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The conclusions are part of an intriguing study out this morning from Lazard Capital Markets analyst Barton Crocket. Like many Wall Street analysts, he’s eager to know which programmers have the most to gain, and lose, if the current pay TV ecosystem — which requires consumers to pay for channels that they don’t watch — collapses. And Disney is most at risk, Crockett figures based on the results an online survey of 2,240 consumers in May. The study sought to determine how loyal consumers are to different channels. As you might expect, the Big Four broadcasters, ESPN, Discovery Channel, History, USA Network, and TNT have the most dedicated followings. (At the bottom of the list: OWN, Fox Soccer Channel, CNBC, Oxygen, and CMT.) The problem for Disney is that its channels aren’t popular enough to continue to justify the nearly $8.4B a year they currently generate from program fees — about 26% of pay TV’s total programming outlays. Crockett figures Disney’s take could drop 65.2% to $2.9B a year. Other potential losers include Time Warner (not including HBO) which could see yearly payments fall 28.6% to $2.5B, and News Corp (not including its regional sports networks) which could slide 23.2% to $2.8B. But CBS (not including Showtime) could be a big winner in an a la carte world with payments +454.2% to $1.5B. It’s followed by A&E (+168.6% to $1.9B)m Scripps (+164.3% to $1.4B), Discovery (+153.1% to $3.1B), AMC Networks (+87.1% to $782M), NBCUniversal (+66.0% to $4.2B), and Viacom (+1.4% to $3.3B).
But Crockett says that his results should be seen “more as a statement of potential, than an illustration of anything happening now.” He believes the status quo could hold together for at least another decade. Even though cable and satellite companies complain about rising programming costs, he says they probably won’t seriously work to change things until their return on invested capital falls below 15%. That won’t happen until about 2024, assuming programming costs rise 8% a year — and it could last longer if distributors cut other expenses including their outlays for set top boxes. “We believe this helps explain distributor willingness in nearly all instances to buckle and accept the rate hikes rather than go dark and risk subscriber loss,” Crockett says.
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Paying for only the channels I watch can’t come soon enough for me. The four locals plus SyFy, HBO, Cartoon Network and TLC for the wife and I’ll be good to go.
I probably should just slap an OTA on my roof and use some of the VOD services to get the cable shows.
OTA is where it’s at. Get yourself a Tivo and a SVOD hook up and you are set!
In theory I would love to see an “ala carte” system go into place. In practice I’m sure the corporate entities involved would make sure I was paying more for less.
The big thing for my husband and myself is that we do not watch any sports channels. I wonder how much we would save if channels went a la carte?
I remember when the YES Network first went live there was an argument over it being included in a Sports Package or part of Basic Cable. Steinbrenner insisted it be Basic so he could rake in the dough. It was $.50/month per TW subscriber for YES at that time. Never watched it once!
Probably about the same I’d save if I could drop ITC, Logo, Lifetime and countless other BS channels I never watch.
Exactly GMC. How people delude themselves that this will be any cheaper than the current model is beyond me.
They’ll just be paying $100 for 20 channels instead of 60-80.
The distributors may buckle to providers for another decade and keep raising prices, but as in pro sports…the market will begin to erode. Like the movie industry itself, the box office increases over the past decade are not from increased audience counts…but, almost always increased ticket costs.
As the costs continue to rise, more and more subscribers will either eliminate or seriously cut back in their programming purchases. Ticket sales to concerts and sporting events have gone down as the costs have risen, and this will soon be spreading to this industry as it continues to jack around its consumers.
As a consultant who assisted in the market launch of DirectTV, it pains me now to see how greedy, arrogant and totally NOT customer friendly it has become.
I’m sure all of this presupposes that the sum of the a la carte prices equals the bundled prices. That is, you would pay the $4.69 a month for ESPN a la carte, given the chance.
Seriously?
Choice always comes at a price. You think Comcast (or that Disney would allow Comcast) to offer ESPN at just $4.69/mo? More like $9.99, if not more. And is ESPN “worth” more than, say, HBO? ‘Cuz HBO’s priced even more (currently).
Hey, if ESPN is that popular, those who want it would gladly pay for it–just not me.
A bigger concern is all of those regional sports networks. They pull in like 1% of viewers, but the remaining 99% pay for it as well. And if the 99% flee, what chances are that, say, a baseball team will pay $25 million a year for a player with only ballpark revenues, FOX and ESPN to pay for it?
ESPN could potentially be much higher because even they will lose a lot of subscriptions from all of the people who don’t watch sports, which is sizable. Even if they lose the fewest subs of all of the channels, they’ll still drop considerably. All of their contracts are based on what they earn now, so it wouldn’t be like HBO being able to stay stable at $10/m. They’ll need to make up that shortfall to keep paying out their contracts and commitments.
Basically everyone loses if cable goes a la carte. Every channel that survives the cull will be more expensive and most channels will just fold and we’ll get way fewer choices, tons of laid off people going on unemployment just so a bunch of whiners can live in a bubble with their pet dime.
As probably is the case, the reason why we don’t have a la carte now is because the mega broadcasters would see shrinks in profit. Yet, they continue to spew the notion that bundling channels is cheaper for consumers. OK. That is why I laugh when I see articles and quotes about how bundling channels is cheaper for the consumer. If bundling is cheaper, it is only because that is how the price makers set it up to be. 2 Billion in profit. Woe is me. 8 Billion in profit sounds so much better. Hope more and more people continue to cut the chord.
A la carte programming will raise a chorus of discrimination complaints. Can the Spanish, Chinese, Korean, Japanese and Armenian channel in LA continue to operate if they are not carried in packages? What happens to all the government programming? PBS? What happens if cable news such as very low rated MSNBC does not get enough subscribers? Fox Business News? The Weather Channel. Going a la carte will require untangling the Gordian Knot that has evolved with the ability of cable to carry hundreds of channels.
If it was true al a little carte, the business would collapse and we would not have any choice at all. Careful what you wish for. Sometimes a bit of subsidy for things good. What, you think the entire broadcast universe exists just so you can watch SportsCenter all day?
I’d love to see a system where you pay in tiers for 20, 40, 60 channels, etc. But you get to choose which 20 or 40. Pipe dream, I know. The “Top 100!” usually contains about 12 I’d want to watch while 3-4 of my other channels are in more expensive packages.
There are dozens of channels that have no reason to exist — except that they can be bundled.
There is a HUGE upside to reducing the number of channels. Most of those eyeballs will concentrate on the 30 channels that survive. Ad revenue will climb.
Best of all, there will be more available to raise the quality of programming produced on those few remaining channels.
Brutal and Darwinian? Sure. But as a writer, I’d love to see quality get some edge over quantity.
Let’s face it — have the channels on cable oughtta be YouTube channels shot in somebody’s backyard, ’cause that’s about the audience size and quality the subject matter deserves.
In my view, cable programming has jumped the shark. How many “bla, bla Wars”, Deadliest bla, bla” shows can we handle exactly? Oh, I forgot, these are “character driven reality shows”. I call them garbage. Even Nat. Geo is getting in the act and the trade press praises it as some kind of bold move. Since when is it bold to do what everyone else is doing? I’m cutting the chord and exploring other options for programming like OTA (D2 channels need to step up!) and the web.
With a la carte we will be moving towards a subscription-only model at much higher prices for those cable networks that can survive the change in economics since their advertising revenue will suffer due to a loss of viewers and national coverage. The only way the surviving networks can stay in business is through an increase in their monthly subscription rates because even the biggest will suffer. The most popular will just use their leverage to garner the highest increases.
By the way, enjoy the $8.99 a month bill for Netflix while you can — I wonder what it will become as they pass on their program cost increases….new series are a lot more risky and expensive than movies and tv reruns. And don’t expect talent or the sports leagues and athletes to accept less money because people don’t feel like paying for their product.