Burying bundled model would hurt congloms
a la carte TV offering that would cost them far less than the $84 they pay for access to at least 91 channels on average. But the investment research firm’s math confirms long-held views by both content companies and MSOs that a la carte economics would dramatically hurt a business that is a major revenue driver to both industries. A likely scenario sketched out by RBC’s report envisioned the $34 billion content companies received in affiliate fees last year getting cut roughly in half if consumers could cherrypick channels. “All in all, we don’t think the industry (both pay-TV operators and programmers) have much to gain (if at all) from a financial perspective from providing the type of a la carte service the consumers want,” the report concludes. While respondents reported currently watching an average of just 14 channels in their current package, the average number of channels they would buy in an a la carte scenario was 19. With $1.50 the average amount they cited as worth paying per channel, 19 channels would return $28.50 to MSOs, or about a third of what they currently collect from bundled packages. Multiply $28.50 by 12 months across the existing 100 million subscriber base, and the total is $34 billion. But MSOs would have to hand over a portion of that to the programmers; if that revenue split was what it is currently estimated to be–approximately 50%–that would give programmers about half of what they current derive in affiliate fees. Then there’s the likelihood that at just 19 channels apiece, the 100 million subscriber base would drop precipitously, further reducing revenues. RBC estimates that at least half of operating profit for major content companies comes from the multichannel business, with the exception of CBS, which doesn’t have nearly as many networks as the likes of News Corp. or Disney. A la carte has been a hot potato in the cable industry for years, particularly when the FCC studied the prospect of making such an option mandatory for consumers as far back as 2004. Last year, Reuters reported that unspecified cable operators were considering instituting a la carte options, though nothing has come to pass. What MSOs are experimenting with is new lower-priced tiers. RBC puzzles over their limited market traction considering the price sensitivity among subscribers. “We are not quite sure why the consumer who supposedly wants an à la carte solution has not simply ‘traded down,’” the report notes. While the RBC survey doesn’t go so far as to ask consumers which networks they would buy if given an a la carte option, a 2010 survey from Needham & Co. found that the Big Four were the four most cited selections, followed by ESPN, Discovery Channel and History.