With the Breaking Bad finale upon us, what would you pay just to be able to watch AMC Networks Inc (NASDAQ:AMCX)? Maybe $5 a month?
Sports fans, how much would you pay for a cable TV service that only provided ESPN? Ten bucks? Maybe $15?
For fake-news junkies, what is your nightly fix of Jon Stewart and Stephen Colbert worth? Would you pay $3 for your Comedy Central?
Unfortunately, these a la carte cable prices aren’t even half of what you’d pay for these channels if John McCain’s Television Consumer Freedom Act of 2013 compels pay-TV providers to get rid of the cable bundle.
Sen. McCain seems to be missing something in his analysis that an a la carte TV service would benefit consumers. In fact, doing away with the cable bundle would likely result in higher prices for most households, fewer viewing options, and less quality programming. So, although a la carte cable pricing seems like it’s a consumer friendly concept, the cable bundle model is here to stay. At least for now.
Picking and choosing
With about 100 million cable TV subscribers in America, everyone pays for a similar set of channels, even the ones they don’t watch. So, while I’m paying to watch Kornheiser and Wilbon bicker on ESPN, I’m also paying for your kids to watch Dora, Spongebob, and Phineas and Ferb.
In a world where I can subscribe to only the channels I want, I wouldn’t be subsidizing your kids’ favorites and you wouldn’t be subsidizing my sports fanaticism. As a result, we’d pay higher prices for the channels we want, but nothing for the channels we never watch. Everything seems great!
But a funny thing happens when you give consumers this choice. Prices increase much more than people expect.
Without the cable bundle, ESPN likely would see its subscriber base fall from 100 million to closer to 20 million super-fans. As a result, it would increase its fee fivefold, to about $30 per month. That’s just its cut.
Take into account that cable providers have fixed costs in delivering the feed and that they’re out to make a profit as well, and you’re already paying roughly the same you do for the entire bundle you get now.
In fact, out of the average $80 cable bill, about $30 goes toward programming. So, those 20 million sports fans will undoubtedly see their cable bill go up. And maybe they should — sports is the costliest content.
Oh, the drama!
But for the non-sports fan, things don’t get much better. Say you love AMC’s Mad Men, Breaking Bad, and The Walking Dead. Currently, $0.35 of your cable bill goes toward carrying that channel — chump change compared to ESPN’s $5.54 affiliate fee.
But that number soars in the a la carte world. Even if every one of the 5.9 million viewers who tuned into the Breaking Bad premiere this year chose to subscribe, AMC Networks Inc (NASDAQ:AMCX)’s affiliate fee would need to balloon to well more than $5 to maintain its revenue. Add a few more channels with similar audience sizes into your lineup, and things add up quickly.
But that’s just part of the hit for networks. If AMC Networks Inc (NASDAQ:AMCX) has a maximum of 5 million viewers for a show, advertisers aren’t going to pay as much for a spot during The Walking Dead premiere next month. They’re not going to pay ESPN as much for a spot during Monday Night Football. The networks will have to make up this revenue somehow — say, through higher subscription fees — or they’ll see profits fall.
So, in the event that consumers are provided “freedom” from the cable bundle, you’ll likely pay more for your TV package. And what do you get in return for your higher priced television? Less quality programming.
A la carte cable will kill the best shows
The best television shows are no longer on broadcast television. Cable networks won more Emmys than broadcast networks last year. You probably watch some of them, and you have your cable bundle to thank for them.