Unbundled TV Channels Are Still A Ways Off

Derek Thompson of The Atlantic on how watching ‘unbundled’ ESPN and AMC could cost more than you think:

Today, the typical household pays a little under $40 a month in total subscription fees to all of the networks. So, $30 for standalone-ESPN plus $10 for standalone-AMC is already equal to or more than the total programming costs in your cable bill right now. In simpler English: TV just got more expensive with just two a la carte channels.

You could respond to this by saying that, in an unbundled world, ESPN and AMC would probably downsize to meet the economic realities of their audience. And fine. But the big point is that a la carte seems to many people to be technologically inevitable, economically efficient, and unquestionably good for consumers. The best I can say is: I almost agree with the first part.

I continue to hear regularly, “HBO needs to start offering me HBO Go without a subscription, it’s so stupid!” Of course these people don’t know the economics of it. The way that the cable companies give them free marketing HBO can’t just walk away. Anyone who has a cable company plan (like DirectTV) knows that they call, e-mail and traditionally mail propaganda about HBO and Showtime all the time. If HBO went on their own, they have to pay for all of this themselves. Not to mention the fact that many cable companies would drop them all together, meaning that people who aren’t interested in things like HBO Go on their iPad, etc. would be left out in the cold. And ultimately they would lose subscribers overall, and have to make up for that with much higher rates.

This Atlantic article doesn’t talk about HBO, instead it focuses on ESPN and AMC. The article talks about how every single cable subscriber pays for ESPN right now, whether they want it or not, and that if ESPN went at it alone, industry experts think that they would have to charge $30 per month, per user to make the same amount of money. This is likely true for most channels, and if you are someone who only wants to watch ESPN, or only watch AMC, or Bravo, this plan is probably fine for you. But the truth is that most people watch at least a few channels, and even if each channel is $10 a month, 5 channels gets to $50 really quickly. For most people it will make more economic sense to just stick with what they have, and the cable companies know this, and are banking on it staying that way.

In the long run, the model is going to change in some way, but probably not exactly like people hope, straight a la carte. At some point someone is going to try this, or something very close. It could be HBO, but it’s likely that would be priced to discourage people from ditching their cable subscription. If HBO said people could have HBO Go for $50/month, would people do it? I suppose there are some people who are cable cutters who would, but the vast majority of people who already have a cable plan probably wouldn’t, it just doesn’t make economic sense. And if ESPN costs $30, that means that a person would pay $80 for two channels, plus they would have to bring their own hardware.

The music industry took a long time to cave, but they finally have in recent years, and the full on streaming options are here. Netflix has essentially done that for movies. So it’s just a matter of time before the same thing happens for TV. If HBO and ESPN wait long enough, enough people will start ditching cable that it will make financial sense for them to react, but HBO is too smart for that. They will find a way to get to non-cable subscribers, but it won’t be just buy offering straight HBO Go subscriptions. It will be more complex, and not exactly what consumers want, but it will at least give HBO the ability to say “here you go.”