. It did not used to be that way when they were locally owned. But no, no government meddling, they will just mess it up worse. I had always given McCain credit for having some sense. Now…….




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  63. john personna says:

    @Gromitt Gunn:

    For the most part early entrants, with deep libraries, entrenched themselves and through positive feedback (high subscriber fees and high advertising revenues) grew stronger. AMC and fX had film and television libraries behind them.




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  64. john personna says:

    @Tyrell:

    Those of us with a government cable monopoly already have the meddling. McCain’s bill reduces it.




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  65. PD Shaw says:

    Its always interesting to speculate about who would come out ahead/behind if things change. This study declines to do so, probably because a change would create changes in the way channels operate, but those which it concludes people are least willing to pay for are:

    Bravo
    GSN
    Golf
    MTV2
    Oxygen
    SoapNet
    Speed Channel
    Toon Disney
    Travel
    TV Guide Channel
    Versus
    VH1
    WE




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  66. @john personna:

    Your set top box is likely implementing the PSIP standard, so the virtual channel number you see in the guide aren’t directly related to a physical channel number in the cable signal. Specifically, just because you see channel numbers in the 800s doesn’t mean there’s actually 800 channels available.




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  67. john personna says:

    @PD Shaw:

    Poor “travel” channel. Glancing over I see that they have 4 episode of “man versus food,” one “bizarre foods,” and 4 “ghost” shows on tap from 4pm till midnight.




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  68. john personna says:

    @Stormy Dragon:

    Sure, but this isn’t 1980, with 32 slots available or whatever. The real number has to be at least a couple hundred.




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  69. Gromitt Gunn says:

    Hmm. I am not seeing AMC on that Top 20 list, and they’re responsible for Breaking Bad, Mad Men, *and* The Walking Dead, which is breaking all sorts of viewing records.

    I don’t know. I’m not really finding your argument compelling. Too many counterfactuals.




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  70. Frank says:

    MSNBC would go the way of Air America under a la carte.




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  71. MarkedMan says:

    @wr: wr. I stand corrected (and relieved). As I’ve never subscribed to cable, I should probably stay out of this discussion.




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  72. @john personna:

    Depends what they do with the pipe. An HD channel takes up the same space as five SD channels, and they also have to share for any internet, telephone, or VOD service being offered over the same line, so you also have to ask whether Syfy’s slot makes more money transmitting Syfy, or improving interent service.




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  73. @Gromitt Gunn:

    I am not seeing AMC on that Top 20 list, and they’re responsible for Breaking Bad, Mad Men, *and* The Walking Dead

    Remember it’s a top 20 for the week of May 5, 2013. Breaking Bad and The Walking Dead aren’t currently airing new episodes, so I imagine that hurt AMC’s share.

    And Mad Men only had a 2.45 million viewers that week vs. between 3.1 and 4.5 million for each of the NBA playoff games.




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  74. James Joyner says:

    @Stormy Dragon: Yes. I was shocked some time back to discover that Mad Men had fewer viewers than that weird Sarah Palin reality show. Yet, the former (which I watch as do most of the people I know) is treated as an epic success and the latter as a joke.




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  75. wr says:

    @James Joyner: If a new book of poetry sells 10,000 copies, it’s an almost unprecedented success. If a new Stephen King novel sells 10,000 copies, it’s an unprecedented disaster. Different types of work have different standards for success.

    That said, it’s the insanity of some broadcast networks — hello, NBC! — to think they should be emulating the cable model and keep trying to program their own Mad Men… when their business model makes Mad Men’s numbers a disaster for them.




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  76. James Joyner says:

    @wr: Indeed. But TV execs have often fallen for the “we’re arteests” racket. CBS famously canceled “every show with a tree” decades ago, including highly popular shows “The Beverly Hillbillies” and “Green Acres,” on the grounds that they weren’t sophisticated enough.




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  77. Tyrell says:

    @PD Shaw: Isn’t Versus now NBC Sports channel? I am on a higher channel tier and am luckily getting NHL games. But I only use about 10% of the channels. I also do not mind paying for anything Disney. I also have to have Spongebob.




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  78. userx says:

    Cable is a rip off because providers know that anyone who wants to watch TV with any kind of quality reception generally needs to have it provided through cable service, Because of that they over charge dramatically. One of the worst aspects in how they do business is they offer reduced rates for new subscribers and then raise them after six months to a year. It should be just the opposite, wherein new subcribers should pay full price with discounted rates being applied the longer you stay a customer. It is very true that people have dozens of trash channels and only a handful of channels that anyone actually watches. There should be some kind of process that allows a customer to choose the channels they want to watch and not be required to pay for channels they do not ever watch. Spanish and sports channels for instance, and religious and home shopping channels, all are viewed only by a certain type of viewer, spanish channels are obviously only viewed by spanish speaking people and sports by sports fans. If a person doesn’t speak spanish or like to watch sports then they are forced to pay for something they never use. Customers should have options to customize their packages within a set amount of basic channels at no extra cost, or be able to eliminate unwanted channels with a price reduction.




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