OT: From Adweek - A la Carte Is the Worst Idea Anyone Has Ever Had

[nzm136]

Dude - the two main points of your prior post were that the customer never pays for something they don't want with bundling (eg bundling is good or at least neutral to consumers) and that an end to bundling will result in lower margins for all content providers (regardless of quality or market demand for their product). In this response you refute your whole premise.

As for your first paragraph here, money is fungible. It may be that the advertising division recognizes one revenue stream generated by content and another division recognizes subscriber revenue generated by that same content - but it is the total profit generated by that content that matters to the cable company.

Your second paragraph you say bargaining power doesn't matter, but then you also say my father-in-law shouldn't mind paying $90/month to watch bbc and pbs because ESPN pays too much for content and has bargaining power because he's paying a fair price for bbc and pbs. Those two concepts are mutually exclusive, they can't both be true. With bundling the guy who watches 25 channels regularly and spends 4 hours a day rotting his mind, is certainly better off than my father in law who spends probably 5 hours a week watching 2 channels. Maybe the aggregate consumer wins...so in total the group does better with bundling (though I doubt this) but we are not a socialist society where the aggregate good trumps your personal choices.

Fair point on your final paragraph except that the only thing that will drive the cable company to a la carte is if/when MASS MARKET content providers find alternative delivery over the internet. So the two are in a sense one and the same, though the timing may not be identical.

"the customer never pays for something they don't want with bundling (eg bundling is good or at least neutral to consumers)" WRONG. I NEVER said "eg bundling is good or at least neutral to consumers," nor did anything that I said in any way, shape, or form imply it. When done right, bundling is a more efficient method of extracting value from customers. However, when channels are bundled together, customers do not pay for anything that they do not want. Customers are simply paying closer to their limit than they would under an a la carte model. If I think that ice cream is worth $10, I will pay $10 for it, but I would rather pay $5 for it. Using that as an analogy, bundling gives customers a couple napkins (which they immediately throw away) and brings amount that the customer owes for the ice cream close to $10, whereas a la carte keeps the price to the customer owes close to $5. Under that scenario, bundling is bad for the customer, but they aren't getting an unfair deal or overpaying for anything. They are simply paying what they think the value is of what they're getting.

"...money is fungible...it is the total profit generated by that content that matters to the cable company." Although technically somewhat true, this is misleading to the point of being wrong. Money is fungible from the cable company's perspective, but not the customer's perspective. Given that we are talking about the customer's perspective, that's an important distinction. Think about it; would you rather pay for programming via a cable bill or via purchasing goods from advertisers? Carriage fees and advertising revenues are two different revenue drivers and trying to combine the two revenue drivers into one is overly simplistic to the point of being wrong. Also, even from the cable company's perspective, it still matters, because although it does not matter where the money comes from, it does matter how much money there is, and a la carte will affect that number. What affects one will not necessarily affect the other. Advertising revenue will not necessarily increase to the same extent that carriage charges decrease as a result of a transition to a la carte from a bundled system. Your theory that it will is without basis, even for the big networks.

Assuming that your father-in-law only cares about PBS and the BBC, he is paying $90/month because he believes that the value of having access to the BBC and PBS is worth at least $90/month. Therefore, he should not mind paying $90/month for it. ESPN has nothing to do with his decision and the price that he pays has nothing to do with ESPN, or what ESPN does or doesn't pay for their content. Somewhere along the line, ESPN negotiated with whoever his cable provider is and during those negotiations, the two parties analyzed market data to determine a rate. When they did that, they examined all major demographics, including your father-in-law's, and agreed on a fair market rate accordingly. The fact that your father-in-law's demographic seems to not care about ESPN caused ESPN's per subscriber carriage rate to decrease. Similarly, when PBS and the BBC negotiated their rate with his content provider, they took all major demographics into account and agreed to a fair market rate accordingly. The fact that his demographic seems to really, really value those channels cause their per subscriber rate to increase. He, and all those in his demographic, are paying a lot for PBS and the BBC, but not for ESPN. If they changed their mind and stopped caring about PBS and the BBC and started caring about ESPN, the carriage rates for PBS and the BBC would crash after the next round of negotiations and ESPN's would shoot up. Furthermore, companies will only pay other companies to the extent that the selling company provides the buying company with value. If ESPN overpaid, ESPN is the one picking up the tab, not the cable company. If the cable company is willing to increase what they pay ESPN, it's because either the content is valuable to the cable company, or because other content on ESPN was undervalued by ESPN during their last round of negotiations.

I don't dispute that individual consumers may do better with bundling, but they are a minority and once they stop being a minority, the rules of the game will change to make them the minority again. The bundle lines will be redrawn . There's no reason why content providers cannot reshuffle the bundles at any given time and break them up/merge them together if need be. They can, have, and will continue to cherry pick. Overall, bundling is not good for consumers.

A la carte and internet delivery are NOT one and the same. There's no reason why internet delivery can't be bundled. In fact, it's already being done, and has continually been done on a large commercial scale for about 20 years. That's a fact.

 

[cuseinchina]

"the customer never pays for something they don't want with bundling (eg bundling is good or at least neutral to consumers)" WRONG. I NEVER said "eg bundling is good or at least neutral to consumers," nor did anything that I said in any way, shape, or form imply it. When done right, bundling is a more efficient method of extracting value from customers. However, when channels are bundled together, customers do not pay for anything that they do not want. Customers are simply paying closer to their limit than they would under an a la carte model. If I think that ice cream is worth $10, I will pay $10 for it, but I would rather pay $5 for it. Using that as an analogy, bundling gives customers a couple napkins (which they immediately throw away) and brings amount that the customer owes for the ice cream close to $10, whereas a la carte keeps the price to the customer owes close to $5. Under that scenario, bundling is bad for the customer, but they aren't getting an unfair deal or overpaying for anything. They are simply paying what they think the value is of what they're getting.

"...money is fungible...it is the total profit generated by that content that matters to the cable company." Although technically somewhat true, this is misleading to the point of being wrong. Money is fungible from the cable company's perspective, but not the customer's perspective. Given that we are talking about the customer's perspective, that's an important distinction. Think about it; would you rather pay for programming via a cable bill or via purchasing goods from advertisers? Carriage fees and advertising revenues are two different revenue drivers and trying to combine the two revenue drivers into one is overly simplistic to the point of being wrong. Also, even from the cable company's perspective, it still matters, because although it does not matter where the money comes from, it does matter how much money there is, and a la carte will affect that number. What affects one will not necessarily affect the other. Advertising revenue will not necessarily increase to the same extent that carriage charges decrease as a result of a transition to a la carte from a bundled system. Your theory that it will is without basis, even for the big networks.

Assuming that your father-in-law only cares about PBS and the BBC, he is paying $90/month because he believes that the value of having access to the BBC and PBS is worth at least $90/month. Therefore, he should not mind paying $90/month for it. ESPN has nothing to do with his decision and the price that he pays has nothing to do with ESPN, or what ESPN does or doesn't pay for their content. Somewhere along the line, ESPN negotiated with whoever his cable provider is and during those negotiations, the two parties analyzed market data to determine a rate. When they did that, they examined all major demographics, including your father-in-law's, and agreed on a fair market rate accordingly. The fact that your father-in-law's demographic seems to not care about ESPN caused ESPN's per subscriber carriage rate to decrease. Similarly, when PBS and the BBC negotiated their rate with his content provider, they took all major demographics into account and agreed to a fair market rate accordingly. The fact that his demographic seems to really, really value those channels cause their per subscriber rate to increase. He, and all those in his demographic, are paying a lot for PBS and the BBC, but not for ESPN. If they changed their mind and stopped caring about PBS and the BBC and started caring about ESPN, the carriage rates for PBS and the BBC would crash after the next round of negotiations and ESPN's would shoot up. Furthermore, companies will only pay other companies to the extent that the selling company provides the buying company with value. If ESPN overpaid, ESPN is the one picking up the tab, not the cable company. If the cable company is willing to increase what they pay ESPN, it's because either the content is valuable to the cable company, or because other content on ESPN was undervalued by ESPN during their last round of negotiations.

I don't dispute that individual consumers may do better with bundling, but they are a minority and once they stop being a minority, the rules of the game will change to make them the minority again. The bundle lines will be redrawn . There's no reason why content providers cannot reshuffle the bundles at any given time and break them up/merge them together if need be. They can, have, and will continue to cherry pick. Overall, bundling is not good for consumers.

A la carte and internet delivery are NOT one and the same. There's no reason why internet delivery can't be bundled. In fact, it's already being done, and has continually been done on a large commercial scale for about 20 years. That's a fact.

There are contradictions here even within paragraphs. I am reminded of cable execs about five years ago going to the fcc hearing and talking about all the benefits consumers will get from bundling of services and then the next day same exec goes to an investor meeting and talks about all the monopolistic profits extractable by forcing consumers to buy video with their internet service. Fortunately the fcc saw through the lightly veiled scheme and determined that cable companies and their telco competitors would have to sell stand-alone internet access outside of the bundle. A ruling which by the way takes care of the conclusion of your last paragraph that internet can be bundled by force - not according to the regulators it can't (thankfully).

At the end of the day bundles are monopolistic when forced upon the consumer who's only alternative is no access to the content they want. There is nothing optimal about them unless you are A. a cable company or B. someone who wants 300 channels of garbage and wants to be subsidized by those who don't. The question is not whether my father-in-law is WILLING to subsidize ESPNs propensity to overpay for sports rights which is then passed on to people who never watch a game because he wants to get BBC and PBS...it is a question of whether this is morally right in a society that espouses competition and freedom of choice as core virtues.

When it comes to consumer pricing and margins for the content providers, you are missing the point. For one thing carriage fees are not replaced by ad revenue, rather they are replaced by subscriber revenue from consumers who will pay for the content they want, not the right to watch many channels. You say that a la carte and alternative delivery of content are separate. But as you have noted a la carte breaks the bundling business model...so if the cable companies offer it there is no reason the content providers would not be open to alternative transmission provided the technology is there to make it successful (see industry forecasts calling for 50% smart TV adoption by 2016). Once you cut out the middle man cable company, consumers and content providers will split the cable company's monopoly take between themselves (in some proportion that depends on the pricing power of the individual content provider). A small proportion will go the content aggregator - whether that is the existing MSO cable providers, the telco, google, Apple, Microsoft, whoever - but without the monopoly that portion of the pie becomes very small because companies like google get massive ancillary revenue benefits by controlling the interface in which the consumer engages the a la carte model - they don't have a big infrastructure investment to maintain or on which they have to show positive returns - rather they have the technology to be better intermediaries between consumers and the content they desire, and have the financial structure to charge much much less than the cable companies for doing so - thus leading to better pricing for consumers and higher margins for producers of quality and niche content because the middle man service becomes a commodity instead of something people are forced to pay $50 or whatever a month for. In short, the cable company adds almost no value to consumers of content in a world where alternative transmission is possible.

I say within 5 years this is what the world looks like, you disagree (I guess though tough to tell with the contradictory statements) - how about a wager to see who's right so I can stop responding on here and risking my > 1:1 message/like ratio?

 

[nzm136]

There are contradictions here even within paragraphs. I am reminded of cable execs about five years ago going to the fcc hearing and talking about all the benefits consumers will get from bundling of services and then the next day same exec goes to an investor meeting and talks about all the monopolistic profits extractable by forcing consumers to buy video with their internet service. Fortunately the fcc saw through the lightly veiled scheme and determined that cable companies and their telco competitors would have to sell stand-alone internet access outside of the bundle. A ruling which by the way takes care of the conclusion of your last paragraph that internet can be bundled by force - not according to the regulators it can't (thankfully).

At the end of the day bundles are monopolistic when forced upon the consumer who's only alternative is no access to the content they want. There is nothing optimal about them unless you are A. a cable company or B. someone who wants 300 channels of garbage and wants to be subsidized by those who don't. The question is not whether my father-in-law is WILLING to subsidize ESPNs propensity to overpay for sports rights which is then passed on to people who never watch a game because he wants to get BBC and PBS...it is a question of whether this is morally right in a society that espouses competition and freedom of choice as core virtues.

When it comes to consumer pricing and margins for the content providers, you are missing the point. For one thing carriage fees are not replaced by ad revenue, rather they are replaced by subscriber revenue from consumers who will pay for the content they want, not the right to watch many channels. You say that a la carte and alternative delivery of content are separate. But as you have noted a la carte breaks the bundling business model...so if the cable companies offer it there is no reason the content providers would not be open to alternative transmission provided the technology is there to make it successful (see industry forecasts calling for 50% smart TV adoption by 2016). Once you cut out the middle man cable company, consumers and content providers will split the cable company's monopoly take between themselves (in some proportion that depends on the pricing power of the individual content provider). A small proportion will go the content aggregator - whether that is the existing MSO cable providers, the telco, google, Apple, Microsoft, whoever - but without the monopoly that portion of the pie becomes very small because companies like google get massive ancillary revenue benefits by controlling the interface in which the consumer engages the a la carte model - they don't have a big infrastructure investment to maintain or on which they have to show positive returns - rather they have the technology to be better intermediaries between consumers and the content they desire, and have the financial structure to charge much much less than the cable companies for doing so - thus leading to better pricing for consumers and higher margins for producers of quality and niche content because the middle man service becomes a commodity instead of something people are forced to pay $50 or whatever a month for. In short, the cable company adds almost no value to consumers of content in a world where alternative transmission is possible.

I say within 5 years this is what the world looks like, you disagree (I guess though tough to tell with the contradictory statements) - how about a wager to see who's right so I can stop responding on here and risking my > 1:1 message/like ratio?

You are in left field on paragraph one. That ruling doesn't say that internet sites can't be bundled together. There is no reason why FOX and ESPN can't charge admission to their site (ESPN already does for ESPN3.com and Rupert Murdoch already does for many of his companies, like the Wallstreet Journal Online) and there is absolutely no reason why ESPN and FOX can't agree that access to one site will give access to another, as is and has been a common practice in the adult industry (which has billions of dollar in revenue every year) for over 20 years. The fact that cable companies can't bundle internet access with cable services is completely irrelevant.

In fact, more likely than not, free services like Hulu.com will replace broadcast TV for many Americans, and site membership, like a general membership to "Disney Online" with an added "Advanced Sports Package" that gives customers access to ESPN3.com and ABC sports will replaces cable for many Americans. Although that would be 100% online, it would be just as bundled as cable TV is today, and absolutely none of it is illegal under current law.

"The question is not whether my father-in-law is WILLING to subsidize ESPNs propensity to overpay for sports rights which is then passed on to people who never watch a game because he wants to get BBC and PBS." He doesn't. ESPN's carriage rate is based off of value provided to the cable provider, which is a product of customer of interest, not ESPN operating costs. Your father-in-law is a member of a demographic that isn't interested in ESPN. When ESPN negotiated with the cable companies, their rates were adjusted accordingly. Your father-in-law only appears to subsidize them (i.e. nominally subsidized them). However, a bunch of other people are nominally subsidizing your father-in-law's shows. And, at the end of the day, it balances out such that the amount that your father-in-law nominally subsidizes channels like ESPN is equal to the amount that others nominally subsidize his channels. For purposes of economics, he ONLY buys the channels that he wants and he gets the rest for free. There is no actual subsidy. At best, there is a variable price that changes with the person, but that A) isn't a subsidy, and B) is way too complicated to explain over a sports board. Anyway even if there was a subsidy, which there isn't, ESPN's costs are not directly relevant to their revenues. ESPN is paid based on the value that they provide, not on their operating costs. Once again, if ESPN does overpay for content, THEY will incur the losses. Neither the cable provider, nor the customers pick up the tab.

As for "morals," there is nothing immoral about asking someone to pay fair market price for a luxury good. If your father-in-law didn't think that he was getting a good deal (i.e. the programming wasn't worth at least what he pays for it), then he wouldn't buy it. Nobody is making him have it and it isn't essential for life. I want a Ferrari Enzo, but Ferrari won't sell me one for the $20 in my pocket. Does that make Ferrari "immoral?" If so, feel free to step in and make the world more just by giving me the difference.

"For one thing carriage fees are not replaced by ad revenue, rather they are replaced by subscriber revenue from consumers who will pay for the content they want, not the right to watch many channels." This isn't true. If it was true, bundling wouldn't exist as is. Bundled programming, when done right, is far more efficient at extracting value from customers than a la carte. A switch from efficient bundling to a la carte would lead to a loss in carriage rate revenue and, although rates of specific channels would nominally go up, customers would end up paying less, which would increase the number of customers who have access to cable channels, improving advertising revenue. However, that increase in advertising revenue would no equal the decrease in carriage rates. Look at my example a couple posts ago where a la carte yielded $19 in revenue, whereas bundling yielded $24. That's what's happening. When done right, bundling creates situations where channels are grouped together in such a way that customer's preference for those channels is a product of random chance. Since random chance tends to balance out, customer's preference for the bundle as a whole is close to being uniform, an a bunch of customers with a uniform valuation of a product is the ideal situation for extracting value from the sale of that product. THAT is why bundling happens. I'll give you an example:

. . . . . . . . . . . . . . . Product A . . . . . . Product B
Customer 1 . . . . . . $3 . . . . . . . . . . . .$1
Customer 2 . . . . . . $2 . . . . . . . . . . . .$2
Customer 3 . . . . . . .$1 . . . . . . . . . . . .$3

There is a total of $12 of value in those two products ($1 + $2 + $3 + $3 + $2 + $1 = $12). The a la carte rate for both product would be $2 each and it would yield a combined $8 ($4 for Product A and $4 for Product B). The combined rate if the products were bundled together would be $4 and all 3 customers would pay $4 for access to the two channels. Since the total value of the channels is $12, switching from a la carte to bundling increased value extraction efficiency from 67% (8/12) to 100% (12/12).

As for having higher nominal rates in a la carte, that's true, but those rates do not make up the difference, assuming that the initial bundling was done correctly. I'll give you an example:

. . . . . . . . . . . . . . . Product A . . . . . . Product B
Customer 1 . . . . . .$4 . . . . . . . . . . . . $0
Customer 2 . . . . . .$3 . . . . . . . . . . . . $1
Customer 3 . . . . . .$1 . . . . . . . . . . . . .$3
Customer 4 . . . . . .$2 . . . . . . . . . . . . .$2
Customer 5 . . . . . . $4 . . . . . . . . . . . . .$0
Customer 6 . . . . . . $0 . . . . . . . . . . . . .$2

There is a total of $22 that can be extracted from these two products ($4 + $3 + $1 + $1 +$3 + $2 + $2 + $4 +$2 = $22). The grouped rate for the Product A + Product B combo would be $4 and yield revenue of $20, which is 91% efficient (20/22 = 91%). Nominally, they might have a rate of $2 each ($4/2 = $2). When sold a la carte, the rate for Product A would be $3 and the rate for Product B would be $2 and it would cost $5 ($3 + $2 = $5) to get access to each channels. However, only three people would buy Product B and 3 people would buy Product A. That creates a return of $15, which is only 68% efficient (15/22 = 68%). In the end, even though the price to have access to both products increased from $3 to $5, and the price for Product B alone is more than the initial package price, the cable provider lost 23% of their value extraction efficiency, which translates into $5 loss. However, 6 people would have access to one of the two channels, so advertising rates could very well go up.

To clarify, the first example shows how bundling can be more efficient at extracting value. Admittedly these numbers are cherry picked, but that's actually OK because content providers can and do cherry pick what they bundle together. Furthermore, we know that the media landscape looks this way because content providers bundle content together and why else would they bundle the content if it wasn't making them money? The second example shows how going to a la carte can lead to more total viewers and thus more advertising dollars. I freely admit that this is only one of many possibly scenarios, but, given that there are only two revenue drivers, and as seen in the last example, switching from a bundled system to a la carte harms one revenue driver, increases in advertising revenue is the only way that there would be some hope of mitigating the loss. However, the increase in advertising revenue isn't enough to offset the total loss, otherwise content providers would go a la carte. This example also shows how it is possible for content providers to switch to a la carte and raise nominal carriage rates, but still be less efficient. Admittedly, this is only one possible scenario, but it is obviously the case that switching to a la carte would result in diminished profits, otherwise content providers would do it. That means that even if switching to a la carte meant higher individual channel carriage rates (which it probably does), there would still be a net loss.

"Once you cut out the middle man cable company, consumers and content providers will split the cable company's monopoly take between themselves..." Yes, internet distribution will probably be more efficient and lead to lower prices, but A) you are simply trading middle men (albeit in a favorable manner) and B) it is in the network's interest to be bundle/be bundled. It adds value to their product. They would do it amongst themselves, even if there wasn't a cable company involved. Your entire point about changes in technology is mostly irrelevant. I have to wonder, though. I know way more about the business/economics side of the equation than I do about the technical side. However, I wonder how much of the internet infrastructure is also used by cable companies. If it's a lot of the same wires/equipment, then cable is essentially subsidizing internet and internet is subsidizing cable. That means that the loss of one (i.e. cable) will cause the other (i.e. internet) to go up in price to the extent that they shared fixed costs. If that's the case, the net gains from transferring to a more efficient technology may be far less than you think.

"In short, the cable company adds almost no value to consumers of content in a world where alternative transmission is possible." The act of bundling changes elasticities, which creates value. If the cable company isn't the one doing it, someone else will. In fact, networks already negotiate to be bundled in certain ways when they negotiate with the cable companies. The cable companies are more like the tools of the networks, not the evil geniuses you make them out to be.

"the contradictory statements" I have yet to make a contradictory statement. You simply make a series of unsubstantiated statements and then put words in my mouth. For example, you claimed that I said "bundling is good or at least neutral to consumers," even though I never said anything of the like. In reality, you irrationally assumed that I meant that, despite a number of statement made by me that are directly to the contrary. However, if you think that I am wrong and am contradicting myself, please feel free to show me where.

As for your 1-1 ratio, keep in mind that it is an internet sports board. Write "UCONN s*cks" in a post followed by it's "____ O'clock and Georgetown still s*cks" and you are pretty much guaranteed 3-5 likes (and rightfully so)

 

[cuseinchina]

You are in left field on paragraph one. That ruling doesn't say that internet sites can't be bundled together. There is no reason why FOX and ESPN can't charge admission to their site (ESPN already does for ESPN3.com and Rupert Murdoch already does for many of his companies, like the Wallstreet Journal Online) and there is absolutely no reason why ESPN and FOX can't agree that access to one site will give access to another, as is and has been a common practice in the adult industry (which has billions of dollar in revenue every year) for over 20 years. The fact that cable companies can't bundle internet access with cable services is completely irrelevant.

In fact, more likely than not, free services like Hulu.com will replace broadcast TV for many Americans, and site membership, like a general membership to "Disney Online" with an added "Advanced Sports Package" that gives customers access to ESPN3.com and ABC sports will replaces cable for many Americans. Although that would be 100% online, it would be just as bundled as cable TV is today, and absolutely none of it is illegal under current law.

"The question is not whether my father-in-law is WILLING to subsidize ESPNs propensity to overpay for sports rights which is then passed on to people who never watch a game because he wants to get BBC and PBS." He doesn't. ESPN's carriage rate is based off of value provided to the cable provider, which is a product of customer of interest, not ESPN operating costs. Your father-in-law is a member of a demographic that isn't interested in ESPN. When ESPN negotiated with the cable companies, their rates were adjusted accordingly. Your father-in-law only appears to subsidize them. However, a bunch of other people are subsidizing your father-in-law's shows. And, at the end of the day, it balances out such that the amount that your father-in-law subsidizes ESPN is equal to the amount that others subsidize his channels. It balances out, not matter how badly you don't want it to. For purposes of economics, he ONLY buys the channels that he wants and he gets the rest for free. Even if that wasn't true, ESPN's costs are not relevant to their revenues. ESPN is paid on the value that they provide, not on their operating costs. Once again, if ESPN does overpay for content, THEY will incur the losses. Neither the cable provider, nor the customers pick up the tab.

As for "morals," there is nothing immoral about asking someone to pay fair market price for a luxury good. If your father-in-law didn't think that he was getting a good deal (i.e. the programming wasn't worth at least what he pays for it), then he wouldn't buy it. Nobody is making him have it and it isn't essential for life. I want a Ferrari Enzo, but Ferrari won't sell me one for the $20 in my pocket. Does that make Ferrari "immoral?" If so, feel free to step in and make the world more just by giving me the difference.

"For one thing carriage fees are not replaced by ad revenue, rather they are replaced by subscriber revenue from consumers who will pay for the content they want, not the right to watch many channels." This isn't true. If it was true, bundling wouldn't exist as is. Bundled programming, when done right, is far more efficient at extracting value from customers than a la carte. A switch from efficient bundling to a la carte would lead to a loss in carriage rate revenue and, although rates of specific channels would nominally go up, customers would end up paying less, which would increase the number of customers who have access to cable channels, improving advertising revenue. However, that increase in advertising revenue would no equal the decrease in carriage rates. Look at my example a couple posts ago where a la carte yielded $19 in revenue, whereas bundling yielded $24. That's what's happening. When done right, bundling creates situations where channels are grouped together in such a way that customer's preference for those channels is a product of random chance. Since random chance tends to balance out, customer's preference for the bundle as a whole is close to being uniform, an a bunch of customers with a uniform valuation of a product is the ideal situation for extracting value from the sale of that product. THAT is why bundling happens. I'll give you an example:

. . . . . . . . . . . . . . . Product A . . . . . . Product B
Customer 1 . . . . . . $3 . . . . . . . . . . . .$1
Customer 2 . . . . . . $2 . . . . . . . . . . . .$2
Customer 3 . . . . . . .$1 . . . . . . . . . . . .$3

There is a total of $12 of value in those two products ($1 + $2 + $3 + $3 + $2 + $1 = $12). The a la carte rate for both product would be $2 each and it would yield a combined $8 ($4 for Product A and $4 for Product B). The combined rate if the products were bundled together would be $4 and all 3 customers would pay $4 for access to the two channels. Since the total value of the channels is $12, switching from a la carte to bundling increased value extraction efficiency from 67% (8/12) to 100% (12/12).

As for having higher nominal rates in a la carte, that's true, but those rates do not make up the difference, assuming that the initial bundling was done correctly. I'll give you an example:

. . . . . . . . . . . . . . . Product A . . . . . . Product B
Customer 1 . . . . . .$4 . . . . . . . . . . . . $0
Customer 2 . . . . . .$3 . . . . . . . . . . . . $1
Customer 3 . . . . . .$1 . . . . . . . . . . . . .$3
Customer 4 . . . . . .$2 . . . . . . . . . . . . .$2
Customer 5 . . . . . . $4 . . . . . . . . . . . . .$0
Customer 6 . . . . . . $0 . . . . . . . . . . . . .$2

There is a total of $22 that can be extracted from these two products ($4 + $3 + $1 + $1 +$3 + $2 + $2 + $4 +$2 = $22). The grouped rate for the Product A + Product B combo would be $4 and yield revenue of $20, which is 91% efficient (20/22 = 91%). Nominally, they might have a rate of $2 each ($4/2 = $2). When sold a la carte, the rate for Product A would be $3 and the rate for Product B would be $2 and it would cost $5 ($3 + $2 = $5) to get access to each channels. However, only three people would buy Product B and 3 people would buy Product A. That creates a return of $15, which is only 68% efficient (15/22 = 68%). In the end, even though the price to have access to both products increased from $3 to $5, and the price for Product B alone is more than the initial package price, the cable provider lost 23% of their value extraction efficiency, which translates into $5 loss. However, 6 people would have access to one of the two channels, so advertising rates could very well go up.

To clarify, the first example shows how bundling can be more efficient at extracting value. Admittedly these numbers are cherry picked, but that's actually OK because content providers can and do cherry pick what they bundle together. Furthermore, we know that the media landscape looks this way because content providers bundle content together and why else would they bundle the content if it wasn't making them money? The second example shows how going to a la carte can lead to more total viewers and thus more advertising dollars. I freely admit that this is only one of many possibly scenarios, but, given that there are only two revenue drivers, and as seen in the last example, switching from a bundled system to a la carte harms one revenue driver, increases in advertising revenue is the only way that there would be some hope of mitigating the loss. However, the increase in advertising revenue isn't enough to offset the total loss, otherwise content providers would go a la carte. This example also shows how it is possible for content providers to switch to a la carte and raise nominal carriage rates, but still be less efficient. Admittedly, this is only one possible scenario, but it is obviously the case that switching to a la carte would result in diminished profits, otherwise content providers would do it. That means that even if switching to a la carte meant higher individual channel carriage rates (which it probably does), there would still be a net loss.

"Once you cut out the middle man cable company, consumers and content providers will split the cable company's monopoly take between themselves..." Yes, internet distribution will probably be more efficient and lead to lower prices, but A) you are simply trading middle men (albeit in a favorable manner) and B) it is in the network's interest to be bundle/be bundled. It adds value to their product. They would do it amongst themselves, even if there wasn't a cable company involved. Your entire point about changes in technology is mostly irrelevant. I have to wonder, though. I know way more about the business/economics side of the equation than I do about the technical side. However, I wonder how much of the internet infrastructure is also used by cable companies. If it's a lot of the same wires/equipment, then cable is essentially subsidizing internet and internet is subsidizing cable. That means that the loss of one (i.e. cable) will cause the other (i.e. internet) to go up in price to the extent that they shared fixed costs. If that's the case, the net gains from transferring to a more efficient technology may be far less than you think.

"In short, the cable company adds almost no value to consumers of content in a world where alternative transmission is possible." The act of bundling changes elasticities, which creates value. If the cable company isn't the one doing it, someone else will. In fact, networks already negotiate to be bundled in certain ways when they negotiate with the cable companies. The cable companies are more like the tools of the networks, not the evil geniuses you make them out to be.

"the contradictory statements" I have yet to make a contradictory statement. You simply make a series of unsubstantiated statements and then put words in my mouth. For example, you claimed that I said "bundling is good or at least neutral to consumers," even though I never said anything of the like. In reality, you irrationally assumed that I meant that, despite a number of statement made by me that are directly to the contrary. However, if you think that I am wrong and am contradicting myself, please feel free to show me where.

As for your 1-1 ratio, keep in mind that it is an internet sports board. Write "UCONN s*cks" in a post followed by it's "____ O'clock and Georgetown still s*cks" and you are pretty much guaranteed 3-5 likes (and rightfully so)

Ok. Content companies, of which there are hundreds, bundling their content among their own internal properties, cannot be compared with an oligopolistic cable industry cramming a bundle many people don't want down consumers throats. It also supports my statement that the content providers will see more value accrue to them not less. And bundles offered by one of many content aggregators from whom consumers will be able to choose under an alternative transmission regime are competitive rather than monopolistic - I welcome them but don't want to be forced in to buying one.

Of course bundles will continue to exist - we'll just pay less for them.

And of course the cable companies will try to jack up the rates on broadband access, it is the only lever they will have remaining to pull. Fortunately that will incentivize the telcos to push fiber further into their networks and pricing will never be able to the point where the cable co's can extract monopoly level profits that are essentially stolen from owners of content and consumers.

I'm running out of gas on this - it's like arguing with an attorney who keeps saying the same things over and over and over again even when the question or discussion shifts gears - this doesn't make the statements true or right, it just leaves no room for concession or negotiation...so going on on this is fruitless. I am really not even sure what your argument is given the contradictions. But why don't we put an end to this and lay out our four point visions for what the landscape will look like in 5 years, place a wager, and then revisit in 5 years and see who's the most right?

 

[WickedOrange]

ESPN in talks to stream all channels online, for a price

Disney-owned ESPN has held preliminary talks to make its programming available on internet television services like the ones said to be under development by Apple, Google, Intel, and Sony. In an interview with Bloomberg, ESPN president John Skipper said the sports network is interested in selling its entire package of channels to a web-based television service, including its main channel, ESPN2, and ESPN News.

Winning ESPN would be a coup for any of the internet TV services now under development. Live sporting events are a major reason many cable subscribers have resisted cutting the cord, and ESPN commands the highest subscriber fees of any cable channel. More than 98 million people subscribe to the channel, according to Disney's latest annual report.

ESPN HAS MADE AGGRESSIVE MOVES TO PUT ITS CONTENT ONLINE

The news comes as tech giants are racing to sign up programmers to deliver their shows over the internet. Last week, Sony reportedly signed a deal for internet TV with Viacom, the first deal of its kind to be publicly revealed. Apple recently made ESPN available on Apple TV, though the offer only applies to current cable subscribers. And ESPN has made aggressive moves to put its content online, to the point of offering to subsidize the data plans of anyone streaming its content on a mobile device.

ESPN is still early in its talks, and it's unclear how many other programmers would want to follow its lead. But if the deal comes to fruition, the future of television could be on its way to arriving.


http://www.theverge.com/2013/8/21/4645692/espn-in-talks-to-stream-all-channels-online-for-a-price

 

[Lawrinson14]

ESPN in talks to stream all channels online, for a price

Disney-owned ESPN has held preliminary talks to make its programming available on internet television services like the ones said to be under development by Apple, Google, Intel, and Sony. In an interview with Bloomberg, ESPN president John Skipper said the sports network is interested in selling its entire package of channels to a web-based television service, including its main channel, ESPN2, and ESPN News.

Winning ESPN would be a coup for any of the internet TV services now under development. Live sporting events are a major reason many cable subscribers have resisted cutting the cord, and ESPN commands the highest subscriber fees of any cable channel. More than 98 million people subscribe to the channel, according to Disney's latest annual report.

ESPN HAS MADE AGGRESSIVE MOVES TO PUT ITS CONTENT ONLINE

The news comes as tech giants are racing to sign up programmers to deliver their shows over the internet. Last week, Sony reportedly signed a deal for internet TV with Viacom, the first deal of its kind to be publicly revealed. Apple recently made ESPN available on Apple TV, though the offer only applies to current cable subscribers. And ESPN has made aggressive moves to put its content online, to the point of offering to subsidize the data plans of anyone streaming its content on a mobile device.

ESPN is still early in its talks, and it's unclear how many other programmers would want to follow its lead. But if the deal comes to fruition, the future of television could be on its way to arriving.


http://www.theverge.com/2013/8/21/4645692/espn-in-talks-to-stream-all-channels-online-for-a-price

If this happens...sayonara cable.

 

[WickedOrange]

Disney’s ESPN Holds Preliminary Talks for Web-Based TV

By Christopher Palmeri & Andy Fixmer - Aug 21, 2013 6:20 PM ET
Walt Disney Co. (DIS)’s ESPN sports network has held preliminary talks to offer programming on a Web-based TV service like those proposed by Google Inc. (GOOG), Sony Corp. and Intel Corp. (INTC)

An Internet TV provider would have to pay as much or more than cable and satellite services, President John Skipper said today at ESPN’s campus in Bristol, Connecticut. He declined to specify the companies ESPN has spoken with.

Walt Disney Co.’s ESPN is the most valuable channel on pay TV, garnering the highest subscriber fees of any basic cable network, according to researcher SNL Kagan.

A Web-based service would have to buy “the whole suite of products,” Skipper said. “We’re not going to offer one-offs.” The network includes the flagship channel, plus others such as ESPN2, ESPN News and mobile applications offered to existing pay-TV subscribers.

Access to ESPN would give new online TV providers instant credibility and a foothold to compete with established players like Comcast Corp. and DirecTV. The network is the most valuable channel on pay TV, garnering the highest subscriber fees on basic cable, according to researcher SNL Kagan.

Talks with alternative TV providers are exploratory and any new platform would have to offer a package of channels comparable to what other operators provide, according to Chris LaPlaca, a spokesman for ESPN.



To get deals done with ESPN and other networks, the new providers will have to guarantee minimum subscriber numbers and pay the associated fees even if fewer viewers sign up, David Bank, an analyst at RBC Capital in New York, wrote in an e-mail.

“They have to be ‘take or pay’ contracts,” said Bank, who has an outperform rating on Disney shares. “If you can’t sign that many up, you still have to pay.”

Biggest Business
Professional sports leagues won’t put a major event online only, Skipper said. They “all love to float the idea because there will be more competition for rights.”

Disney, based in Burbank, California, fell 1.2 percent to $61.14 at the close in New York. The stock has gained 23 percent this year, compared with 15 percent for the Standard & Poor’s 500 Index.

TV networks led by ESPN are Disney’s largest and most-profitable business, accounting for 46 percent of revenue and 69 percent of operating profit in the latest quarter, according to data compiled by Bloomberg. The sports network, 20 percent owned by Hearst Corp., has 98 million subscribers, according to Disney’s most recent annual report.

Dan Race, a Sony spokesman, declined to comment. The company is developing a Web-based pay TV service for its game consoles and TV sets, people familiar with the matter have said.
$100 Billion
Sony, Google, Intel and Apple Inc. are trying to obtain programming rights to win TV viewers from cable, phone and satellite companies. The tech giants plan to use existing cable, fiber and wireless networks, as Netflix Inc. (NFLX) does, to offer Web-based TV in living rooms and on tablets and smartphones.

The companies are seeking to grab a slice of the $100 billion a year in U.S. pay-TV fees collected by cable, phone and satellite providers. On average, U.S. viewers pay about $80 a month for programming bundles, with the revenue shared by broadcast and cable networks. The TV industry also collects $59 billion a year in ad sales.

Tokyo-based Sony recently reached a preliminary agreement with Viacom Inc. for access to programming such as Nickelodeon and Comedy Central, a person familiar with the matter said last week. Apple is also working on a TV service.

Jon Carvill, an Intel spokesman, declined to comment. Lily Lin, a spokeswoman for Mountain View, California-based Google, didn’t respond to a request for comment.


http://www.bloomberg.com/news/2013-...s-preliminary-talks-for-web-based-pay-tv.html

 

[cuseinchina]

Camel...meet straw. Short comcast and twc. Disney is getting out in front of this to protect their bargaining power. Being first lets them dictate the terms. Say goodby to the high margin middle man, but be prepared for your Internet access fees to soar.

 

[IthacaMatt]

I know there has been a lot talk on this board about the coming changes to the TV world and its impact on league networks.

This article quotes several network CEOs and they don't seem to think it's a good idea for anyone. Granted, this is just one author's opinion, but I know I've discussed a la carte as if it's a foregone conclusion. This article offers an informed counterpoint.

http://m.adweek.com/news/television/la-carte-worst-idea-anyone-has-ever-had-151814

Here's an interesting passage:

But rest assured, if you want to pay for your cable channels individually, you will end up paying a ton more. A report from Needham Insights issued last month suggested that 20 million viewers would pay $30 a month for ESPN, which would give the network the $600 million a month it needs to keep functioning, because that's what it makes today. That's right: you currently pay only $6 a month for ESPN, because you and 100 million other people have the network, and they can afford to take comparatively little from you. Let's say that factor of five holds true across all the networks you watch: suddenly you're paying $6.06 for TNT ($1.21 a month) $4.10 for Fox News ($0.82), and so on down the line. In fact, if you factor in only the top 10 most highly-compensated networks (and ESPN is by far the highest, so they're all south of that $6 figure), you're up to $78 with only ten channels.

But you see, the opposite is also true - the only reason ESPN can charge $30 a month is because the true price is hidden in the bundle. There is zero chance that individual stations would be able to price their product as they do now. No one is going to pay more than $100 a month for TV service, and most will opt to pay less, with probably around $50 being the amount people would willingly pay. Networks with multiple channels (and who doesn't have them today ...) will bundle their full package, I would guess. Where is Millhouse to come in with his rants about the cost of higher education and health care services? If there were no easy access to the cash, and the payment was not indirect, then people wouldn't willingly pay what's being asked of them.

 

[Millhouse]

But you see, the opposite is also true - the only reason ESPN can charge $30 a month is because the true price is hidden in the bundle. There is zero chance that individual stations would be able to price their product as they do now. No one is going to pay more than $100 a month for TV service, and most will opt to pay less, with probably around $50 being the amount people would willingly pay. Networks with multiple channels (and who doesn't have them today ...) will bundle their full package, I would guess. Where is Millhouse to come in with his rants about the cost of higher education and health care services? If there were no easy access to the cash, and the payment was not indirect, then people wouldn't willingly pay what's being asked of them.

i skimmed this thread - posts got to long.

when you subsidize something you get more of it (HE/HC)

i don't know what that has to do with this.

if you think i'm a crank about bundling, fine, but here's a video from marginal university (i wonder if they get the humor in that name - online courses) from a couple well known econ professors. http://marginalrevolution.com/marginalrevolution/2013/05/bundling.html

 

[cuseinchina]

i skimmed this thread - posts got to long.

when you subsidize something you get more of it (HE/HC)

i don't know what that has to do with this.

if you think i'm a crank about bundling, fine, but here's a video from marginal university (i wonder if they get the humor in that name - online courses) from a couple well known econ professors. http://marginalrevolution.com/marginalrevolution/2013/05/bundling.html

More for the same price is not better. More of what you actually want for a lower price and less of what you don't want is preferable for most. Bundling presumes that having 200 lousy television channels is a public good in need of protection. The only thing in need of protection is the basic broadcast signals and pbs - they should be part of any standalone service...beyond that let the market work its will and let people buy the content they want - quality will inherently increase as a result of this as a result of this. Further to that point, the fcc should not let Disney bundle espn with ABC - abc has a broadcast license and should enjoy special protection (on behalf of consumers)...

 

[Millhouse]

More for the same price is not better. More of what you actually want for a lower price and less of what you don't want is preferable for most. Bundling presumes that having 200 lousy television channels is a public good in need of protection. The only thing in need of protection is the basic broadcast signals and pbs - they should be part of any standalone service...beyond that let the market work its will and let people buy the content they want - quality will inherently increase as a result of this as a result of this. Further to that point, the fcc should not let Disney bundle espn with ABC - abc has a broadcast license and should enjoy special protection (on behalf of consumers)...

"Bundling presumes that having 200 lousy television channels is a public good in need of protection." this thread is too long but this is nuts. you don't know the argument from the other side.

 

[nzm136]

Ok. Content companies, of which there are hundreds, bundling their content among their own internal properties, cannot be compared with an oligopolistic cable industry cramming a bundle many people don't want down consumers throats. It also supports my statement that the content providers will see more value accrue to them not less. And bundles offered by one of many content aggregators from whom consumers will be able to choose under an alternative transmission regime are competitive rather than monopolistic - I welcome them but don't want to be forced in to buying one.

Of course bundles will continue to exist - we'll just pay less for them.

And of course the cable companies will try to jack up the rates on broadband access, it is the only lever they will have remaining to pull. Fortunately that will incentivize the telcos to push fiber further into their networks and pricing will never be able to the point where the cable co's can extract monopoly level profits that are essentially stolen from owners of content and consumers.

I'm running out of gas on this - it's like arguing with an attorney who keeps saying the same things over and over and over again even when the question or discussion shifts gears - this doesn't make the statements true or right, it just leaves no room for concession or negotiation...so going on on this is fruitless. I am really not even sure what your argument is given the contradictions. But why don't we put an end to this and lay out our four point visions for what the landscape will look like in 5 years, place a wager, and then revisit in 5 years and see who's the most right?

1. Why couldn't FOX and ESPN bundle together for mutual gain? You assume that they can't, but never explain why. In fact, there is a very real possibility that the cable companies are mere muppets controlled by major content providers and that the removal of the cable providers won't diminish the number of content aggregators in existence. In other words, the market may very well not become any more competitive simply by changing platforms from TV to computer. Either way, nobody is buying a bundle that they don't want. Customers might prefer a la carte (it's cheaper), but NOBODY is buying ANYTHING that they don't want. 100% of cable subscribers think that they are getting at least their money's worth from their cable agreement, otherwise they wouldn't purchase cable.

2 Name one contradiction. Without any grounds whatsoever, you accuse me saying "the same things over and over and over again," and then you accuse me of contradicting myself, which is ironic, because your statement is a contradiction in an of itself. If I am in fact repeating myself ad nauseum, then I cannot be contradicting myself. I would be contradicting myself if I kept changing my story. You keep making unsubstantiated statements that are clearly erroneous on their face.

3. And there's no room for negotiation because, using your lawyer analogy, you just keep making a series of unsubstantiated legal conclusions. It would be like a defense lawyer standing up, saying that his client is innocent, and then resting his case and sitting down and expecting a jury to believe him after the prosecution spent the entire morning clearly establishing evidence against the defendant. It's crazy.

 

[nzm136]

More for the same price is not better. More of what you actually want for a lower price and less of what you don't want is preferable for most. Bundling presumes that having 200 lousy television channels is a public good in need of protection. The only thing in need of protection is the basic broadcast signals and pbs - they should be part of any standalone service...beyond that let the market work its will and let people buy the content they want - quality will inherently increase as a result of this as a result of this. Further to that point, the fcc should not let Disney bundle espn with ABC - abc has a broadcast license and should enjoy special protection (on behalf of consumers)...

No. Bundling presumes that when the channels are grouped together, their joint elasticity is decreased, allowing cable providers to sell the combined content at higher rates than before without losing very many customers, thus maximizing shareholder value.

Stopping bundling would be like telling McDonalds that they can't sell value meals. Don't get me wrong, bundling is bad for consumers in general, but ending it is a long walk down a slippery slope.

 

[cuseinchina]

No. Bundling presumes that when the channels are grouped together, their joint elasticity is decreased, allowing cable providers to sell the combined content at higher rates than before without losing very many customers, thus maximizing shareholder value.

Stopping bundling would be like telling McDonalds that they can't sell value meals. Don't get me wrong, bundling is bad for consumers in general, but ending it is a long walk down a slippery slope.

McDonalds operates in an extremely competitive environment. Comcast is essentially a regulated monopoly/oligopoly - so comparing the two ignores the crux of the point which is that bundling is a monopolistic practice crammed down consumers throats in order for cable companies to earn excess profits. The cable monopoly/oligopoly drives excess profits for what is essentially a commodity middle man service. It is in the interest of both consumers and producers of quality and/or niche content to cut out the middle man - and it's ironic/funny that they will use the middle-man's technology to do so.

 

[cuseinchina]

1. Why couldn't FOX and ESPN bundle together for mutual gain? You assume that they can't, but never explain why. In fact, there is a very real possibility that the cable companies are mere muppets controlled by major content providers and that the removal of the cable providers won't diminish the number of content aggregators in existence. In other words, the market may very well not become any more competitive simply by changing platforms from TV to computer. Either way, nobody is buying a bundle that they don't want. Customers might prefer a la carte (it's cheaper), but NOBODY is buying ANYTHING that they don't want. 100% of cable subscribers think that they are getting at least their money's worth from their cable agreement, otherwise they wouldn't purchase cable.

2 Name one contradiction. Without any grounds whatsoever, you accuse me saying "the same things over and over and over again," and then you accuse me of contradicting myself, which is ironic, because your statement is a contradiction in an of itself. If I am in fact repeating myself ad nauseum, then I cannot be contradicting myself. I would be contradicting myself if I kept changing my story. You keep making unsubstantiated statements that are clearly erroneous on their face.

3. And there's no room for negotiation because, using your lawyer analogy, you just keep making a series of unsubstantiated legal conclusions. It would be like a defense lawyer standing up, saying that his client is innocent, and then resting his case and sitting down and expecting a jury to believe him after the prosecution spent the entire morning clearly establishing evidence against the defendant. It's crazy.

As I said, instead of this nonsense back and forth, lets just lay out our respective visions for what the industry will look like in five years and see who's got it the most right (because I am sure reality will diverge from either 'vision of the future')... Who should go first?

 

[WickedOrange]

Another 1.8 Million People Just Ditched Cable TV As Cord-Cutter 'Myth' Turns Real
Cable subscribers are declining in an era of free WiFi.


Another 1.8 Million People Just Ditched Cable TV
Business Insider
By Jim Edwards | Business Insider – 3 hours ago


She's not watching TV.
Another quarter, another dismal set of numbers for the TV business. About 1.8 million people ended their cable TV subscriptions in Q2 2013, according to analysts at SNL Kagan.

Some of those people went to other TV-supplying services, such as telcos like Verizon or AT&T that offer TV along with broadband internet access.

But overall, the numbers of people who pay for any type of TV service are in decline, according to Multichannel news:

There were 366,000 total net losses across all TV/broadband subs in Q2, according to SNL Kagan.

Cable TV suppliers lost 1.8 millions subs.

But telco companies — internet providers who also supply cable TV, in other words — gained 400,000.

911,000 U.S. homes have cut the cord in the past year, according to MoffettNathanson.

The rate of losses is increasing. In Q2 2012, only 325,000 subs were lost, according to Leichtman Research Group.

MoffetNathanson's Craig Moffet was the analyst who famously coined the phrase, "Cord cutting used to be an urban myth. It isn’t anymore."

Where are all the cord-cutters going? Here's one theory: As the availability of free WiFi increases, folks whose primary access to video and the web is on mobile devices and tablets — the young and the poor, in other words — have a less urgent need for subscriber services.

The pay TV business is still huge, of course. But the losses in old-fashioned cable are not being gained by telco/internet suppliers who also supply TV. Here's the overall universe, per Multichannel News:

... top cable MSOs had 50.5 million video subs, ahead of satellite’s 34 million, and the top telcos’ 10.03 million.

 

[cuseinchina]

Another 1.8 Million People Just Ditched Cable TV As Cord-Cutter 'Myth' Turns Real
Cable subscribers are declining in an era of free WiFi.


Another 1.8 Million People Just Ditched Cable TV
Business Insider
By Jim Edwards | Business Insider – 3 hours ago


She's not watching TV.
Another quarter, another dismal set of numbers for the TV business. About 1.8 million people ended their cable TV subscriptions in Q2 2013, according to analysts at SNL Kagan.

Some of those people went to other TV-supplying services, such as telcos like Verizon or AT&T that offer TV along with broadband internet access.

But overall, the numbers of people who pay for any type of TV service are in decline, according to Multichannel news:

There were 366,000 total net losses across all TV/broadband subs in Q2, according to SNL Kagan.

Cable TV suppliers lost 1.8 millions subs.

But telco companies — internet providers who also supply cable TV, in other words — gained 400,000.

911,000 U.S. homes have cut the cord in the past year, according to MoffettNathanson.

The rate of losses is increasing. In Q2 2012, only 325,000 subs were lost, according to Leichtman Research Group.

MoffetNathanson's Craig Moffet was the analyst who famously coined the phrase, "Cord cutting used to be an urban myth. It isn’t anymore."

Where are all the cord-cutters going? Here's one theory: As the availability of free WiFi increases, folks whose primary access to video and the web is on mobile devices and tablets — the young and the poor, in other words — have a less urgent need for subscriber services.

The pay TV business is still huge, of course. But the losses in old-fashioned cable are not being gained by telco/internet suppliers who also supply TV. Here's the overall universe, per Multichannel News:

... top cable MSOs had 50.5 million video subs, ahead of satellite’s 34 million, and the top telcos’ 10.03 million.

So the run rate on that is nearly 8m/year - so in 36 months the cable companies could have lost 50% of their video customer base. wow. I mean it's not likely to go at that rate, but still way bigger losses than i would have expected this 'early in the game'.

 

[Bornorange]

.

You are in left field on paragraph one. That ruling doesn't say that internet sites can't be bundled together. There is no reason why FOX and ESPN can't charge admission to their site (ESPN already does for ESPN3.com and Rupert Murdoch already does for many of his companies, like the Wallstreet Journal Online) and there is absolutely no reason why ESPN and FOX can't agree that access to one site will give access to another, as is and has been a common practice in the adult industry (which has billions of dollar in revenue every year) for over 20 years. The fact that cable companies can't bundle internet access with cable services is completely irrelevant.
...he initial bundling was done correctly. I'll give you an example:

. . . . . . . . . . . . . . . Product A . . . . . . Product B
Customer 1 . . . . . .$4 . . . . . . . . . . . . $0
Customer 2 . . . . . .$3 . . . . . . . . . . . . $1
Customer 3 . . . . . .$1 . . . . . . . . . . . . .$3
Customer 4 . . . . . .$2 . . . . . . . . . . . . .$2
Customer 5 . . . . . . $4 . . . . . . . . . . . . .$0
Customer 6 . . . . . . $0 . . . . . . . . . . . . .$2

There is a total of $22 that can be extracted from these two products ($4 + $3 + $1 + $1 +$3 + $2 + $2 + $4 +$2 = $22). The grouped rate for the Product A + Product B combo would be $4 and yield revenue of $20, which is 91% efficient (20/22 = 91%). Nominally, they might have a rate of $2 each ($4/2 = $2). When sold a la carte, the rate for Product A would be $3 and the rate for Product B would be $2 and it would cost $5 ($3 + $2 = $5) to get access to each channels. However, only three people would buy Product B and 3 people would buy Product A. That creates a return of $15, which is only 68% efficient (15/22 = 68%). In the end, even though the price to have access to both products increased from $3 to $5, and the price for Product B alone is more than the initial package price, the cable provider lost 23% of their value extraction efficiency, which translates into $5 loss. However, 6 people would have access to one of the two channels, so advertising rates could very well go up.

To clarify, the first example shows how bundling can be more efficient at extracting value. Admittedly these numbers are cherry picked, but that's actually OK because content providers can and do cherry pick what they bundle together. Furthermore, we know that the media landscape looks this way because content providers bundle content together and why else would they bundle the content if it wasn't making them money? The second example shows how going to a la carte can lead to more total viewers and thus more advertising dollars. I freely admit that this is only one of many possibly scenarios, but, given that there are only two revenue drivers, and as seen in the last example, switching from a bundled system to a la carte harms one revenue driver, increases in advertising revenue is the only way that there would be some hope of mitigating the loss. However, the increase in advertising revenue isn't enough to offset the total loss, otherwise content providers would go a la carte...

As for your 1-1 ratio, keep in mind that it is an internet sports board. Write "UCONN s*cks" in a post followed by it's "____ O'clock and Georgetown still s*cks" and you are pretty much guaranteed 3-5 likes (and rightfully so)

Got it. I understand!
UCONN sucks and
Its 4 O'clock and Georgetown still sucks

 

[nzm136]

McDonalds operates in an extremely competitive environment. Comcast is essentially a regulated monopoly/oligopoly - so comparing the two ignores the crux of the point which is that bundling is a monopolistic practice crammed down consumers throats in order for cable companies to earn excess profits. The cable monopoly/oligopoly drives excess profits for what is essentially a commodity middle man service. It is in the interest of both consumers and producers of quality and/or niche content to cut out the middle man - and it's ironic/funny that they will use the middle-man's technology to do so.

Have you ever walked into a Subway restaurant with the intent of buying chips and a sandwich and walked out with chips, a sandwich, and a drink because it was "'only' 50 cents more?" If so, you've been the "victim" of fast food bundling. That said, I do agree that fast food and cable are inherently different. For starters, few people nit pick their fast food prices like they do their cable bill, so consumers do not act the same with regards to both purchases. However, my point is that if you're going to seek government regulation of bundling, a process that you seem to view as inherently evil and unfair, then you must be prepared to open Pandora's Box.

Yes, but bundling does not happen purely as a result of the middle man. Cutting out the middle man may improve efficiency, but it is not the end of bundling. The same goes for the internet.

I have no idea why you care because neither of us will remember this or care in 5 years, but I think that in 5 years, cable and Satellite TV will exist much as they do now, but there will be a significantly stronger internet presence. Some content will remain free. This content will likely usually be general interest content that appeals to a wide array of viewers, but will often lack a passionate and dedicated audience. It will be supported by a mixture of advertising tailored to specific viewers and conventional advertising. The remaining content will be available for prescription purchase from various internet sites. Some of it will come bundled with customers' cable subscriptions, whereas much of the rest will come in the form of a number of sites bundled together. I could see an ABC basic package with "Disney Kids," "ESPN Sports," and possibly other packages as "premium packages" that require access to the basic ABC package. However, I would not be surprised to see bundles that transcend corporate ownership structures. For instance, I would not be surprised to see NBC News, CNN, and the BBC News in a bundle, or the Discovery Channel, the Travel Channel, National Geographic Channel, and the BBC in a bundle. I doubt rates will decrease in nominal dollars, although rates increases might not beat inflation, especially once one takes mixtures of cable/internet subscriptions into account. Furthermore, I wouldn't be surprised to see more content options.