Cable/satellite Vs. local stations rant

[therealjm12]

Here in upstate NY, as well as other parts of the country there is a major battle going on between local stations and Time Warner cable. WKTV in Utica, N. Y. has been pulled off Time Warner and replaced by another NBC affiliate out of Pennsylvania. Time Warner is threatening to take the Sinclair (FOX) stations off in Syracuse & Rochester as well as other Sinclair stations, elsewhere. As much as I don't like Sinclair (pure evil) I do side with the local channels, in general.
Let me use WKTV as an example. WKTV is owned by a small group. WKTV is the only TV station in the market providing local news at the moment. WKTV is a fully staffed TV station with the expenses that go with it. News Dept. production, engineering, sales & office and program costs. Plus the expenses of just being a broadcast station- transmitter, links, HD upgrades, etc.
They feel they should be paid by cable as any other channel on their service. Let's take ESPN for example. ESPN does run commercials and plenty of them. Being paid by the providers is just a bonus for them. Anyone with a computer, public domain or just crap programs and an uplink can basically do the same thing. And from what I see from most of the 600 plus channels I receive that is whats going on. But they get paid by Time Warner etc. Why shouldn't a far more popular local station be able to cash in?

The answer, in my opinion, is a la carte. Let me and you pay for just the channels we want. Then I don't have to worry about channels getting paid. Only the ones I choose to subscribe to will be getting the extra $$ from the provider. A lot of the channels will have to improve or disappear. No more socialism in cable/satellite. Don't tell me how my costs will go up. I would probably subscribe to 10 - 15 channels anyway. I don't need 600 channels I never watch.
A couple years ago in a Senate hearing John McCain made the statement that a la carte programing should be looked into and become an option. So maybe now is the time.

 

[sandiegoinexile]

A la carte will never happen. And if it does, each station will want to charge something silly like $9.99 a month. You have a few options aside from TW. DishNetwork. DirecTV. Rabbit Ears.

 

[MattParker]

Never say never. Remember "people will never pay to watch television."

In many TV markets, upwards of eighty percent of the households watch on cable. Local stations need cable. They are playing poker and their hand is not that great. They are bluffing. Once in a while, they pull the plug. People get upset. People call the cable company and complain. The station gets a little more money than they would have.

The station is the one pulling itself off cable - not the other way around. Any local station can demand cable systems carry them; they just don't get to ask for money if they do that.

Keep that antenna on your roof. You never know when you might need it.

It was nice when cable systems brought in signals from other markets. But local stations put an end to that and demanded exclusivity. The NAB has more pull with Congress than the cable lobby.

 

[fybush]

Time Warner claims that about 40% of their costs are attributable to programming fees, which, if you take them at their word, means that 60% of their costs come from the infrastructure that needs to be there whether you watch one channel or 200: billing, marketing, call center, service and maintenance crews, equipment, local ad sales, franchise fees and so on.

So even if a la carte becomes a reality, it's not going to knock your cable bill down from $80 to $5, even if all you watch are two or three channels. The best it might do would be to knock it down to a base fee of $30 or so to cover the cable company's transport costs of getting the channels to you, and if you don't think the industry would quickly find a way to charge enough per channel to bring your bill right up to where it is now...well, maybe you're watching a different cable industry. It's possible that you might be able to save some money by not taking the sports tier, and if enough viewers chose not to do so, it might even temper the insane TV rights fees pro sports now gets, but I'm not even sure I'm that optimistic.

And then there are the negatives: if the WKTVs of the world know that they can pretty much call their own shots when it comes to setting fees to be passed through to consumers in an a la carte world, what incentive do they have to keep those rates even as low as they are now?

One more thing: cable companies derive an increasing amount of their revenue from selling local ads on basic cable. Reduce the universe of viewers seeing those local ads, as a la carte would inevitably do, and you reduce that revenue - which will inevitably mean pushing up that "delivery charge," or however it's structured, still higher.

TANSTAAFL.

 

[landtuna]

You guys can badmouth ala carte all you want but I remember the good old days of C-band. There were hundreds of "programmers" virtually all of whom offered ala carte and the individual services were very reasonable (even allowing for inflation).

 

[azumanga]

I remember the good old days of C-band. There were hundreds of "programmers" virtually all of whom offered ala carte and the individual services were very reasonable (even allowing for inflation).

I had a C-Band dish a couple of years, and it was great to subscribe only the channels you want and only pay peanuts for each one. (The premiums and The Disney Channel being the exceptions -- their costs, even for Disney, was as pricey as cable.)

 

[fybush]

What sort of national penetration level did C-band have at its peak - 2%? 3%? Maybe 5%, tops?

The companies offering C-band a la carte service had almost no overhead of their own to carry. The programming on the channels was being largely subsidized by the cable companies paying for it. The transponders were already being paid for by the programmers to get their signals to the cable companies. Whatever little bit of revenue came in from a la carte C-band DTH subscribers was pure gravy, since nearly all of them were in uncabled areas...but can you really make the case that most of those services would have been able to survive if they'd had to depend on C-band DTH a la carte revenue as anything more than a minor niche-market income stream in addition to their bread and butter?

 

[landtuna]

What sort of national penetration level did C-band have at its peak - 2%? 3%? Maybe 5%, tops?

The companies offering C-band a la carte service had almost no overhead of their own to carry. The programming on the channels was being largely subsidized by the cable companies paying for it. The transponders were already being paid for by the programmers to get their signals to the cable companies. Whatever little bit of revenue came in from a la carte C-band DTH subscribers was pure gravy, since nearly all of them were in uncabled areas...but can you really make the case that most of those services would have been able to survive if they'd had to depend on C-band DTH a la carte revenue as anything more than a minor niche-market income stream in addition to their bread and butter?

I largely disagree with your opinion. And penetration percentage is unimportant here.

Once subscriptions came to C-band (and later to Ku-band) the programmers were the marketing arm and authorized services through a shared-cost system located in San Diego. As customers paid for their own decoders and dishes there was no end customer equipment cost to the services either (and it was that cost and subsequent complexity that limited C-band appeal). Subscribing to most services was as easy as logging on to the provider web site and selecting what services you wanted. A few minutes later it appeared on your screen. I really doubt there was ongoing significant cost to maintaining that system.

But back to the direct topic.....the program originators got their revenue primarily from cable then although C-band at one time was a significant source. Virtually all programmers offered both ala carte and tiered subscriptions. In my area at least cable charges were significantly higher than C-band because (a) there was only one cable company per franchise and (b) there were hundreds of C-band providers to choose from. Therefore, the primary difference in pricing seems to be lack of competition and as that disappeared the ala carte option was dropped for profit motives.

So long as we have no choice in cable service (most areas) and only two providers of sat services we will continue to pay through the nose for programming. Ala carte could become a reality again but probably only if government mandated.

 

[fybush]

I disagree that penetration is unimportant, and here's why:

As you correctly note, "the program originators got their revenue primarily from cable."

You were able to get C-band service for a song because the real bills for that service were being paid largely out of other pockets, primarily those of the cable industry. Because the transponder costs and programming costs were already paid for by cable, the incremental cost of providing that programming to a relatively small number of C-band subscribers was close to zero.

Again I'll ask the question you didn't answer directly: can you make the case that most, or any, of those programming services would have been able to survive if they'd had to depend solely, or even largely, on C-band a la carte revenue instead of cable for the bulk of their operations?

I think that's a difficult case to make, and I think it does matter greatly. Low-cost a la carte C-band (which I agree wholeheartedly was a good thing, BTW) worked because it never grew large enough to threaten the cable (and later DBS) revenue stream that actually paid for ("subsidized," even, if you want to go that route) the operation of the channels it carried.

If a la carte C-band had become a large enough force to seriously diminish the income the programmers were getting from cable and later from Dish/Direct, I find it very hard to believe that the rates the programmers charged to C-band customers wouldn't have gone up, substantially and swiftly. So would the costs of providing subscriber service, which I suspect were higher than you estimate - that sort of thing doesn't scale up cheaply. Had C-band ever become more than a niche, do you think those "hundreds of providers" would have lasted forever? When there's real money to be made in a maturing industry, the free market tends to narrow the playing field and shake out the smaller players pretty quickly.

And as you astutely note, even though C-band programming costs to the end user were low, the other costs were substantial. At a time when "expanded basic" cable, at least here in upstate New York, ran no more than $40 or so a month with no ongoing equipment costs (as long as you had a cable-ready set), the four-figure cost of a C-band installation, especially one with multiple receivers, wasn't an easy pill to swallow.

 

[landtuna]

Again I'll ask the question you didn't answer directly: can you make the case that most, or any, of those programming services would have been able to survive if they'd had to depend solely, or even largely, on C-band a la carte revenue instead of cable for the bulk of their operations?

I think we've gotten a bit off topic. The question you've asked assumes a comparison of ala carte revenue vs tiered revenue and not whether C-band could carry the total cost. From many conversations on the C-band boards it is my opinion that most subscribers opted for the ala carte subs even though tiered subs were available (and at a slight reduction in price over each service purchased individually).

Another great advantage of C-band was that subs were available in 3-month internals vs today's model of 12 and 24 months. Some programmers would even let you subscribe per month. That was great if you wanted ESPN for example to cover the NCAA football season but didn't want it the remainder of the year. All together, these subscription options saved a ton of money.

Cable (there was no DBS then) obviously paid the bulk of the revenue to the programmers and for much the same reason as DBS has replaced C-band - the initial outlay for equipment (about $2,000 give or take) and the complexity of operation and maintenance made it more attractive to the general population than C-band (never mind that C-band had much better audio and video).

 

[fybush]

All together, these subscription options saved a ton of money.

They did, yes. I'm not arguing that point. And for what it's worth, at least some of those options are available to cable subscribers. I add HBO to my subscription for a month or two every year when it's showing one of the series I enjoy. We spend a weekend or two watching all the episodes on demand, and then cancel when we're done. TWC seems to be OK with that. None of the services they sell to me are on a contract basis, and there's no charge to upgrade or downgrade.

Back to the point at hand, though: if I'm following this thread correctly, therealjm12 called for the mandated introduction of a la carte, several posters (myself included) pointed out some of the economic considerations that make it doubtful, and you offered this:

You guys can badmouth ala carte all you want but I remember the good old days of C-band. There were hundreds of "programmers" virtually all of whom offered ala carte and the individual services were very reasonable (even allowing for inflation).

That's all well and good, and I agree with you that those were indeed good times (even though I never had a C-band dish myself, I enjoyed watching them at the homes of friends who did).

But the good old days of C-band a la carte are only relevant to this discussion if there's a way to show that the economic model in use for C-band then can be made to work somehow with cable or DBS now. That goes beyond "a la carte vs. tiered" - it seems to me that we're both in general agreement that C-band programming costs in general were being heavily subsidized by cable/DBS revenue, which had the effect of making all C-band programming artificially low in price for the end user, regardless of whether they were paying by the channel or by the tier.

That was great for the end user - I think we're in agreement on that point, too - but it still doesn't answer the question of how one would build a sustainable, large-scale business at the programming end off that model alone in today's economy. Without the answer to that question, any discussion of the C-band days, however pleasant the nostalgia may be, doesn't seem to me to move beyond nostalgia into practicality.

 

[landtuna]

... it seems to me that we're both in general agreement that C-band programming costs in general were being heavily subsidized by cable/DBS revenue, which had the effect of making all C-band programming artificially low in price for the end user, regardless of whether they were paying by the channel or by the tier.

If I gave that impression it was not intentional. I don't know if cable subsidized C-band. I acknowledged only that cable revenues were the majority. I subscribed to our local cable company immediately prior to setting up my first C-band dish (mid-80's) and as I recall the fees were very similar. After DBS came on-scene there was a substantial difference in DBS vs C-band - mainly because DBS did not offer ala carte (and "gave away" their receiving equipment).

 

[arnoldevns]

I understand the desire to end these programmming conflicts and the thought that a la carte is the answer. The problem is that a la carte would create a whole new set of problems.

A la carte would have worked if cable had been set up that way to begin with. Trying to implement it now will not make cable customers happy. Here's why..

You'll have a fraction of the channels you have now and pay much higher cable bills.
Smaller cable channels would go dark because they wouldn't have enough subscriber or advertising revenue to stay in business. The more popular cable channels would jack up their per-household rates to become premium channels. Instead of having ESPN as part of your cable package, you would have to pay say 10 bucks a month for it. Maybe 5 bucks each for USA or TBS, etc. They might still have ads on there too. If they lost half or 2/3rds of the households they now have, they would find a rate they could charge to keep enough households to maintain their current revenue. I suspect many people who kept cable or satellite would pay 2 or 3 times what they do now but get far fewer channels.

The only winners out of this deal would be the broadcast stations as some consumers ditched cable and headed back to their free offerings.

 

[landtuna]

I understand the desire to end these programmming conflicts and the thought that a la carte is the answer. The problem is that a la carte would create a whole new set of problems.

A la carte would have worked if cable had been set up that way to begin with. Trying to implement it now will not make cable customers happy. Here's why..

The only "problem" would be for those cable systems that do not have addressable receivers so that individual services could be enabled/disabled.

You'll have a fraction of the channels you have now and pay much higher cable bills.

That continues to be an opinion. I have seen nothing to indicate that would be the case.

Smaller cable channels would go dark because they wouldn't have enough subscriber or advertising revenue to stay in business.

So you are more than happy to subsidize little-viewed services? I'm not. I don't care if the majority of services go dark because I never watch them. Nor do the majority of subscribers.

The more popular cable channels would jack up their per-household rates to become premium channels. Instead of having ESPN as part of your cable package, you would have to pay say 10 bucks a month for it. Maybe 5 bucks each for USA or TBS, etc. They might still have ads on there too.

This is all conjecture as well. Think about it....most people who have subscriptions don't watch ESPN therefore ESPN would have to set its rates to attract as many subscribers as possible. The rate pressure is downward, not upward. Today they get $4/month whether you watch or not.

If they lost half or 2/3rds of the households they now have, they would find a rate they could charge to keep enough households to maintain their current revenue. I suspect many people who kept cable or satellite would pay 2 or 3 times what they do now but get far fewer channels.

History says you are not correct. The more competition the lower the price.

The only winners out of this deal would be the broadcast stations as some consumers ditched cable and headed back to their free offerings.

Broadcast stations would receive no more revenue after ala carte than they do now (unless a separate revenue-sharing system for carriage were in place). Most subscribers would choose their local networks.

 

[fybush]

The only "problem" would be for those cable systems that do not have addressable receivers so that individual services could be enabled/disabled.

Who pays to administer the system? If you can add and subtract individual services over the phone, you're going to need a much bigger call center to handle those calls. People cost money. If you're going to be able to do it on the web, you've got to build and maintain the websites and scripts to handle channel additions and subtractions, which requires connections to both the headend servers and billing systems, both of which would have to be updated. Who pays for all that? The end user, of course.

Cable companies' finances are predicated on a model of relatively constant revenues from subscribers. Who finances the unpredictability of consumer whims that could dramatically raise or lower those revenues as programming comes and goes from certain channels? Let's say Time Warner Cable's stock drops significantly as Wall Street sees a less-predictable revenue stream against higher operating expenses. It becomes more expensive for TWC to take on debt to keep its physical plant up to current standards, and who pays the price?

You'll have a fraction of the channels you have now and pay much higher cable bills.

That continues to be an opinion. I have seen nothing to indicate that would be the case.

Smaller cable channels would go dark because they wouldn't have enough subscriber or advertising revenue to stay in business.

So you are more than happy to subsidize little-viewed services? I'm not. I don't care if the majority of services go dark because I never watch them. Nor do the majority of subscribers.

I don't think you get to have it both ways here. Tested says, and I agree, that the overall number of channels will decline as those with the lowest viewership can't make a go of it. Either that's true...or your assertion that you "don't care if the majority of services go dark" is based on a false proposition.

The problem here is that once we get beyond the top dozen or so of the most popular channels, we've entered the long tail. Let's stipulate that the Weather Channels and TBSes and MTVs and Nickelodeons of the world probably aren't going anywhere. You may not give a rat's patootie whether most of those 250 other channels goes away, but the odds are pretty good that there's one or two of them that are valuable to you, and if that particular niche channel is the reason you're getting cable, you're going to think twice about keeping cable at all if it goes away. That's not a significant number of customers for any specific channel, but the more fractured our media world becomes, the more likely it is that the aggregate number of cable customers keeping cable for one or two specific niche channels becomes pretty high.

In other words, as the "majority of services" go dark, the number of people dropping cable for perceived lower value keeps growing. That feels to me like the recipe for a death spiral, not like any kind of recipe that's likely to result in better cable service.

The more popular cable channels would jack up their per-household rates to become premium channels. Instead of having ESPN as part of your cable package, you would have to pay say 10 bucks a month for it. Maybe 5 bucks each for USA or TBS, etc. They might still have ads on there too.

This is all conjecture as well. Think about it....most people who have subscriptions don't watch ESPN therefore ESPN would have to set its rates to attract as many subscribers as possible. The rate pressure is downward, not upward. Today they get $4/month whether you watch or not.

This assumption is only true if you assume that the total cost to ESPN of producing programming at its current quality level is insignificant. Let's say that 100 million cable households around the country get ESPN right now (I think that number's a little high, but it makes the math easy), and let's use your $4/month number. That's $400 million coming in to ESPN to use for rights to sporting events a little bigger than the Australian Rules Football they were broadcasting in the glory days of C-band.

Let's say that only 20 percent of those households watch ESPN enough to want to pay for it a la carte. Keep charging them $4 a month and now ESPN is down to $80 million a month in programming fees. What does that ESPN look like, how long can it keep the NFL and MLB and the NBA, and how quickly do subscribers begin dropping it because it's not providing the value for which they signed up? Or let's say you hold the $400 million total-revenue figure steady in an attempt to maintain current programming. That's now $20 a month per household, and that's not a figure that's going to keep the cost down to the end user.

(This doesn't even begin to address the advertising that is the other piece of the revenue pie for basic cable: lose the casual viewers who might drift over to AMC or FX or Syfy to watch a show here or there but who would never pay for the channel a la carte, and there goes a significant chunk of ratings, and with it the ad rates that those channels might now be able to charge national advertisers...and the eyeballs the local cable company can sell during local avails.)

Cable, as it now exists, does the long tail very well. All those channels that might only be important to 1% or 2% of the total audience can still manage to be profitable and successful if delivered en masse. Think Amazon here: no individual store could offer the service quality and low price that Amazon does if it focused only on fly-fishing books or German short-haired pointer calendars or Leonard Cohen CDs, but by bringing all those niches together under one enormous overhead-reducing roof, you get a store that can offer incredibly deep selections of all of those things and much more. Is your purchase of a German short-haired pointer calendar subsidizing my purchase of a fly-fishing manual, or are they both contributing to the long tail that makes the whole venture profitable and sustainable in a way that "GermanShortHairedPointerCalendars.com" could never be?

 

[FreddyE1977]

Never say never.

Amen to that. It is all just one FCC bureaucrat penstroke away from happening,
assuming said bureaucrat has the fortitude and a sufficient impetus to do so.

 

[landtuna]

.

I think, in a roundabout way, you have made a point I was trying to make. And that is that most cable subscribers will continue paying for tiered packages because (a) they are cheaper than subscribing individually (even if that were available) and (b) most people want as many channels as their budgets will allow - whether they are regular viewers of every service or not. Therefore, the number of people opting for ala carte is apt to be significantly below what we have been discussing here.

Most TV watchers are not like me. I watch very little TV and would, for convenience, subscribe to a select group, perhaps 5 or so, cable channels if I could and if the cost were reasonable. I did not cut cable because I couldn't afford it. I did so because it was money wasted. No one else in my house watched cable and I only watched half a dozen services infrequently. Most cable subscribers who are having a budget crisis probably already cut down the size of their subscription or have cut cable entirely by now so the effect of introducing ala carte isn't likely to be staggering. Except....

Your example of ESPN. They are perhaps unique because of their very high programming costs - specifically NCAA college football. Right now they get an enormous amount of subscription money (most probably from non-viewers) plus they sell a gigantic number of commercials - the best of both worlds. Their subscription revenue would most likely drop in an ala carte world but by how much is anyone's guess. They would have to then adjust their bid amount for those pricey sports broadcasts but they would still have a significant portion of the subscription revenue. If I were a Disney executive I would not want ala carte for ESPN - that stands to reason - but it may be a better alternative than having the government regulate pricing which is a very real threat if subscription costs continue to climb.