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Message: [QUOTE="nzm136, post: 725676, member: 2531"] [U]Underlined[/U]: This is not right. 1. A la carte would hurt the margins of absolutely every content provider and content deliverer and 2. a la carte doesn't necessarily mean the end of cable, so it doesn't necessarily mean cutting out the middle man. Similarly, bundling can happen without cable. Websites do it all the time ([I]see the adult entertainment industry[/I]). Here's an illustration: 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, which equals $10. Nobody is paying for anything that they don't want. Nobody ever pays more than the value of the content that they want and are receiving. Once a customer makes a payment, that customer's payment is collected and combined with all the other similarly situated customers' payments, and the money is collected into a pool, where it is distributed as per a series of individual contracts, which are based on the level of interest and the extent of that interest in the relevant community. Although it appears that each subscriber is supporting all three channels, as they receive all three channels and the fees are bundled together, it is not random chance that Channel A receives $20, which is the amount that Person 1 + Person 2 are willing to pay for it and Channel B receives $10, which is the amount that person 3 is willing to pay for it. [B]Bold[/B]: He doesn't. He is a member of a demographic that was taken into account when ESPN negotiated their rates, and the rates were adjusted accordingly based on the size and characteristics of the demographic as a whole. Here's an illustration: 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. As noted in an earlier post, it's worth noting that my numbers for statement two are very cherry-picked in that gains from bundling will not be realized from all combinations. 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. [I]Italics[/I]: No. Bundling is the end effect of a semi monopolistic environment, which is the inevitable conclusion to a purely capitalist system, and there's nothing more American than capitalism. [/QUOTE]

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