No, a la carte wouldn't devastate TV programming

© / rrraum

© / rrraum

I don’t know why Laura Martin’s report on a la carte bugged me more than other, similar reports that pop up now and then. Maybe it was because it was so widely repeated, usually without skepticism. The Needham & Co. analyst said last week that unbundling TV programming would kill off all 130 channels, leaving 50 survivors in the “best case”. At worst, 173 TV channels would disappear, leaving seven?

It’s a common trick to argue that if consumers were to spend $X less on a particular business, it will mean the loss of Y thousands of jobs. (It happens all the time when pro sports teams want the public to finance a new stadium.) That job-loss figure is accurate only if you take the narrowest view; some workers in that particular business will indeed get laid off. But that $X doesn’t vanish. Consumers will use that money for something else, maybe to go to the movies, maybe to buy a tablet, maybe to visit more restaurants. Those businesses will need to hire more workers to accommodate increased demand, so any net job loss will be greatly reduced in a broader view.

With a la carte, each TV viewer could pick and choose each channel he wants to buy. The worst-case scenario in unbundling is that a viewer who now pays $60 for 180 channels might have to pay $59 for his 10 favorite channels. In that case, consumers don’t save money to spend somewhere else, but 170 channels will lose plenty of income, so many of them will dry up. Everybody loses.

Here’s why I don’t think unbundling would cause that worst-case scenario:

  • Good businesses set prices rationally. Each channel will estimate demand at different price points, then set their subscription rate to maximize profit or long-term market share.
  • Fewer than a dozen companies control almost all pay-TV programming. They’re used to playing little games during contract negotiations, such as limiting a popular channel’s price increase if the cable system will add its sibling channel for a few cents more. Those new channels, leveraging existing content and production infrastructure, are often spawned at little incremental cost. With unbundling, that popular channel will stand on its own and get the price that its viewers are willing to pay. And those spinoff channels?
  • Plenty of channels would be free. If you haven’t noticed, basic cable pay-TV channels are packed with advertising, averaging about 17 minutes per hour. Now imagine if the Esquire Network (for example) were free, but mixed in its ads were promos for the great shows on USA Network, available for $1.99/month. The combination of advertiser income and cross-promotion for more profitable channels would provide some filler to populate viewers’ guide screens.

As an aside, notice that even in the worst-case scenario, the network companies don’t lose too much cable-company cash. Instead of getting $60 fed through 180 slots, they’ll get $59 through 10 slots. If any unwanted networks fold, that will reduce expenses as well. On a la carte channels, advertisers will see fewer viewers, but they’ll know that they are dedicated viewers. I’ll admit that there’s a fair chance that the networks would lose something; that’s why they’re fighting so hard against a la carte.

Then again, I don’t know why so many people spend so much time on this question. It’s all academic. Instead, over the next few years viewers will simply continue cutting back on pay TV. Cord-cutting will continue to grow, and plenty of remaining pay-TV subscribers will drop channels to save money. Still, the cord-cutters and young cord-nevers will remain a small fraction of total households, and cable companies will still make plenty of profit on those that remain, plus high-speed internet service.

Despite occasional bills introduced by rogue representatives, Congress will not force pay TV to unbundle. The only group likely to benefit from unbundling are viewers hoping to save money. These people don’t contribute to re-election campaigns the way that media corporations do. The corporations who pay for Congress want to maintain the status quo. And they have lots of cash to pay for studies that validate their perspective and drown out anyone who would claim otherwise. I don’t know who paid for Laura Martin’s work, but I’m sure it wasn’t Consumers Union.