Why cable network companies are scared to death regarding à la carte service

TV RemoteI finally decided this holiday season to take the plunge and get Netflix.  Yes, yes, I know.  I told myself I got it for my daughter to watch all her shows, but let’s be honest, it’s a 50/50 split.

However the side effect was that after a few weeks, the TV shows started adding up on the DVR, so I decided to cull it a bit.  And after I did some rather interesting trends started showing up.  Something that might explain why cable channels are so slow to adopt an a la carte model.

But first things first.  First a qualifier.  Between my podcasts, I already consume about 38  hours of new media a week (roughly 25 hours when listen to at time and a half) that’s not TV.  So I was already selective with the amount of TV I watched.  Then on top of that, when you add Netflix on my AppleTV to that total, (granted most of it is my daughter taking over the TV and watching She-Ra, but still TV consumption), my long list of DVR’d shows were getting to the point it started deleting things automaticly.  So I went in and started trimming back my shows.

netflix apple tv

First to go was most of my daughter’s shows.  I had originally had it at 1 episodes a day for things like Dora or Blue’s Clues (since that way she always had something new to watch), but with almost all of these shows also on Netflix I decided to cut them completely.  I left the “new” cartoons as, they were, well… new.  Netflix has a great kids section, which is even better when you add the “kids only” option for newer iOS and other devices (although that isn’t on her iPad 1 at the time of this article), but newer run episodes tend to take a while and nice to watch them when they came out.

Then I looked at my shows.  I was shocked how many finished or canceled shows were still on the DVR list.  Off they went.  I looked at the list that was left, and got rid of any show I didn’t remember where I was at.  Either due to lack of interest, or just hadn’t watched it in so long that I probably wouldn’t have made much sense if I tried to pick it back up.  From that remaining list I noticed that channel list started to look a bit familiar from show to show.

network logosThere were of course the network shows: ABC, CBS, NBC, and Fox. Even a CW show.  All expected.  However, for my cable channels it boiled down to:

  • 2 shows of Sy-Fy (in the past that number would be much, much higher… but that’s another post)
  • 3 on USA
  • a few on Comedy Central
  • a bunch of cartoons on Nickelodeon, Cartoon Network, and Disney Channel
  • a couple other select shows on Food Network, BBC America, and Discovery.

That’s it.  That mean my entirety of non broadcast TV watching is a total of 9 channels.  Throw in a few other channels that I occasionally watch but don’t subscribe to shows (like the Weather Channel, History Channel,  HGTV, along with ESPN during football season) it ends up being still only 13.  The package I subscribe to boasts 270 channels (not including local ones).  And that’s already the minimum package I can get from my Cable provider.  Everything else I could get over the air, digitally, and in HD.

I pay about $80 just for the cable aspect of my connection (plus of course taxes, cable box rental, etc).  None of these channels are really “premium” channels like HBO or Showtime.  My provider also offers a “local only” package for $20.  So theoretically for just the channels I watch I’m paying about $60 for all of it, or another way – $4 a channel.

Now that’s not really true of course.  That money is spread out over the entirely of all the 250 or so other channels.  And that’s where the cable companies have realized they are quite in trouble.

TV channelsImagine you are one of those other 250 channels.  At the moment your audience may be reported to your advertisers (aka your “real clients”) for the ever person that get’s that package.  You are selling the network on the “potential” of your channel.  How many can you potentially give me.  How many household are you in?  As such you can create some pretty lame low-cost shows that gets enough eyeballs to warrant continued production, bundle those channels with other higher watched channels you sell to the cable providers and end up getting tons of profit to offset your “good” channels people actually watch.

Now take it from the channels people tend to watch.  Do they lose money spreading it among other channels?  No, not really.  They are still collecting it since they also get the revenue from the other lesser channels.  The costs (or even losses) of 1 highly watched channel for a company could be offset by tons of other channels that are basically just profit machines.

The problem comes to us as consumers.  The cable providers can’t do à la carte, cause the moment you give customers the choice to cherry pick, the entire money-making scheme of cable Tv is broken. The high costs of producing high quality content that people want to watch can’t be sustained when there revenue channels get cut.  They cable channels don’t end up getting more customers, overall they are selling “less” eyeballs to the advertisers since they are reporting on just 1 channel instead of many.

social-mediaAs such the option of these channels offering content channel by channel to the consumers becomes more and more unlikely.  Advertising is built on the potential, not the actual numbers.  Things like social media, and online viewing has shown that the numbers being reported, aren’t anywhere close to the actual numbers that people are watching.  Social networks show advertisers the actual engagement of their ads.  It’s trackable, and quantifiable.  Companies are going to start realizing that they are paying for 15 million eyeballs, when in reality only a small fraction of that are watching the channels they are airing on.  As such those numbers won’t be able to support à la carte options for basic cable channels.  It’s just not possible without greatly increase the cost to consumers.

Now yes, there are some channels that might be able to make use of this model.  Premium channels such as Showtime or HBO would have the best shot as they are self-contained and not offsetting their costs with other “lesser” channels typically.  Add to that they tend to rely on other monetary methods than ads, they don’t get hurt as much.  But even they would be a bit more strained as they also are typically bundled with the other “premium” channels.  They would be hit less, but still would feel the strain as they revenue streams started reflecting reality instead of just subscriber base numbers.

independent networksThe only real “content” winner of this sort of battle would be the smaller, niche, independent video channels, whether they be actual TV channels (IFC, golf channel, speed channel, etc) or independent podcast video channels (TWIT, Revision3, Nerdist, Geek & Sundry, or Mevio) since they have enough of a niche audience to be able to support that sort of model.  [Although of note Revision3 is now owned by the Discover channel.)  Heck even some bigger Channels like BBC America, which aren’t a “bundled” channel as far as I can tell, might manage to scrap by, granted with less revenue I’m assuming.

So what does this mean for us consumers waiting for à la carte or some new paradigm device for the TV industry?  Well, chances are until the revenue streams can be changed whatever new devices we will be seeing or new way for us to get our media will still be linked to the big box model of bundled tv shows.

TLDR- Channels that create dredge shows that people don’t watch will no longer be able to support themselves with ad revenue by saying they are “in” X amount of households.  And because they won’t be in all those households, the “good” channels won’t be held up by those supporting channels.  The entire TV industry is supported by this illusion of potential viewers instead of actual content that people watch.  As such, don’t expect any pay for channel system in the near future.

Categories: Business, EntertainmentTags: , , , ,


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