Welcome to the hump-day edition of the cable news roundup.
In what's being viewed as an about-face, U.S. MSOs are developing a plan to force the likes of Viacom Inc. (NYSE: VIA), Discovery Communications Inc. (Nasdaq: DISCA, DISCB, DISCK) and Walt Disney Co. (NYSE: DIS) to unbundle their networks so operators can gain more control over how they price and assemble their subscription TV packages, a move that would inch the industry closer to an à la carte regime, reports Reuters. The concept, which will certainly meet with fierce resistance from programmers, is gaining traction among MSOs as they fret over rising programming costs and continue to see video subs leave in droves in favor of less expensive video options. (See Q2 Video Scorecard: Cable, Satellite Get Creamed .)
In a case of unlikely bedfellows, cable programming giant Discovery Communications and Huawei Technologies Co. Ltd. have co-developed a rugged, GPS-capable, water-resistant and dustproof mobile phone under Discovery's Expedition brand. The phone, which aims to boost Huawei's global presence and cater to outdoor enthusiasts, also comes equipped with a compass. It will become available in the fourth quarter.
Sure. That's why Disney_Executive_01 gets his fat bonus. And why pro sports teams and the conferences and NCAA rake in piles of cash from Disney. And why pro sports players rake in huge salaries (but not why college "student athletes" get bupkis and aren't entitled to workmens' comp if they get injured and have their images used by ESPN Classic long past they've graduated and get suspended for trading game jerseys for tatoos -- but I digress).
Now, let's say my name is MSO_Executive_02. And I'm called to do the rounds in Washington. Do I:
a) parrot Disney_Executive_01's story about how bundling is good for consumers, and that it's the only way to ensure diversity of programming? or
b) tell Congress and the FCC that I've been raising my prices in response to Disney's price increases, that Disney's bundling is forcing my customers to pay for programming they don't want, that my customers are telling me that they're fed up with the price increases and fed up with having too many channels of junk, and that I have to turn away independent programming because Disney keeps stuffing my channel plan with lots of stuff that my customers don't want yet have to pay for?
That's the problem. Bundling is berry, berry good to Disney. For MSOs... not so much. So why have MSOs used their lobbyists to defend, rather than abolish it?
My name is Disney_Executive_01. You can a la carte all the channels that you want! Now, here is the thing...unless you bundle ESPN, ESPN2, ESPNnews, ESPNU and twenty other channels your price is $1M per sub for just ESPN.
If you ask me again, the price for ESPN Doubles for every letter of the question that you ask.
I've never understood why the MSOs objected to a la carte. Seems that tiered bundle pricing forces them to pass through price increases, for which they (not the content providers) take the heat from customers, yet do not increase their gross margin. It also reduces their negotiating leverage over which channels they do and do not carry.
So why would they defend a pricing structure that benefits their suppliers at their expense and the expense of their customers? Perhaps administrative burden of managing conditional access for hundreds of individual channels rather than a few tiers and packages? Increased marketing cost? What am I missing?
I'm going to offer more of my thoughts on this soon, but I think msos still object to a la carte in a scenario in which consumers can just pick and choose the channels they want, claiming that it'll destroy the business model and see some networks die (and would that be so bad if a channel that gets two viewers a night was to go bye-bye?).
Msos want to unbundle the networks (like Seven said) so they can have the flexibility on how they package TV subscriptions, cover the gamut and create less monolithic tiers that more people can afford.
TW Cable is making some progress with its TV Essentials package, which doesn't include ESPN and ESPN2 , but does include ESPN News. In Canada, Shaw's also been fiddling around with a wider variety of TV subscription packages and calling it a la carte.
But what msos are saying a la carte is and what consumers might expect it to be in their vision of an ideal world will be miles apart. JB
So, the thing is that people have been competing based around number of channels.
To your comments Jeff, if people start shutting off channels then the cable guys probably really need to go to an SDV (maybe even IPTV) model for things. They also lose tons of revenue because they justify their pricing providing the number of channels. The switch to a la carte means that the per channel pricing is probably going to go up dramatically and actually people will get a lot less value than they want. I suspect it will cause great gnashing of teeth.
Think about it. Comcast lists their "Digital Starter " as 80 channels for $64.99 per month. So let's say you are just a Football fan and want ESPN, ESPN2, CBS, Fox, NBC (to get all the football). That's 5 channels and they will get what? Unless it is a lot cheaper the $64.99 deal is going to stick. Their is a huge billing and authorization nightmare (do this digital only for analog this would be a nightmare). Now they have to broadcast all the channels that they do (let's call it 100 basic channels) and premium. Those channels still get broadcasted because everyone on a segment might have them. Add in the low volume channels via SDV at a very high price and voila...that is a LOT of work.
Now the right way to do it is to multicast EVERYTHING and use the cable as a gigantic IP pipe. Huge investment for that...and again just so their revenue will go down.
Heh, that's true. Channel tonnage has been such a huge deal ever since the satellite TV guys came on the scene oh so many years ago. Now we're hearing talk about how to break that down and boil them down to packages that can be swallowed no matter the size of one's wallet. Irony alert.
I think SDV can help msos deliver a greater number of packages because you're not broadcasting everything all the time, but they still need to get the programmers to agree to unbundle, which is not going to happen without a fight. Or maybe the FCC will have to step in and then we've got a really long messy road ahead.
But something's going to have to give and there's a reason why the MSOs are floating this out there them because their subscription TV base keeps eroding. At some point, when does it serve the cable operator's greater good if they lose some affiliate fees from some networks in exchange for a new an a al carte-esque regime that gives them more flexibilty on how they package their product and retain and maybe even gain some video subs? They try to justify their pricing based on the number of channels they're giving today, but that is still pricing out a lot of people or giving many enough reason to get out.
But I realize that still doesn't answer how they will be able to create more diverse packages that make sense for everyone -- the msos, programmers and the customers who are footing the bill. Without cooperation from the programmers, this seems more like wishful thinking by the msos at this point.
I like the idea of going all IP... and that idea's being discussed, but it's costly and long-term as seven points out becasue the biz case for some sort of quick fix is not there. JB
Good comments and questions throughout this string on the age-old issue of a la carte. The bottom line is: the costs and returns for both operators and programmers would suck.
But for me, here's a bigger question: do most consumers want to buy programming a la carte? The knee-jerk response is, sure, why wouldn't we? We can just buy what we want, it's so darn democratic. Choice is good, right?
Maybe not. Previous efforts by cable operators to sell networks in tiers by genre (sports, movies, kids, etc) met with more consumer confusion than enthusiasm. Efforts to sell an individual service as a "mini-pay" (euphemism for a la carte) or to market individual subscription VOD services proved difficult. It's also true that many popular networks never would have gotten discovered if they weren't automatically put on the TV dial.
Most MSOs offer you 3 TV packages to choose from, sort of like buying a car. Many car dealers offer 3 feature packages because the average consumer doesn't want to have to pick out each individual feature and get nickel and dimed for each one. Life's too short, just give us 3 options because that's about all our brains can handle (we usually pick the middle option).
The TWC no-ESPN package and Shaw's unbundling efforts are worth watching. I wish that a U.S. MSO would do a market test of full a la carte menu so we had more clues about consumer behavior.