Will Skinny Bundles Reduce Your Video Bill?

            Consumers have tolerated years of bloated video programming tiers with annual rate increases well in excess of the generate inflation rate. They have not had any options largely because no intermediary wanted to tick off a key programming source.

            Seemingly overnight, intermediaries have begun to offer smaller and presumably cheaper bundles of programming.  If we’ve reached a tipping point, perhaps intermediaries have grown bolder in light of programmer experiments with disintermediation, the elimination of an intermediary heretofore able to impose a markup for little value enhancement.  HBO, CBS, Netflix, Major League Baseball and others now offer a viewing option requiring a broadband subscription without also requiring a pay television subscription.

            Will these new skinny bundles offer consumers a cheaper and better value proposition? Don’t bank on it.

            Savings, if they occur, will flow to consumers that eschew all sports content networks and refrain from the most costly non-sports networks.  So if the following content providers offer you “must see” video, a skinny bundle probably won’t save you money: any and all ESPN channels, any Regional Sports Network, TNT, Disney, Fox News, NFL, USA and TBS.

            Programmers, new packagers like Hulu and incumbent distributors know how to blend must see and never see video.  Those undesirable channels do not add much by way of cost and get added, largely because content producers like to expand their “shelf space” with ancillary channels.

            A skinny bundle likely will not have must see content in inventory, or will require supplemental payments.  No one has announced a true a la carte single network purchase option, instead offering smaller, additional tiered, themed content like sports, children’s programming, lifestyle, etc. as Verizon has proposed.

            Bottom line: even if you might make do with 7 -15 channels, others in your household typically won’t make do with the same ones you like, or the skinny bundle inventory.

Cable A la Carte and Economic Efficiency

  

          In preparing updates to the loose leaf treatise All About Cable and Broadband, I reviewed the FCC’s latest report on cable television prices.  See  http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-12-377A1.doc.  The Commission reports that cable operators consistently raise rates well in excess of the Consumer Price Index, a broader measure of prices.  On the other hand the per channel cost per month has declined slightly in light of expanding inventories of channels offered in each program tier.   So bundling enhances the value proposition, or does it?

         Looking at the FCC’s report and my Comcast bill, I could not help but think about a la carte pricing.  Cable operators and content suppliers hate this option and have refused to pursue it even though cable networks have the addressability and other technological features able to provide it economically. One can appreciate why: who would give up a guaranteed payment from each subscriber, regardless of their interest and viewership, in exchange for perhaps higher payments from the smaller number of viewers actually interested in watching a particular channel?  Most cable and satellite subscribers opt for a handful of program sources with little regard for most offered channels.

         Of course it would support both consumers’ specific content demand and economic efficiency to offer al a carte, but who will emphasize this point?  On the contrary sponsored economists come up with transparently bogus rationales ostensibly proving that a bundle is both cost-effective and efficient.  So cable subscription enhances my welfare and offers a better deal when the operator lards the tier with shopping channels and when proven brands, such as HBO and Discovery expand their number of channel options?  Hardly.

        A la carte would provide consumers the opportunity to customize the number and type of channels.   But just as allowing consumers to pick and pay for selected tracks in a music recording, a la carte would reduce cable operator and programmer revenues.  Pull out all the channels you never watch and then divide that number by your ever increasing monthly video bill.   That represents your true cost per channel.