Cord-cutters and many cable TV subscribers alike would welcome a la carte cable TV packages, whether they're delivered through traditional cable infrastructure or streamed over the internet. However, I don't think this will happen any time soon and we won't see ESPN offer a watchESPN streaming subscription or HBO do the same with HBOGO. Here's why and what we can do about it. In this article when I refer to 'cable TV' I mean all providers of live subscription video services (aka multi-channel video programming distributors) whether it's delivered by a traditional cable company (Comcast, Time Warner), a telco (Verizon, AT&T), or satellite provider (DirecTV, Dish).
The current cable TV model is unsustainable
Cable TV prices have been steadily increasing over the last few years and are forecast to continue rising. Meanwhile, the number of cable subscribers in the US has been growing for decades and now sits at around 100 million, although in 2013 the total number of cable subscribers declined for the first time in history, if only by about 250,000. Consequently, TV networks and the cable companies have enjoyed growth in revenues and profits despite increased programming costs for some channels and the worst customer service ratings of any industry. Forbes has a great article on how this is unsustainable with a lot more info.
I agree that the current model is unsustainable, but it won't change for many years. Cable companies know what they're doing - they lock consumers into bundles with internet, voice, and all the channels they could ever want just so someone can watch their local sports teams or a handful of cable dramas. Presently, if you want to watch your local NBA/MLB/NHL team every night or watch shows on HBO/Cinemax/Showtime there is no way to do it other than subscribe to cable. They offer promotional rates to get you hooked, and then offer them again when you threaten to quit. If you do quit they raise the price of internet and voice so that the less expensive option from a satellite company isn't quite as attractive as it seemed.
Furthermore, the industry is very profitable and controlled by a handful of risk averse companies. We've all heard the phrase 'content is king' and the content on cable TV is mostly controlled by five companies, one of which is owned by a cable company. The five large media companies and examples of their popular networks are listed below:
- Disney: ABC, ESPN, Disney, A&E, History
- Comcast: NBC, USA, Bravo, E!, The Weather Channel
- News Corp: FOX, MyTV, FX, Fox Sports
- CBS: CBS, CW, Showtime
- Time Warner Inc: HBO, Cinemax, TNT, TBS, CNN
A sixth company, Viacom, owns a number of mid-tier cable channels: MTV, Comedy Central, Nickelodeon, Spike, BET, etc. There are also two notable independent networks: AMC and Discovery. Then there is PBS, which is a non-profit.
The content these companies invest in and produce is then delivered by a number of companies that have regional monopolies or near-monopolies. How many choices do you have for a cable TV and internet bundle in your area? Most of us only have two, and many people only have one choice for an internet and TV package.
The cable companies collect money from consumers every month, and then give a pre-negotiated amount for each subscriber of every channel to the networks. For example, ESPN (just ESPN and not ESPN2, ESPNU, etc) reportedly receives $5.40 per subscriber from the cable providers each month, making it the most expensive cable channel.
Why a la carte cable won't happen
Let's use HBO's on-demand streaming service, HBOGO, as an example of why it won't be offered on an a la carte or standalone basis. Hundreds of thousands of people have asked HBO for a standalone streaming package, with the average person offering to pay a little over $12 per month. The same article mentions that HBO reportedly receives $7-$8 per month for each subscriber from the cable companies. So it seems like a no brainer, right? Offer HBOGO as a standalone package to anyone with a broadband internet connection and make an extra $5 per subscriber. It's not quite that simple, though. HBO's parent company, Time Warner Inc (not to be confused with the now separate Time Warner Cable), would never allow it. In addition to the revenue they get from every HBO subscriber, Time Warner also collects anywhere from a few cents to a few dollars per month from every cable subscriber that has a cable package including any of the channels they own (see the list above). In 2013 Time Warner Inc took in just shy of $30 Billion and made a net profit of about $3.7 Billion, which was an increase over 2011 and 2012. They don't want to disrupt this lucrative model. If they offer HBOGO as a standalone package, more people may get rid of their cable TV subscriptions and then Time Warner won't collect revenue from each of the channels they own that nobody watches anyway. They are content to let people continue to share their HBOGO passwords and to make Game of Thrones the most pirated show , rather than offer a standalone subscription.
To be fair, HBO invests a lot of money into producing new original content and acquiring rights to movies every year. They have to ensure they'll make a return on their investment, and they're accountable to shareholders. So it makes sense that they'd be a little risk-averse about disrupting a business model that has been working for decades.
There are also a number of other things to consider. With the current model, the cable company is responsible for customer support (insert 'or a lack thereof' joke here), marketing, billing, etc. HBO would have to invest a lot of money into these areas before offering their own service. They would also have to significantly upgrade their network infrastructure. HBOGO recently had two high-profile outages during the True Detective season finale and a few weeks later during the Game of Thrones season premiere. Obviously they're not ready for a large influx of new customers. They may also have to follow Netflix's lead and enter into peering agreements directly with internet providers to ensure high quality video streams. All of these things would require a lot of money, time, and new employees which would eat into HBO's profits and flexibility. Perhaps they are risks they're simply not willing to take at this time. (I'm sure there is much more they'd have to do before offering their own service, these are just the first few I could think of.)
The same goes for ESPN, which invests billions to secure the rights to live sports from various professional and college leagues in multi-year contracts. They too need to ensure they make a return on their investment. See the excellent What You Pay For Sports blog for much more detail on what individual sports channels cost you and how much they pay to secure rights to live sports.
Networks love the bundle
In addition to the money they make from ESPN, Disney also gets a nice cut from every cable subscriber that receives ABC, even though ABC is already free in HD with an antenna to the vast majority of Americans. The networks want to preserve this bundle model and keep getting paid for content regardless of whether or not every subscriber watches their channels. Of course they do want people watching though, because the ratings drive the fees and advertising they can charge. They fear that if the premium content offered by ESPN and other sports channels or HBO becomes available in a la carte cable packages or standalone streaming subscriptions then consumers will be able to get rid of their cable bundles and still watch the major networks such as ABC, CBS, NBC, FOX, and PBS for free or with a service like Aereo or Hulu+. If people only subscribed to a few channels then the overall revenue collected by cable companies and TV networks would decrease, and a lot of niche channels might disappear, along with the fees earned by them.
And the bundle is not going away
Several tech companies are trying to disrupt the cable bundle, without any results. Apple has been rumored to be working on a TV for years and it is reportedly hung up by content negotiations. Intel invested millions into a streaming television service, but ultimately decided it was too expensive and sold it to Verizon, which is now negotiating with cable companies. Intel's original plan was to offer cable subscriptions over the internet with the 'right bundles' that wouldn't necessarily be less expensive than a traditional package and they were reportedly prepared to overpay to secure the rights to content. Even that was apparently too risky for the cable industry. Senator John McCain has introduced a bill that would force cable companies to offer channels a la carte, but it has been met with resistance in congress and by the lobbying efforts of the cable industry.
What we can do about it - vote with our wallets
Unless we witness a miracle and an a la carte bill actually passes congress or a company like Apple, Google, or Verizon actually strikes a deal with cable companies there's only one way we're going to get what we want: stop paying for cable channels we don't watch. That means cutting the cord or at least dropping down to the lowest possible cable package you can manage. The industry won't change unless they lose enough subscribers to antenna and streaming options that they can't make up the difference with more aggressive rate increases. It may be tough for sports fans and HBO lovers, but there is a lot of content available without a cable subscription.
I'm no expert on the television network or cable broadcasting industries, nor do I have any details about the contractual agreements between the networks, cable companies, and sports leagues, but I hope this was an informative high-level view of how the industry is structured and the business models in place.