It’s fun to see Wall Street analysts defend the pay TV oligopoly’s bundled pricing as a model of market capitalism — and a kind of public service. And nobody does it better than Needham and Co analyst Laura Martin, who has some eye-popping estimates this week in her intriguing analysis of what might happen if consumers had the freedom to just pay for the networks they want. She figures that could result in the loss of at least 124 channels, $45B a year of TV ad sales, 1.4M jobs, $20B in annual tax payments, and $117B in market value for media company investors. The big problem: Channels need to reach at least 30M households in order to be measured by Nielsen, and most wouldn’t cross that threshold if they had to compete on their own. That would endanger much of the $56B that national advertisers paid content creators in 2012. To stay even at about 180 channels per subscriber, then, consumers would have pick up the slack — adding the advertisers’ expenditures to the $76B that subscribers paid (60% of which went to content creators with the remainder to distributors). The average annual bill would rise about 75% to $1,260. But that’s a fantasy: The goal of a la carte is to lower consumer payments. Surveys show that consumers want to pay about $30 a month. That leaves too little revenue to sustain the status quo. It costs an average of $280M a year to program an entertainment channel (from $1.1B for TBS to $50M for TV Guide Channel). While at least 124 would have to go, as many as 173 might disappear depending on other assumptions. The economic argument is so lopsided that “we foresee only a remote chance that the TV ecosystem will be unbundled in the U.S.,” Martin says.
Time Warner Cable Doesn’t Rule Out A La Carte Pricing
John McCain Introduces Cable A La Carte Legislation
But the analyst has one concern: Television is losing its hold on 18- to 34-year-olds. Viewers typically only pay for cable or satellite if they want to watch at least 18 channels. “Unless the content participants create programming this group wants to watch, there will be no TV ecosystem to save in 10 years,” Martin says.
Must Read Stories
Subscribe to Deadline Breaking News Alerts and keep your inbox happy.