The perhaps-intuitive sense most consumers probably have is that they would spend less money if they could buy just the video channels they want, one by one. Such an a la carte capability might actually be beneficial for lighter TV viewers who really want to buy just a few channels. But most consumers likely would find they pay higher prices when buying a la carte.
In 2004, Consumers Union surveyed subscribers and found that 66 percent wanted to choose the channels in their plan, while 66 percent also wanted the ability to pay for only some channels, rather than all. About 66 percent also expected to pay less if they chose fewer channels.
About 30 percent reported they would choose fewer channels, even for no discount.
When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right. An end to bundling would likely decimate most smaller, more-lightly-viewed networks.
To the extent that content and program diversity is a desired end user benefit, “choice” in all likelihood would decline in a full a la carte environment, because most people would not buy most channels.
In studies where only 50 channels were offered, “households view less than one quarter of the networks they are forced to buy in the bundle,” or fewer than 12, the Consumers Union noted in an past analysis. In a 200-channel environment, people still watch about the same number of channels, meaning viewership is about six percent of what is available, on a repeated basis.
If you want to be generous and assume that viewership of channels actually doubles, then in a 200-channel environment, where people watch 24 channels regularly, that’s 12 percent of what is available. Not many of us can claim we know anybody who actually watches 24 channels on a regular basis.
Cable operators have argued that end-user costs might actually climb in an a la carte environment, for a number of reasons. Higher customer care costs, operating and marketing are likely, cable operators have argued.
Operators also have argued that customer care costs would rise, and there is more substance to that argument, at least during the period where customers would be confused about the new way of buying service. The National Cable and Telecommunications Association has estimated that customer care costs increase by more than 75 percent in a pure a la carte scenario, the Consumer Union says.
The bigger issue is whether consumers would find themselves paying more or less under an a la carte regime. Others believe a typical household might wind up paying about the same amount each month.
Separate studies by the Federal Communications Commission are inconclusive about whether unbundling could save money, or wouldn’t save money. One of the studies suggested “consumers that purchase at least nine networks would likely face an increase in their monthly bills” when buying a la carte.
Likewise, one of the studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.
The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.
Marketing costs certainly would increase, possibly paid by cable and other distributors as well as networks. Premium networks and package goods sellers spend 15 to 27 percent of their revenue on advertising, compared with basic cable networks, which spend only two to six percent of their revenue on advertising.
In theory, the new a la carte networks would have to increase their promotions and advertising spending to premium channel levels.
Revenue is the other big issue, obviously for a distributor, but for each network as well. The ability of a programming network to sell advertising is based on the number of actual and potential viewers. An a la carte environment would reduce advertising attractiveness for most networks.
Now, as in the past, the argument for clear cost consumer savings when making a shift to a la carte viewing is not clear.
Most often, bundling is a mechanism for lowering the per-unit cost of goods and services by spreading costs over a larger number of units. ‘A La Carte’ Cable Bad for Consumers
An economist might say the typical video bundle works because it allows distributors to apply scale and scope economics.
The corollary is that most networks, which are advertising supported, want to be part of a broadly distributed basic tier for business reasons of their own, namely the ability to better sell the advertising that underpins their business models.
To be sure, consumer choice, in the form of lots of channels, is a different value than “lower prices.” It seems clear enough that full a la carte will mean fewer channels are viable. What isn’t completely clear is whether users will wind up paying less money, either.
According to some studies, relatively few networks actually make a $100 million or more in annual ad revenue, a level that some say represents the threshold for a sustainable TV network. The reasonable expectation is that advertising revenue would fall, for most networks, in an a la carte regime.
Ad rates ultimately are set by the number of users, and a la carte would mean dramatically fewer users for most channels.
That suggests a full a la carte pricing scheme would force most networks to raise their affiliate fees (cost for a cable operator to carry a channel) and many would simply fail. Network economics
When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are almost certainly right.
Deprived of carriage on a broad “enhanced basic” tier, perhaps 60 percent of networks might find themselves immediately imperiled, as going concerns. That’s a separate issue from the impact on consumer spending for video services.
The point is that it is not completely clear that consumers would generally pay less money for their video services if users could buy each network separately, or just programs, separately.
