Intransigent Business Models: Cable TV Bundling & You Get What (Someone Else) Pays For

Over the last few years the concept of cord-cutting has transformed from what some may have discounted as a phase to a full-on trend that is having, and will continue to have, profound impacts on the established pay TV industry.  The idea is simple and the outcome is one that can easily be understood and expected.

Increasing numbers of consumers, myself included, have chosen to ‘cut the cord’ and stop paying for television programming.  While there may be a number of reasons for making the decision, the predominant one, and the one that drove my own decision, has been the increasing cost of pay TV subscriptions with no ability to manage the cost by toggling what one pays for.

I still remember the numerous calls I made to my provider explaining to them that I only had interest in 2 or 3 channels – and more specifically 2 or 3 shows.  I did not want, and had no intention, to pay for all of the other channels they tried selling me on.  In the end I chose to cut the cord and I have absolutely no regrets.

What I find interesting about this is the intransigence that comes from the TV network industry regarding a trend that is easy to spot and impossible to fight.  The industry has been spoiled with easy money by bundling shows and forcing consumers to pay for more than what they might want.  Forbes recently reported that cable companies are artificially lowering cable subscriber losses by using bundling.

ESPN, for example, has forced itself into so many bundling packages that while roughly 100 million consumers are paying for it only about 1.5% actually watch or want the programming.  For ESPN fans, this is great – you get to watch your favorite program at the expense of 75-90 million consumers who don’t want it but have to pay for it anyway.  The New York Times reports that ESPN fees are $5.54 per bundled subscriber.  That is more than four times what the nearest network, TNT, charges.

This is a losing battle for the TV networks and their enthusiastic attempts to extract profits with monopolistic behavior will only hasten what would otherwise be a long but inevitable change in how consumers access and pay for programming as well as how programming is distributed.

Consumers are making it abundantly clear that they want access to content on their terms.  That means that content must be available on demand, without restriction and decoupled from bundles.  Just as the idea of buying a music CD just to have one song has no chance in today’s market, so is that of expecting consumers to pay for 100 channels when they only really want 1 or 2.

About Jose Velez

I received my degree in economics and finance from the University of Texas at Dallas School of Economic, Political and Policy Sciences in 2006. Since then I have worked within the energy industry focusing on regulatory and environmental issues.
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