Thursday, May 30, 2013

How Can We Reduce Cable Bills? Unbundle Sports

Tim Berners-Lee is mostly right here. Pure a la carte cable pricing wouldn't drastically reduce cable bills. The rise in cable prices is due mostly to affiliate fees, which go mostly to the sports channels. Affiliate fees are collected on a per-subscriber basis, which is why there are frequently contentious negotiations between cable operators and content providers, along with constant nagging to "call your cable operator and ask them to add the Underwater Field Hockey Network". It's also why we've seen an explosion in sports channels in the last few years, as all of the major broadcast networks, some college sports conferences, and even individual sports teams have launched their own cable networks. These organizations are behaving perfectly rationally, given the seemingly insatiable demand for sports programming and the increased relevance of sports to live TV delivery, as more and more viewing moves to DVRs and IP-based delivery mechanisms. This is a pure money grab by the sports channels, but under the circumstances, why should the Pac-12 or the LA Dodgers let ESPN capture all the surplus from the popularity of their programming?

These changes are worst for the consumers who watch only a modest amount of sports programming, or who watch channels that are bundled only with the sports-level tier. We could go a long way towards improving cable by requiring cable companies to put all sports channels on an entirely separate package. A second step would be to require a la carte pricing only for sports channels, though that might lead to lots of arguments about which channels are truly "sports" channels. Is SpeedTV a sports channel? Is the Golf Channel if it only carries live golf for two days a week for half the year?


Greg Hao said...

As someone who only use cable to watch sport (my other consumption are a combination of netflix and BBC documentaries), it irks me that I'm paying well over $100 a month for non sporting programming yet I do so because it is pretty much the only type of programming that's non time-shiftable. And living as I do in the suburbs, it's a pain in the ass to get down to a bar just to watch a game.

JN said...

The problem seems to be people don't value what they watch for $100+/month. That's fair, I guess. But TV shows are pretty time insensitive programs and it's easy and cheap to stream shows a day/week later if someone doesn't value cable at $100+. The problem is people actually value the ability to turn on Food Network or USA or channel surf for something interesting whenever they want.

This idea also seems like a huge subsidy to channels on regular basic tiers (TBS, TNT, FX, etc.) which anyone subscribing to this sports tier would certainly have to subscribe to as a prerequisite for the sport tier. It's basically like telling the sports watchers they have to subsidize everyone else, without being subsidized in turn. That's the beauty of the system now; you get what you want to pay for and if you don't value what you watch at $100+/month, you find a different way to get what you want.

Greg Hao said...

Right, the real winners are the basic cable channels.

BruceMcF said...

If Sports was truly unbundled, then, no, it wouldn't subsidize whatever is on the Basic tier ... true unbundling would have a Sport's Basic and an Everything Else basic, and you could choose one, the other, or both.

Greg Hao said...

@BruceMcF - ya, but for all of the reasons we're talking about here, it is only in the interest of the consumer for there to be a la carte/unbundling. Therefore, it's not going to happen.

Nick Beaudrot said...

Actually I was looking at this in the reverse direction ... the reason to unbundle sports is to benefit non-sports or occasional-sports watchers.

In a lot of markets there are four packages available.

* The minimalist package required by law
* a slightly less minimalist package with a decent number of non-sports channels plus either no sports or just ESPN and maybe your local Fox Sports affiliate
* the package everyone actually has, which includes ESPN, ESPN2, the NFL Network, MLB Network, and all the other lesser sports channels, AND is the package you have to get if you want to watch some of the more prominent cable stations (Food Network, A&E, Bravo, sometimes Comedy Central, etc.)
* the all you can eat package that includes all of the HBO-style premium channels.

The Package Everyone Has has cross-subsidization in both ways. Sports households who would otherwise cut the cord are cross-subsidizing basic cable. But people who want to watch first run Mad Men or reality TV or The Daily Show but don't care about sports are cross-subsidizing sports. Except that in one direction the money goes to the cable operator, while in the other it goes to the sports network provider.

In some markets Comcast already has fifth "everything-but-sports" package that's pretty cheap. But, the package is not available in all markets. If we required sports programming to be unbundled, that package would be available everywhere. Both groups would do less overspending on TV service.

Greg Hao said...

Nick, everything you say is all well and good but part of the problem is that in many markets, cable companies are de facto monopolies.

For example, I live in Irvine, CA and where I live, I am limited to: cox cable and um, that's it. Ya, I could go with DirectTV or Dish but I am not able to get Verizon, Time Warner, Charter, or whomever else. And if I want high speed internet access, I am limited to just Cox. (Yes, I don't count DSL as a compelling alternative to the cable modem.) You are right that there is cross subsidization going on at every level and that's fine as far as it goes but the real issue is the lack of real competition for cable. If you're primarily a consumer of live sports.

Nick Beaudrot said...

Right, since there is very little competition, this has to be done by regulatory fiat. You mandate that sports channels and non-sports channels be completely separate. You can't make someone get the Food Network because they want to watch the NFL Network, and you can't make someone get ESPN 2 because they want to watch HGTV. Other than that, providers can do whatever they want.

Greg Hao said...

I agree with you on the solution, I guess I'm just much more pessimistic about the prospects of it ever happening.

James Surowiecki also wrote a few years ago that unbundling may not be the utopia that people like us think it may be: