The changing landscape of the TV business

By Felix Salmon
December 30, 2009
Andrew Vanacore has a long and sometimes confusing overview of the state of play in the television industry, which concentrates on the possibility that one or more networks might convert into cable channels sooner or later. But there seem to be lacunae in the story -- not least the large number of cable channels which pay for the privilege of being featured in the cable-TV lineup, rather than being paid by the cable companies.

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Andrew Vanacore has a long and sometimes confusing overview of the state of play in the television industry, which concentrates on the possibility that one or more networks might convert into cable channels sooner or later. But there seem to be lacunae in the story — not least the large number of cable channels which pay for the privilege of being featured in the cable-TV lineup, rather than being paid by the cable companies.

Also missing is any indication of the effects of the move to digital broadcasting. Reader William Wang notes that this vastly increases both the quantity and the quality of free-to-air television stations, which, combined with Hulu and Boxee and YouTube and all the other free sources of TV, should put a lot of pressure on cable companies who have historically had local monopolies and the ability to raise their prices every year with impunity.

The networks are increasingly fighting with the cable operators, now that the likes of Rupert Murdoch have decided that network TV, just like newspapers, is something which should have more than one revenue stream. Now free-to-air digital broadcast TV does not, of, course, come with any kind of monthly subscription stream from a cable operator desperate to still be able to serve up American Idol to its loyal customers. But the networks still reach vastly more viewers than any cable channel, and so if they started adding their in-house cable channels, like Fox News, to the digital broadcast spectrum, they might be able to get a significant bump in viewership.

I still think that by far the best outcome for most constituencies would be a la carte pricing, where viewers — rather than cable companies — decide what’s worth paying for. Every television station on cable could then charge as much as it liked, with an eye to maximizing the sum of subscription revenues and advertising revenues. But what’s clear is that we’re moving to a world where the number of options is multiplying, and corporate strategy is going to get extremely complex extremely quickly.

The latest round of fights between producers and distributors smells like the dying gasp of a 20th-century TV business model to me, with essentially only two sides in the game. The consumer is left out in the cold, shivering as cable bills rise much faster than inflation. Pretty soon, the consumer is going to have a lot more power, and that’s going to change the game in profound and fundamental ways.

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Comments
11 comments so far

Many of my friends and I are already doing this. I can access shows through iTunes, Netflix and over-the-air. The computer is hooked up directly, everything is full-screen and controlled with a universal remote.

We canceled our cable subscription and are only paying for the shows that are worth watching. I estimate we’re saving about $70 a month even if we buy iTunes season passes to everything we’re used to watching.

Posted by bryanjbusch | Report as abusive

$70/month saved!? I don’t even spend that much to begin with. Sounds like you need to get out more.

Posted by bobSmith | Report as abusive

The cable companies need to start offering a la carte or just straight streaming access to channels. Why can’t charter or cox or whoever simply offer me the right to view ESPN at any time from their website. Or Comedy Central. Or whomever? This seems to be a very very simple option.

I have no reason to purchase cable ever. I watch ESPN a lot, I would watch Comedy Central, and perhaps Discovery Channel. I don’t want to pay for the rest of them. I won’t pay for the rest of them. The only group benefiting from my TV watching is the bar when I go in there to watch a baseball or football game.

Cable companies are going to be in as much trouble as land line companies. They can’t compete with Hulu, they have to offer a service better than Hulu, better Netflix, and better than espn360.

Posted by okobojicat | Report as abusive

Hey bryanjbusch, who provides your internet service?

Posted by voomies | Report as abusive

Given that some channels pay the cable carriers rather than vice versa, it’s very easy to show that a la carte pricing would result in higher prices for most consumers. In claiming that a la carte would make us better off, are you just ignoring that, or are you claiming that being able to choose our channels is worth the extra money?

Posted by nyetter | Report as abusive

nyetter, I wouldn’t be surprised if the total price of all channels bundled by cable providers were higher if they were offered a la carte. But I’d be quite willing to bet that most people only watch a fraction of the channels that are part of the bundle.

I think that between my wife and I, we’ve watched about 12 channels for any length of time over the past twelve months. I’d guess that this is more or less typical.

I also wouldn’t be surprised if the channels that you claim have to pay the cable companies for air time would not survive on their own in an a la carte environment. I’d also wager that most people would not miss them.

Posted by spectre855 | Report as abusive

Lacunae in the story of American broadcasting? I should say so. Here’s just a few to chew on…

How about the FCC originally permitting all those infernal commercial interruptions as the price TV viewers pay for getting the signal for free – and clear – in the first place? Missing in action, that one. How about the FCC rulings prohibiting audio compression up-ramping during commercial breaks, and about bandwidth squeezing in favor of most-advertised events such as Superbowels [sic], when all other channels get pushed to the margin of tolerable compression? Not a squeak about this to be heard. How about the public subsidy of a cable network, the use of which oligarchs then meter back at ludicrous rates to signal users? Not much talk about this on cable TV either, I’ll wager. How about the accounting “loss” cable providers are now bemoaning of ca. $1000 per head per annum whenever smart people stop booking globs of useless commercial channels and only use internet? That would imply the cable barons have been making out like bandits on every one of those channel bundles they try to stick you with.

And don’t even get me started on the wrongness of calling free use of public connectivity anything like “bandwidth theft” because it isn’t. It’s another logical lacuna. Signal transporters should neither be allowed to redefine the vocabulary of public communications debate, nor to declare it over until all their debts are settled.

Bundling of channels contravenes the Sherman Antitrust Act of 1890 so, in this regard, the business model that needs to go bye-bye here is not even 20th, but 19th Century in its rancidness. In more modern terms, bundling is an exact parallel of “slamming” by telcos – in fact, now it’s often being done by exactly the same people – so it should be a piece of cake to prosecute.

If only the FCC and PUC really did their jobs, wouldn’t the entertainment world be a better place? Indeed it would.

Let’s face it, to an almost sickening degree they’ve had a good run of ripping everybody off on a revoltingly faulty business premise. But now, since their contribution to content and quality amounts to a big fat goose-egg, it’s time to stop crooked signal transporters from ruling the entertainment roost.

Posted by HBC | Report as abusive

I used to work for Comcast, you couldn’t pay me enough to get cable again and I sure won’t give Fox or any channel $1. They’ve got to be nuts!!!

Posted by brianbigel | Report as abusive

If the ‘net neutrality’ stuff doesn’t get passed I wouldn’t be surprised if some cable operators essentially charge for hulu, boxee, and youtube. Once the TV part doesn’t pay the bills ISP service stops being a nice additional revenue stream and becomes the only revenue stream.

Posted by Zdneal | Report as abusive

If the ‘net neutrality’ stuff doesn’t get passed, all we’ll have is Comcast and AT&T as ISP’s and that hardly seems like an environment where “the consumer is going to have a lot more power”.

Posted by leoklein | Report as abusive

This is irrelevant to the content above, but I’m hopeful someone can answer my question. I’m doing a theoretical business plan for a school project over starting a cable network. Can anyone tell me the distribution process the company has to go through in order to air?

Posted by danMe | Report as abusive
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