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Here we'll explore the nexus of legal rulings, Capitol Hill policy-making, technical standards development, and technological innovation that creates -- and will recreate -- the networked world as we know it. Among the topics we'll touch on: intellectual property conflicts, technical architecture and innovation, the evolution of copyright, private vs. public interests in Net policy-making, lobbying and the law, and more.

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January 23, 2013

Is A La Carte Pricing for Television Economical?

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Posted by Alan Wexelblat

I've been interested for the past few months in the ongoing debates about TV pricing in the age of streaming services (Netflix, Hulu, Amazon, etc). Most of what I've been reading has argued in favor of a la carte pricing. That is, ditch the fat (expensive) bundle of cable channels you don't watch in favor of paying for what you want. If you're a history buff, get one set of things; if you like animal shows there are channels for that. Cooking, kids, nature, sports, etc - the cable content menu could be served like the YouTube content menu, more or less.

Well, maybe not, argues Skip Sauer in The Sports Economist. In particular, he notes that sports programming is a (the?) major driver of live television. Really, there's nothing else going out live that people care about in any significant numbers. This is true across broadcast, cable, and satellite. The problem is that the cost of sports programming is going up. Blame players or owners (or both) as you please but as salaries go up, so too do ticket prices and the costs to sports broadcasters.

If sports costs a lot more than everything else, then, the question is who is subsidizing what. If the (high) price of sports broadcasting is bundled in with the (lower) price of other broadcasting then it's not inherently clear whether the very large audiences for the sports content are paying more money than they otherwise might, and thus subsidizing the non-sports channels or whether those who don't care about sports but buy the cable bundles with sports in them are subsidizing the sports.

If you were to break the package apart, two things might happen. One is that the lower viewership for non-sports content might render the content uneconomical to produce. Two is that the high price of sports content might be considered too high and people would not want to pay that much for less content, causing a drop-off in viewership. Neither of these is in the interests of the content producers, so regardless of which scenario you think is likely it's easy to see why the content producers as well as the content providers would be in favor of bundling.

Sauer also points to a 2006 publication by GMU professor Thomas Hazlett (direct PDF link here) that argues consumer choice is respected in bundle/tier pricing and that a significant segment of consumers will opt for bundles when given the choice. The paper is lengthy (40 pages) and makes some assumptions I would contest. Also, I think the consumer climate has changed in the past 5-6 years with the rise of high-speed networking and mobile devices so its conclusions ought to be re-checked. However, it's still a solid piece of research and ought to give pause to a reflexive assumption that a la carte is always going to be better.

My guess is that we're going to continue to see a bifurcated world. Smaller-scale, less attractive content will continue to do well by pricing itself directly to its audience (see for example Pledgemusic) or using sponsorship-type models. Bigger and mass-market content, though, may continue to thrive in tiered/bundled pricing models, which will struggle to find their place and connect with their audiences in the 'Net world.

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