Cable Math
October 19, 2012 1 Comment
Derek Thompson with a nice piece on the economics of cable. From what I have known about it, it has always struck me that unbundling would not be a good deal. I suspect most people watch a lot more channels, at least some of the time, than they think they do:
Here’s the reality. If the cable bundle dissolves, buying the TV you love on-demand would probably be either much more expensive that you’d think … or much lower quality than you’d accept.
Let’s say for example that you just want to watch ESPN and otherwise be left alone. Right now, you pay $80 to cable every month, which passes along $5 to ESPN (per its agreement with its media company, Disney). So ESPN alone would cost $5 a month, right? That’s not so bad.
But wait. Remember, ESPN isn’t just getting $5 from every household that wants to watch it. It’s also getting $5 per from the millions of TV-watching households who don’t care for sports and just happen to have ESPN because they have cable. In our post-cable future, you might have to pay $10 a month to make up for all the households who choose to stop subsidizing your SportsCenter habit.
And we’re not finished yet. Most of ESPN’s revenue comes from advertising. Once you remove the tens of millions of homes who glance at ESPN every so often since it’s on the bundle, ratings will fall and ad revenue will follow. So now, ESPN Watcher, the price you have to pay to watch the same network you love has to cover all those lost homes and all that lost advertising. And that’s before we get into paying the cost of delivering the video in high quality to your HDTV or iPad, since it’s hardly cheap to house and stream hi-def to tens of millions of homes.
Upshot: If you were hoping that on-demand television could be as cheap as Netflix, consider that back of the envelope math would suggest ESPN would be significantly more expensive that Netflix, per month, on its own.
Yowza. I certainly hope it doesn’t come to that. Yeah, I pay a lot now for cable, but as ABC used to say, “TV is Good.”
About Steve Greene
Or maybe … ESPN has to give up some of its money.
I always hate these “the company will be forced to pass on these increases to the customer” lines of argument. They at least should always be accompanied by “or the company can just make less money.”
In a free market, ESPN doesn’t dictate to the customer; there is an equilibrium.
(And I say this as a sports fan who doesn’t want to lose ESPN.)