Is à la carte cable really the answer?

There’s a growing demand for “à la carte” cable pricing — i.e. the ability to pick and choose just the individual channels you want.

After all, why pay for stuff you aren’t using?  You don’t want the electric company forcing you to keep your lights on when you’re not home.  Paying only for the TV that you plan to consume makes sense.  More choice and lower bills?  Sign me up!  Right?

Wouldn’t it be nice to order cable like we order dim sum?

There’s just one problem with that line of thinking.   There isn’t a direct correlation between the bulk of your cable bill and the number of channels your receive.  Choice is definitely good, but we could wind up paying more for less.  A lot less.

Consider this chart, which has been going around the interwebs for a while now:

What most cable channels charge to be carried

(Click to make bigger.)

That’s how much, in dollars and cents, each channel charges the cable company per subscriber that receives the channel.   Note: there’s 174 channels on that list, but only about 40 of them are considered true basic cable (i.e. delivered to every cable household in America regardless of whether they want them), and it’s not the 40 most expensive ones either.  Bravo, Cartoon Network, BET, MSNBC, TLC, VH1, Comedy Central, HGTV, The Weather Channel, TV LAND, Food Network, Oxygen, TruTV — all considered basic where I live — are in the bottom half cost-wise at under 20¢/subscriber.

Now, the chart is already over a year old, and it doesn’t have any broadcast networks (which are seeking compensation, too), but the gist is the same:  Add up ALL those above subscriber fees, and the total cost for the cable company to carry them is $34/subscriber.

If you don’t see a channel listed, that means it’s either free for the cable company to carry it, or the channel actually pays the cable company to be carried (that’s what QVC and HSN do).

So let’s say you want all those channels right now.  Here’s what it’ll cost on Time Warner Cable in my neighborhood:  $40 (Basic Cable + 1 additional tier of channels, let’s pick the Variety Tier) + $6 (Choice Tier) + $6 (Sports Pass Tier) + $6 (Movie Pass Tier).

Throw in an HD cable box and DVR service, and that’s another $20 bucks adding up to $78/month, before taxes, for just one room of cable TV.  A second non-DVR room adds $10.  Taxes and fees will then add nearly another $10, bringing the total to:  about $98 for two rooms of service (only one with a DVR).

Oh, and after a year, the price of basic cable goes up since that $40 bucks is only an introductory rate.  After 12 months, your total bill will be closer to $108/month.

So in that very common scenario, less than 1/3 of your bill ($34 out of $108) actually covers the cost of the channels themselves.

Got three rooms of cable?  It still only costs the cable company $34 to provide all those channels (remember, it’s per subscriber, not per cable box), and the monthly cable bill rises to $118.  So the percentage of your bill that covers the channels drops even further.

Now let’s break down those tiers…

The Choice Tier offers 28 channels, half of which aren’t even on the above chart (including two Korean channels, five religious channels, and 4 government channels).   Of the ones that are on the chart, the most expensive is SOAPnet at 15¢.  The least expensive is MTV Hits at 1¢.  The total cost to Time Warner to carry the entire package:  94¢.  Cost to you:  $6.

The Sports and Movie Tiers offer even more questionable value, because they offer four channels that are also on the Variety tier (TCM, Sundance, NBA TV, and Fox Soccer).  Get multiple tiers and you can wind up paying for them twice.

And if you want just basic cable?  In 2009, the basic tier on Time Warner cost me $45/month.  Total wholesale cost of those channels to Time Warner in 2009?  $16.42.

With the exception of people who’d delete ESPN and Fox Sports (the only channels that cost the cable operator more than a buck), I’m not sure getting rid of a bunch of penny and nickel channels is going to drastically affect cable bills.  And worse yet, an “à la carte” system might come with an added cost that won’t show up on any bill…

The Mad Men Effect

For years, AMC was known as “American Movie Classics” and that’s just what it was — a basic cable home for old black-and-white movies.  As more and more households got cable, though, the additional subscriber fees eventually gave them enough revenue to expand into original, scripted programming like Mad Men, Breaking Bad, and The Walking Dead.  If they had to rely solely advertising, no way they could do that.

If à la carte channels existed a few years ago,  how many households might have ditched AMC because it just showed really old movies and nothing else?  A lot.  And without that revenue, say good-bye to Don Draper, southern zombies, and Bryan Cranston’s Emmy.  They never happened.  But, hey, at least you were able to watch Bedtime for Bonzo.  That’s something right?

JustifiedThe CloserWhite CollarIt’s Always Sunny in PhiladelphiaHot in Cleveland, you name italmost all scripted cable shows owe their existence to the amount of household penetration their respective networks currently have.  If FX, TNT, TBS, USA, Bravo, Nickelodeon and so forth weren’t in as many homes as they are, most of those programs never get the greenlight.  Don’t forget, not only does fewer subscribers mean less revenue from subscriber fees, but it also means they can’t charge as much for advertising because they’ve got fewer eyeballs with access to the network.

Even shows that are cheaper to produce like The Daily Show could suffer because there’s little chance Comedy Central can afford to keep Jon Stewart under contract without their current household penetration.  Stewart would be able to make more money co-hosting a game show on CBS after The Price Is Right.

Some cable channels may be able to raise their fees enough to compensate for the reduced penetration, but many won’t.  Many newer cable channels could disappear entirely.  Sure, there might not be anything on Chiller or Sleuth you want to watch now, but who’s to say neither of them will be the next AMC?

It used to be you signed up for cable, you got 60 channels, and everyone was happy.  Complexity only gave cable companies more ways to charge us for the things we really wanted.  That’s why instead of a push towards more à la carte options, I’d rather see better “everything” plans that reduce the tyranny of tiers.  Redefine what “basic cable” means so that it includes more for less, not the opposite, especially newer channels that could use the exposure.  Oh, and allow us to ditch the cable box finally.  That would give consumers immediate, tremendous savings ($10-$20/month per room).

Can “à la carte” wind up being a good thing?  Of course it can.  But will it?  I’m skeptical.  Sports fans will clearly get the rawest end of the deal.  People who like having hundreds of channels to choose from will be screwed, too, as they’ll likely wind up paying more just to keep what they have.  And the rest of us?  Those of us eager to keep only a handful of “good” channels just to save a few bucks?  Sadly, we may never know what we’re missing…

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2 Responses to Is à la carte cable really the answer?

  1. Brix says:

    I read the whole thing and the big take-away is my fury that I don’t get Blackbelt TV. How could this happen?

  2. Eric Buchman says:

    Because you read the whole thing you deserve Blackbelt TV.

    Call your local cable company and demand they give it to you.

    Or just go to youtube and search for “wicked karate moves.”

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