Screw Cable, I Just Want ESPN and Mad Men

Many technologists and general consumers wonder why an “a la carte” pricing model doesn’t exist yet for television channels. The benefits seem to include the mobility of extended choice for consumers, increased revenues for proven channels, and an overall more efficient business model for networks and television studios.

Sadly, the main sticking point is that a more efficient business model is not something the media conglomerates are looking for, since any efficiency shift in the programming business would directly take money out of their coffers and into the hands of either a) the consumers or more likely b) the MVPDs (multichannel video programming distributors such as Comcast, DirecTV, Dish, Time Warner Cable, etc.) who would absorb the value of lost, under-performing channels that people generally would not watch were it not included in the bundle.

Furthermore, while there’s little doubt that people would indeed like the option to pick and choose which channels they receive, there’s no reason to suggest that consumers would actually prefer to purchase their channels directly from ESPN or AMC or Comedy Central. While those specific channels (and a few others) have tremendous brand equity with consumers, I believe most people would still prefer to go through an MVPD to get their programming and vice versa. Case in point: You would never go buy bananas directly from Dole, you would go to your local supermarket. Even if the only thing you’re looking for that day is bananas, supermarkets (and MVPDs) create value by providing the necessary distribution network for goods/services.

In addition, cable channels obviously want to go through MPVDs for distribution because of the added value of bundling. Case study 2: HBO Go and ESPN3 could both operate as standalone businesses that charge users a subscription fee for access to content. However, it is very deliberate choice that they do not, so as not to upset the current bundling model that makes the TV world go round. Both companies decided to create these killer must-have apps for free to drive more subscribers to cable operators and subsequently their channels (where the real money lies).

You might say that buying bananas is one thing, and paying for programming (which is made up of bits and bytes of data) is another. One requires physical real estate of housing and inventory, while the other simply exists in the ether and can be distributed wirelessly. To counter, let’s take a look at the music industry (the once-and-future punching bag for all cautionary tales in the media business).

The erosion of the music-buying business was not cemented until Apple’s iTunes came along. It’s worth repeating again, iTunes destroyed the music-buying business. Sure Napster, Kazaa, Grokster and a variety of other music sharing web apps precipitated the downfall and piracy made it viral. But when Steve Jobs decided to favor the 99-cent single business over the $10+ album business, the nail was in the coffin. The long tail of music was created and all the 99-cent singles at the head of the curve could never make up for the lost value in the album tail-ends.

For that reason, I don’t see the bundling business going away anytime soon in cable. The stakes are too large, the media conglomerates involved are too powerful, even for Google. It would truly require a disruptive service as paradigm-shifting as iTunes by a company as large as Apple or Google in order for a la carte pricing to even sniff daylight. And the MVPDs have the benefit of business hindsight to prevent another iTunes-debacle from occurring (see TV Everywhere).

Then again, if the BCS can adopt a playoff system, then anything in this world is possible.

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One thought on “Screw Cable, I Just Want ESPN and Mad Men

  1. [...] bundling system, the repercussions could be huge throughout the industry. I’ve written much about the dynamics of the television business which falls largely on the way affiliate fees work [...]

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