Amidst all the news from Syria, Breaking Bad recaps, and for some reason, polarizing reaction to Miley Cyrus’s performance at the VMAs, the New York Times this week has been running a fascinating series of long form articles about ESPN’s dominance in sports programming. Today’s article focused on bundling, the practice of cable companies packaging multiple channels together under a single price. This has the effect of requiring cable customers to purchase channels they may not watch.
For example, a quick search in the tubes tells me that were I to purchase the Digital TV package from Time Warner Cable, I would get over 200 different channels. That sounds great. That’s quite a lot of choice. But included in that package are channels I would never, ever watch. Ranked from least watchable, to least least watchable, these would be the Golf Channel, QVC, MTV, and anything in Spanish or having to do with soccer. Inherently, this is an unfair system.
Cable customers are paying cable companies for access to channels they
don’t watch, and the cable companies are, in turn, sending some of that money to the channels in the form of licensing fees. Customers who don’t watch certain channels are subsidizing programming on these channels. In a situation that turns political and economic ideology on its head, we’re seeing what can best be described as free market socialism. Without government involvement, the marketplace has dictated redistributing funds from the individual to a corporation (in this case, a cable channel), when the corporation has provided as little as the OPTION to use its service.
The cable companies and channels are ecstatic with the arrangement, because everyone loves getting free money. Of course, when enough money gets involved, so do politicians. Ideas for requiring cable companies to offer à la carte services have been bouncing around Washington for years, but lobbying by the cable companies and channels has been pretty adept at keeping these ideas from becoming legislation.
On the surface, offering à la carte channels to customers, where they only pay for the channels they want, sounds like a great idea. Using legislation to achieve this goal does not, for the simple reason that such legislation seems like it would be rife with unintended consequences.
The New York Times article points out that ESPN, being so successful, receives over five dollars a month per customer in fees, bringing in billions of dollars a year for its parent company, Disney. In turn, it uses a lot of this money to secure rights for future programming from major sports leagues and the NCAA. If ESPN found its revenue from subscribers reduced to only people who specifically asked for ESPN, they would have much less money available to secure those programming rights, making the quality of its programming suffer. It’s not just ESPN. This would happen to all non-premium cable channels. AMC would have less money for producing shows like Mad Men and Breaking Bad. Instead of airing cheap reality shows that require actual staff, The History Channel would have to go back to airing cheaper documentaries that use stock footage and hastily cobbled together voiceovers. And SyFy…well, they’d still be able to find enough money in their couch cushions to pay the Asylum to keep making shitty movies. But the point is, in order to make up the difference in lost subscribers, fees would have to go up. Inversely, marginal channels, those that have small viewership but are part of larger packages, would probably have trouble staying in business.
The diversity in programming would suffer. It truly is a bizarre situation when the market creates its own form of subsidies that fosters diversity, and it would be government regulation that destroys that model of redistribution.
In the end, though, none of this may matter. Customers have been dropping cable at a steady clip. If there is an à la carte option out there, it’s the internet. Instead of buying access to an entire channel, people are making it clear they prefer access only to the shows they watch.
It’s disruption at its finest, and it’s clear the cable companies, channels, and legislators are arguing over a paradigm that is rushing quickly to obsolescence.
