I've been thinking a lot about a la carte cable of late. (Yes, I'm really a dork). I planned on writing about a la carte last year around Thanksgiving when I started doing research on the issue. Since that time I've read quite a few different business analyses of what would happen to cable and satellite subscriptions if consumers could choose their own cable packages on a channel by channel basis as opposed to buying bundles.
In particular I've been focused on whether a la carte -- the idea that you should be able to select your own cable channels rather than buy a bundle offered by a cable or satellite company -- would be a good deal for sports television consumers.
In theory, a la carte makes sense -- you should be able to buy the stations you watch and not pay for the stations you don't watch, right? It sounds more democratic, giving consumers more control over their spending habits and eliminating needless purchases. That's the idea behind a bill recently introduced by Senator John McCain. McCain and other a la carte supporters believe that consumers will be better served by this option. It makes sense in theory, especially since according to a recent detailed study of cable viewing habits, most of us watch about 16 stations regularly.
Wouldn't it be cheaper for us to just buy those sixteen stations and not have to pay for the other 108 stations on our cable packages? (The average cable or satellite subscriber now has 124 stations and pays around $70 a month for that package.)
The answer may surprise you if you're a sports fan.
So let's dive into the a la carte vs. cable bundle debate.
Let's begin with a few preliminary data points.
First, every cable channel has a set cost. Your individual cable and satellite operators negotiate different fees, but it still shocks me that your average consumer isn't aware that each channel has a set cost. We all know that premium channels like HBO, Showtime or Cinemax have fixed costs, but most cable or satellite subscribers have no idea that ESPN is the most expensive channel on cable, costing nearly $6 a month. This means that every single person with a cable or satellite subscription is paying nearly $70 a year for ESPN.
Many channels cost virtually nothing at all a month.
For instance, AMC, home of great shows such as "Mad Men," "Walking Dead," and "Breaking Bad," costs an average of just .27 cents a month. So you and I pay just over three dollars an entire year for that station. That seems like a pretty outstanding deal. But considering less than three million households a week are watching "Mad Men," the other 97 million cable households are subsidizing this programming. The same is true for all other entertainment on television, relatively small audiences watch the shows, but we all pay for the programming content. Indeed, the easiest way to understand a cable channel bundle is that everyone -- and there are roughly 100 million of us subscribing to cable or satellite in the country -- is subsidizing the cost of stations we don't actually watch to keep the stations we actually watch more affordable.
In all, we Americans pay about $7 billion a month in cable and satellite fees. That's around $84 billion a year for cable or satellite subscriptions.
The result is a massive variety of entertainment programming that appeals to different niche audiences.
It's fair to say there has never been more popular entertainment being produced in the history of the world than on cable and satellite television today.
If you want to read a more detailed explanation of this cable business model, I'd send you to this "The Atlantic" article here.
The biggest winners in the bundling era?
Sports fans.
Thanks to the subsidy from non-sports watching viewers, sports fans actually come out ahead in the overall cost structure.
How so?
Non-sports fans are subsidizing our sports viewing -- which now accounts for nearly 40% of the overall cable bill -- while we're subsidizing lower cost programming for non-sports fans.
Basically, if you're a sports fan, you're getting a pretty good deal.
Especially if you consider what sports fans would have to pay for programming in a non a la carte era.
Below is a chart that the Atlantic reproduced from a recent research paper prepared by Needham research.
What would ESPN cost in an a la carte era?
Essentially, if we were required to make up for all the non-sports fans who are subsidizing our sports programming and wouldn't otherwise purchase the channels how much would we pay?
According to a recent report from a Needham analyst, $30 a month. Or more than five times what ESPN presently costs. (Other reports have varied on the cost, ranging from $20-$30 a month. Regardless, there's no doubt that ESPN - and all sports networks -- would have to drastically increase their costs to make up for the sudden revenue shortfall from much fewer subscribers. Because ESPN can't really reduce it's cost structure that much. Most of ESPN's rights deals have a decade or more left at the current prices.).
Instead of receiving ESPN for $70 or so dollars a year, according to Needham's analysis you'd be paying $360.
And that's just for ESPN. ESPN2, ESPN News, and ESPN Classic would set you back another $85 or so.
So you're talking about $445 a year just for your ESPN channels. That's around $37 a month just for ESPN and its less popular subsidiaries. But that's not all. You know all those sports channels you receive on your regional sports networks to watch your favorite teams -- the Fox Sports regionals, the regional networks that exist to carry your favorite pro teams, the Pac 12 Network, the Big Ten Network, the SEC Network? Roll in the TNT and TBS's of the world -- you want the NBA and the NCAA tournament, right? -- and just sports channels standing alone would cost you over $100 a month.
That's much more than the average consumer pays for his or her entire cable bill right now.
What if you're like me and have a family with diverse viewing habits? I've got two boys under the age of five who watch their favorite channels. And then I've got a wife who is in love with Bravo. I've got to have the sports stations in my household for me, but my kids have to have Nickelodeon and the Disney Channel and Sprout and Animal Planet and the list keeps growing. My wife has her list of favorite channels too, stations that I never watch. Then we have stations like AMC or CNN that we watch together.
So maybe a household like mine can eliminate half of the stations on our current cable package.
But we're still paying for an average of 16 channels per person. My house would probably pick fifty or more stations if we had an a la carte option.
And those fifty stations would cost me much more money than my existing cable package does.
My point?
A la carte television is a really, really bad deal for sports fans.
If you think your cable or satellite deal is expensive now, wait until you have to pay what sports programming actually costs when only sports fans are paying for it. Because the more I've examined these details the more I've come full circle in many respects on this issue. Two years ago I was in favor of a la carte because I believed that the individual should be given the choice to pick the programming he or she so desired.
But when you actually dive into the numbers sports fans will end up paying more and probably receive less games under an a la carte model.
Now you can reasonably criticize the sports rightsholders -- both teams and networks -- for building a business model that's predicated on a large percentage of people paying for their product without ever watching it. That's a form of taxation. But, guess what, it's the same model that every cable station has followed. The result has been the best television ever created. No matter who you are, there's something you love watching on television.
How many of you watch Lifetime? The Oprah Network?
All of those stations have more resources to create compelling programming for their audiences because sports fans are buying those stations too.
The end result is that these bundles end up costing sports fan less, while delivering more entertainment options to everyone, than any individual channel selection I could make on my own.
Put simply, if you like sports, a la carte television is a really, really bad option for you.
You'll end up paying more for less programming.
And it isn't just sports that will suffer in a la carte programming, it's every cable station in the country.
