OttoinGrotto
2023-24 Iggy Award Most 3 Pointers Made
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OT: From Adweek - A la Carte Is the Worst Idea Anyone Has Ever Had
- Thread starter SUinNYC
- Start date
Nobody is paying for anything that they don't want right now. They are paying for what they want and getting the rest for free. It's all weighted averages that are compiled through industry research. From a cable provider's standpoint, the advantage to grouping channels into a tier is that, if it is done right, it alters the elasticity of the combined channels in a way favorable to the cable company.
Illustration of statement one:
IF:
Person 1 values Channel A at $10 and Channel B at $0
Person 2 values Channel A at $10 and Channel B at $0
Person 3 values Channel A at $0 and Channel B at $10
and those are the only 3 people in the market
THEN:
Channel A's carriage rate will be $6.67 ($20 total)
Channel B's carriage rate will be $3.33 ($10 total)
and customer subscription rates will be $10.00 ($30 total)
*Person 1 will pay $10 and get Channel A for a price that he is willing to pay to get it, and Channel B for free
*Person 2 will pay $10 and get Channel A for a price that he is willing to pay to get it, and Channel B for free
*Person 3 will get Channel A for free, and pay a price that he is willing to pay to get Channel B
Illustration for statement two:
THE FUTURE
When separate: (a la carte)
Person 1 will pay $3 for Channel A and $5 for Channel B
Person 2 will pay $3 for Channel A and $5 for Channel B
Person 3 will pay $5 for Channel A and $3 for Channel B
When sold separately, a cable company will charge $3 for access to Channel A and $5 for Channel B. They will make $9 off of Channel A via 2 willing subscribers and they will make $10 off of Channel B via 2 willing subscribers. That's a total of $19 between the two channels.
THE PRESENT
When grouped: (bundled)
Person 1 will pay $8 for the bundle of Channel A+B ($3+$5=$8)
Person 2 will pay $8 for the bundle of Channel A+B ($3+$5=$8)
Person 3 will pay $8 for the bundle of Channel A+B ($5+$3=$8)
When bundled, the cable company will charge $8 for the bundle and sell it to 3 willing customers. That leads to $24 in revenue, which is $5 more than if sold separately.
END CONCLUSION
A la carte will lead to higher nominal costs for individual channels because it does away with our current system of weighted averages. However, the current system is merely an illusion. Nobody is actually paying for channels that they do not want. For every channel that a customer is "overpaying" to receive, there is a balancing channel where they are underpaying. This economic force is illustrated by the fact that once a la carte ends, the price for individual channels will go up. The charade of weighted averages will end. That's the bad news, but fret not. The good news more than outweighs the bad news. When done right, the current model of bundling is far more efficient at extracting value from customers than an a la carte model. That means that if a la carte were to become a reality, cable companies would become less efficient at taking money out of their customer's pockets. In other words, your cable bills will all go down.
The author wrote about statement one and to that extent he is correct. However, he completely missed statement two, so his end premise is in left field. I'm guessing that he is either a really bad journalist, or, more likely, he doesn't really understand what he is talking about. Unfortunately, the people who write about this kind of stuff rarely have degrees in business and/or economics, and this is one area where formal training in both fields is very handy.
P.S. My numbers for statement two are very cherry-picked in that it will not work for all numbers. However, since the cable companies can pick what channels they are grouping together, they get to cherry pick their channels. And since I can assure you that the cable companies don't group channels randomly, cherry-picking doesn't lead to an inaccurate explanation of the forces at play in the real world.
Illustration of statement one:
IF:
Person 1 values Channel A at $10 and Channel B at $0
Person 2 values Channel A at $10 and Channel B at $0
Person 3 values Channel A at $0 and Channel B at $10
and those are the only 3 people in the market
THEN:
Channel A's carriage rate will be $6.67 ($20 total)
Channel B's carriage rate will be $3.33 ($10 total)
and customer subscription rates will be $10.00 ($30 total)
*Person 1 will pay $10 and get Channel A for a price that he is willing to pay to get it, and Channel B for free
*Person 2 will pay $10 and get Channel A for a price that he is willing to pay to get it, and Channel B for free
*Person 3 will get Channel A for free, and pay a price that he is willing to pay to get Channel B
Illustration for statement two:
THE FUTURE
When separate: (a la carte)
Person 1 will pay $3 for Channel A and $5 for Channel B
Person 2 will pay $3 for Channel A and $5 for Channel B
Person 3 will pay $5 for Channel A and $3 for Channel B
When sold separately, a cable company will charge $3 for access to Channel A and $5 for Channel B. They will make $9 off of Channel A via 2 willing subscribers and they will make $10 off of Channel B via 2 willing subscribers. That's a total of $19 between the two channels.
THE PRESENT
When grouped: (bundled)
Person 1 will pay $8 for the bundle of Channel A+B ($3+$5=$8)
Person 2 will pay $8 for the bundle of Channel A+B ($3+$5=$8)
Person 3 will pay $8 for the bundle of Channel A+B ($5+$3=$8)
When bundled, the cable company will charge $8 for the bundle and sell it to 3 willing customers. That leads to $24 in revenue, which is $5 more than if sold separately.
END CONCLUSION
A la carte will lead to higher nominal costs for individual channels because it does away with our current system of weighted averages. However, the current system is merely an illusion. Nobody is actually paying for channels that they do not want. For every channel that a customer is "overpaying" to receive, there is a balancing channel where they are underpaying. This economic force is illustrated by the fact that once a la carte ends, the price for individual channels will go up. The charade of weighted averages will end. That's the bad news, but fret not. The good news more than outweighs the bad news. When done right, the current model of bundling is far more efficient at extracting value from customers than an a la carte model. That means that if a la carte were to become a reality, cable companies would become less efficient at taking money out of their customer's pockets. In other words, your cable bills will all go down.
The author wrote about statement one and to that extent he is correct. However, he completely missed statement two, so his end premise is in left field. I'm guessing that he is either a really bad journalist, or, more likely, he doesn't really understand what he is talking about. Unfortunately, the people who write about this kind of stuff rarely have degrees in business and/or economics, and this is one area where formal training in both fields is very handy.
P.S. My numbers for statement two are very cherry-picked in that it will not work for all numbers. However, since the cable companies can pick what channels they are grouping together, they get to cherry pick their channels. And since I can assure you that the cable companies don't group channels randomly, cherry-picking doesn't lead to an inaccurate explanation of the forces at play in the real world.
Assuming that the cable companies are competent and have cherry-picked the right channels to be in the right group, then you are wrong. You belief is very common, but it you look at my above post, you will see that if someone who knows what they're doing and has good information, they can group channels in such as way as to extract value from customers in a more efficient way.
Some of that added value would then be split amongst all the channels in the tier roughly based on the extent that they caused customers to decide to purchase the tier. Most simply, but not necessarily most accurately, this can be done with weighted averages. Similarly, tiers can be grouped together to extract value even more efficiently. That's why you have to have basic to get premium tiers. However, that gets extremely complicated extremely quickly and I would rather not go through the burden of explaining an entire system when we are talking about one fragment of the system. That said, if you really care, let me know and I will email you an excel document that illustrates how it works.
This is more aimed at other readers, but for anyone that doesn't believe me, ask yourself "why do the cable companies go though all the effort of bundling?" If a la carte would cause prices to increase, wouldn't that make them more money? If so, why don't they switch?
I want to clarify: my examples in the post that's two up are only illustrations. In real life, cable companies don't have data for every individual in a market. They have generic data instead. Their data might be something like:
"*We are 95% sure that the market size is W million people, plus or minus X million
*We are 95% sure that males 18-24 make up Y% of the market, plus or minus Z%
*We are 95% sure that A% of males are single and/or the sole household decision maker when purchasing cable, plus or minus B%
*We are 95% sure that the average male that's between 18-24 will pay is $A (plus or minus $B), the median is $C (plus or minus $D), the standard deviation is E (plus or minus ), and the yearly drift is G (plus or minus H)"
They would then sub in a number for males who were the decision maker when buying cable and calculate the number of people who would buy at that given price and fill in that data where I have "Person 1." They would then do similar calculations with a number of other demographic groups (i.e. females 18-24 who were the sole decision makers) until they had a substantially complete picture of what's going on. They can determine this information through a variety of methods, including experimental markets and multiple regression analysis, customers surveys, "gut feelings" (which may or may not be accurate), and so on, depending on how much time and money they are willing to invest into an industry analysis. On a micro level, you individually, it isn't necessarily accurate, but on a macro level, such as your group as a whole, it can be VERY accurate.
In other words, the problem of not being omniscient can be solved with industry analysis techniques, probability curves, and a working knowledge of statistics.
Anyway, all that is beyond the scope of the conversation and really, really hard to explain over a message board. I only brought it up before someone challenged me on the fact that the people negotiating the contracts and determining the prices aren't omniscient.
"*We are 95% sure that the market size is W million people, plus or minus X million
*We are 95% sure that males 18-24 make up Y% of the market, plus or minus Z%
*We are 95% sure that A% of males are single and/or the sole household decision maker when purchasing cable, plus or minus B%
*We are 95% sure that the average male that's between 18-24 will pay is $A (plus or minus $B), the median is $C (plus or minus $D), the standard deviation is E (plus or minus ), and the yearly drift is G (plus or minus H)"
They would then sub in a number for males who were the decision maker when buying cable and calculate the number of people who would buy at that given price and fill in that data where I have "Person 1." They would then do similar calculations with a number of other demographic groups (i.e. females 18-24 who were the sole decision makers) until they had a substantially complete picture of what's going on. They can determine this information through a variety of methods, including experimental markets and multiple regression analysis, customers surveys, "gut feelings" (which may or may not be accurate), and so on, depending on how much time and money they are willing to invest into an industry analysis. On a micro level, you individually, it isn't necessarily accurate, but on a macro level, such as your group as a whole, it can be VERY accurate.
In other words, the problem of not being omniscient can be solved with industry analysis techniques, probability curves, and a working knowledge of statistics.
Anyway, all that is beyond the scope of the conversation and really, really hard to explain over a message board. I only brought it up before someone challenged me on the fact that the people negotiating the contracts and determining the prices aren't omniscient.
DNABB5
2019-20 Iggy Co-Winner Leading Frosh Scorer
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Cable is so 1997.
You won't just see per channel ala carte, but per show, and those shows will be internet access only. Cable is D E A D folks. Over finished gone done out.
It is like they were diagnosed with pancreatic cancer (my apologies to anyone offended but I am just illustrating a point) They might be around a while, but they will be in pain and nothing will change the inevitable.
Everything is changing. Some Youtube channels are making people MILLIONS in ad revenue. This is where we are going. Online only consumption. Smart TVs play you tube directly now. why do you think that is?
And to throw something else out there, has anyone seen 4k TV yet? Un-freakin-beleivable
Now, go ahead and say well only big studios can afford the equipment to shoot for those, and that is right up my current alley. Make it down, you are going to see 4k youtube channels within 2 years.
http://store.sony.com/webapp/wcs/st...g-c&k_id=497a9426-0d27-a149-eb76-000049a29ac4
HD is so 2004.
So my point is, just like newspapers, cable TV is in it's death throws, it might last another 10 years, but as we have seen with Syracusedot com and the Post-Standard, the content will continue to deteriorate
You won't just see per channel ala carte, but per show, and those shows will be internet access only. Cable is D E A D folks. Over finished gone done out.
It is like they were diagnosed with pancreatic cancer (my apologies to anyone offended but I am just illustrating a point) They might be around a while, but they will be in pain and nothing will change the inevitable.
Everything is changing. Some Youtube channels are making people MILLIONS in ad revenue. This is where we are going. Online only consumption. Smart TVs play you tube directly now. why do you think that is?
And to throw something else out there, has anyone seen 4k TV yet? Un-freakin-beleivable
Now, go ahead and say well only big studios can afford the equipment to shoot for those, and that is right up my current alley. Make it down, you are going to see 4k youtube channels within 2 years.
http://store.sony.com/webapp/wcs/st...g-c&k_id=497a9426-0d27-a149-eb76-000049a29ac4
HD is so 2004.
So my point is, just like newspapers, cable TV is in it's death throws, it might last another 10 years, but as we have seen with Syracusedot com and the Post-Standard, the content will continue to deteriorate
Townie72
All American
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Not sure you have thought this true. Because Fox News has so many watchers, its average cost will be low. Because CNN has so few, its price will go up.
Since you won't be watching Fox or "Faux" what it costs shouldn't bother you. But your favorites will cost more and will probably even lose more subscribers leaving you to watch Rachel Maddow babble on in front of an even smaller audience paying a huge premium for the privilege.
sutomcat
No recent Cali or Iggy awards; Mr Irrelevant
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I disagree. People are paying for what they don't want right now. I know this because I am one of them. I know this because everyone I know is unhappy about cable TV and the way it is set up. If say, you want the B1G network, you are forced with TW to buy a premium sports package that includes a bunch of other channels you probably won't want (ones my friends don't want). The options customers have been given for buying cable are extremely limited and are clearly being designed for the benefit of the cable companies and their partners providing the content.
This is why people are dropping cable and getting their content from the Internet. When you get content on the Internet, it is ala carte. Ala carte is here and has been for years. The content available continues to grow steadily, the market for it continues to grow steadily and I think it should be clear to everyone that this isn't going to go away.
If I produce top quality content, and I can distribute it on the Internet and cut out the middle men (cable TV companies), why in the world wouldn't I do it?
People like Louis CK are doing this now, and so are the major TV networks, even the premium content channels.
I fail to see how eliminating the middle men in the distribution process is going to cost consumers more money in the end. Cable TV will still be around for a long time. There are people who don't use the Internet, don't like it, hate computers, etc. They will continue to subscribe but I think the competition the cable and satellite companies experience from Internet based distribution of content will put pressure on them to lower prices and give their customers more choices and control over what they are getting and paying for.
Some channels/networks will die as a result. Some will change and survive. Some new ones will emerge. I don't care if I get the content I want from a cable TV company or directly from the Internet, as long as I am not forced to pay for content I don't want. I think the majority of the country agrees. Hence the dramatic changes we are seeing with with cable TV subscriptions.
zibby
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I haven't thought it through? Really? It makes sense to you that I have to give money to the Right Wing Noise Machine in order to watch sports? It makes sense to you that -ing Time Warner puts Faux News and Faux Business Channel both in HD on basic cable but made me pay extra to watch Current in Standard Definition...and then just suddenly took it away on a whim? You clearly don't mind having corporations telling you what to think, but I don't -ing like it.
Maybe if we had a la carte years ago, I could have gotten the NFL Network instead of having to wait years for -ing Time Warner to get around to giving it to us. I actually had NFL Network when the cable system was controlled by Adelphia. But then -ing Time Warner takes over and I can't have the NFL Network anymore? That makes sense to you?
this is entire BS system. It's anti-competitive and anti-consumer.
Scooch
Living Legend
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Words matter. "Cable", as you used it, is a meaningless term.
Talk about business models or distribution systems.
I think that you misunderstand what you are paying for. Unless you are irrational, you aren't paying for anything that you don't want. If you are a misguided soul interested in accessing the single most boring sports channel ever assembled (the B1G) and it's packaged with a bunch of stuff that you don't want, then, assuming that you aren't irrational, you simply wouldn't buy the channel/package if the package price was in excess of the value of the utility that having access to the B1G brings you. The other channels that you don't care about don't factor into your decision-making process. You are really buying the B1G and getting the other channels for free or not buying the B1G. That's it. You aren't paying for ANYTHING that you don't want.
Bundling channels together (creating tiers) and then bundling tiers (requiring basic for a "premium" tier) is just a more efficient way of extracting value from customers. It doesn't make you "over pay" for any channels. It just makes you pay closer to your limit than you otherwise would. People are jumping to the internet, because it is mostly a la carte (but that could very well change) and a la carte is a less efficient way of extracting value. That means it's cheaper. Look at my numbers. They prove the point.
If content providers are smart, they will bundle on the internet. Internet bundling can be done by providing content on a site that requires a subscription and then grouping that subscription cost with other similar sites. For example, FOX, CBS Sports, ESPN (+ABC Sports) might all offer streaming sports content on their site and make "all those sites accessible for one 'low' price!" They would make much more money that way. Or at the very least, companies like ESPN+ABC (Disney) will stratify content and bundle it together. The p*rn industry has been doing that for years on the internet and they make BANK.
people also forget the internet is somewhat cheap now and people still complain about the cost.. a large number have limited choice.. so TW charges less for cable because they get some back on the internet side.. when tv goes more to the internet guess whose rates will go up to cover the loss in cable income.
people who dont watch more than 4-5 channels like many here claim are really forgetting what they really watch.. you watch ESPN and thats really 5 channels, so you dont watch any baseball, you dont watch fox/cbs for football , games are on about a dozen different channels now. you can stream network shows, but that will go away when the model changes and they lose Ad revenue.. you can stream lots of shows because of the income coming from Cable. The only thing that will change is 50% of the marginal channels will be hurting. In the long run 10% of the people will save money watching a few channels. if you have a family of 4-5 you will probably end up paying the same and get 20-30 channels instead of the 200 you get now and you will miss out of ever seeing some shows because you cant surf to what you dont have.
people who dont watch more than 4-5 channels like many here claim are really forgetting what they really watch.. you watch ESPN and thats really 5 channels, so you dont watch any baseball, you dont watch fox/cbs for football , games are on about a dozen different channels now. you can stream network shows, but that will go away when the model changes and they lose Ad revenue.. you can stream lots of shows because of the income coming from Cable. The only thing that will change is 50% of the marginal channels will be hurting. In the long run 10% of the people will save money watching a few channels. if you have a family of 4-5 you will probably end up paying the same and get 20-30 channels instead of the 200 you get now and you will miss out of ever seeing some shows because you cant surf to what you dont have.
Toga
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Just posted this as its own thread since I couldn't find this one. Sony-Viacom about to strike deal.
http://www.nytimes.com/2013/08/16/b...reach-tentative-internet-tv-deal.html?hp&_r=0
http://www.nytimes.com/2013/08/16/b...reach-tentative-internet-tv-deal.html?hp&_r=0
WickedOrange
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If it's any consolation, you probably don't [EDIT: have to give money to "the Right Wing Noise Machine"]. Assuming that you fall into a demographic that isn't interested in paying for FOX, which it sounds like you do, your money isn't going to FOX News. Somewhere down the line of negotiations, someone did a market study and determined the number of people who want FOX News and how much they're willing to pay for it. FOX News' carriage rate is roughly based off that number. Assuming that your demographic was accurately accounted for in that study, then you can sleep well at night knowing that you aren't supporting FOX News.
Don't get me wrong. You have access to FOX based on your current package and FOX determines its payout based on all subscribers who have access to its channel. However, the rate negotiated between FOX and the cable company is what varies based on interest. It only looks like your money goes to Fox when it actually doesn't.
EXAMPLE: Assume that 40% of people will pay $1.00 for CNN and the remaining 60% will pay $1.00 for FOX, every customer might be charged $1.00 and 40% would go to CNN and 60% would go to FOX. At the end of the day, if there are 100 customers, there would be $100 of revenue 40% would go to CNN ($40) and 60% would go to FOX ($60). If they weren't linked together, 40% of people (40 people) would pay $1.00 for CNN ($40) and 60% of people (60 people) would pay $1.00 for FOX ($60). It ends up being the same.
my two favorite channels I watch other than a few sports channels are the Military and History 2 which I am forced to pick up another 55 channels to get those two in the tier packages. I really don't watch much t.v. but I basically have to order 205+ channels just to get the few I like.
So yes, I am paying for a lot of channels that I never watch
SWC75
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SWC75
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Phillymoose
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ok. Internet Protocol is ubiquitous. Proprietary networks are ridiculous. The cost of distribution is dropping with each passing day, so the distribution middlemen, traditionally content aggregators and proprietary network owners, have shifted to becoming real estate agents relying on content exclusivity.
So the original point - 'cable' stands for those intermediaries, and they are dead meat - and they know it.
The future is simply getting what you want, when you want it. If you know you are going to want something in advance, you can pay for a lot of it, in which case the provider provides a discount in exchange for revenue assurance. (e.g. NFL Sunday ticket type package) And providers can certainly get together and package 'like kind' content - because it is easier to administer and more attractive to sell.
This is what a healthy market looks like... call me crazy. And I totally agree the government should stay the out it - however.. the traditional players lobby for legislation as well... a lot of which is stupid and anti-competitive - contributing to barriers to the emergence of the healthy market. No stopping the momentum, however.
The RIAA had a lot to lose too. So did Tower Records.
You mean to tell me that you are paying more for you current package of Military + History + "a few sports channels" + about 50ish irrelevant channels, that you neither want nor watch, than you would be willing to pay for just Military + History + "a few sports channels?"
If your answer is "yes," then you are an irrational consumer and I would be interest in knowing why you willingly pay the cable company more than you think that their product is worth. If your answer is "no," then I'm right and you are only paying for Military and History, while getting the rest for free.
I live in the country in a fairly steep valley which limits my options so I have directv.Free channels are not an option I use to only have that option they came in scattered all the time and directv also limits my options.You either get this package or that package and so on.
I have no idea what you do for a living, but I know what my choices are for my area
so why is it hard to understand that?
I have no idea what you do for a living, but I know what my choices are for my area
so why is it hard to understand that?
You dodged my question. I wonder why.
I understand your situation. It's just largely irrelevant. I do not dispute that you must have access to X number of channels to get the Military Channel and the History Channel, nor have I ever. I actually explained why cable companies group channels into tiers in an earlier post. I only dispute your claim that you buy the "other channels." Unless you have an interest in them, you aren't buying them. You are getting them for free and buying the rest. In other words, if your bill is $x, you are spending $X for the channels that you want and $0 for the ones that you don't, not $x/# channels for each channel. The end result may appear the same because at the end of the day, you are still walking away with the same bunch of channels and you are paying the same price, but the seemingly minute difference on how a consumer gets to the end result has massive implications in the world of business and economics. However, that's a battle for another day. My post was aimed at a claim that someone was overpaying for something that they didn't want, which is simply not true. They are just paying a steep price for the few channels that they do want, but those channels are worth it to them, meaning that they are not overpaying.
riskylogic
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You do realize that internet and TV are already coming over the same connection, right?
riskylogic
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Right, providers already have several alternative bundles. But, instead of a few bundles, you could have a large number of alternative bundles. For example, I would like the sports bundle that doesn't have BTN.
