A la carte would decimate the pay TV industry, resulting in loss of $70 billion in revenue, Wall Street analyst warns again
If pay TV providers were forced to sell channels a la carte, retail prices would skyrocket — with ESPN costing in the ballpark of $30 monthly — and the industry overall would lose half its revenue, or $70 billion, according to one Wall Street analyst.
Cable and satellite companies and their programming suppliers have for years fought a la carte, warning that it would only result in higher prices and fewer choices. Needham & Co. analyst Laura Martin, who subscribes to the same school of thought, weighed in on the topic again in a research note Monday.
“We can find no math where unbundling is the best economic answer,” she wrote. Martin cited declines in the value of newspaper and music industries, which have been disrupted by Internet distribution models, for her analysis.
According to Martin, only about 20 cable channels would survive in an a la carte world. Industry execs have repeatedly raised the specter of niche-oriented and minority-targeted channels becoming unsustainable in such a marketplace.
With a la carte, ESPN’s audience would shrink by about one-fifth, to 20 million “super fan” homes, and the cost of the network would rise to $30 monthly because ESPN would need to recoup lost subscriber fees and ad revenue, according to Martin.
In a statement ESPN said, “The report underscores what economic studies have said time and time again — that the cable package presents an undeniable value and the consumer would pay more and get less with a la carte.”
As a political issue, a la carte TV plays to a populist base — appealing to consumers’ feeling that they should pay for only what they want, and nothing more. Sen. John McCain (R-Ariz.) in May introduced a bill that would require cable and satellite TV to offer channels on an a la carte basis; however, the legislation has no cosponsors and is not expected to make headway.
McCain and other advocates of a la carte say bundled channel pricing forces people who aren’t interested in certain kinds of programming to subsidize it — as in the case of relatively expensive channels like ESPN and regional sports networks.
At a Senate subcommittee hearing in May, National Cable & Telecommunications Assn. chief Michael Powell argued that government-mandated a la carte would be highly disruptive to the industry and would be unlikely to benefit consumers.
“It’s a very serious question mark whether consumers would have lower bills or cheaper service as a result of a la carte,” he said, citing past studies including one by the Federal Communications Commission in 2004.