Cure TV’s Nuttiness With a la Carte Pricing

by Jonathan Berr | July 17, 2012 8:00 am

Comcast (NASDAQ:CMCSA[1]) is my cable company because I have no other options, which underscores the nuttiness of the pay-TV industry.

Verizon (NYSE:VZ[2]) doesn’t offer FiOS in my neighborhood for reasons I don’t understand. My family could get satellite service, which is far cheaper than Comcast, but there’s a big catch. Philadelphia-based Comcast doesn’t allow Dish Network (NASDAQ:DISH[3]) or DirecTV (NASDAQ:DTV[4]) access to its local sports network, Comcast SportsNet Philadelphia, where fans can watch most Philadelphia Phillies, Philadelphia 76ers and Philadelphia Flyers games.

My wife and I are big Phillies fans, which given the team’s subpar performance this year has been an exercise in frustration. However, giving up the Fightin’ Phills isn’t an option for us and many other fans, which benefits Comcast. The company enjoys a huge market share lead over satellite in the Philadelphia area for this reason.

Comcast, which does allow FiOS access to the sports channel, was supposed to allow satellite companies access as well under the terms of the FCC’s approval of its takeover of NBC Universal. It’s not clear why Comcast and the satellite providers haven’t reached a carriage agreement. An NBC Sports spokesperson told InvestorPlace that the two sides “are trying to work” out a deal and that the channel was “fully available.”

Dish Network and DirecTV, which do show other Comcast regional sports networks outside of the cable giant’s Philadelphia hometown, couldn’t immediately be reached.

The plight of the Philly sports fan underscores the need for[5] a la carte pricing in TV. It’s one of the few businesses where the consumers can’t get what they want when they want it. In the 21st century, there’s no earthly reason why consumers have to pay for oodles of channels that they never watch and probably don’t even know exist.

Even as cable ratings decline, the media companies continue to ask for and receive double-digit increases in fees to carry media producers’ programs. Witness DirecTV balking at Viacom‘s (NYSE:VIA[6]) demand for a 30% rise, which is why New York-based Viacom’s channels such as MTV and Comedy Central are dark on the satellite provider for now.

Eventually, the two sides will reach an agreement because people need their fixes of Jon Stewart and The Jersey Shore, or they’ll find it elsewhere. Fans of the shows will switch back to cable or other rivals if this disputes lingers for too long. Plus, Viacom sells advertising based on viewership guarantees that may be tough to sustain without DirecTV’s huge audience.

A la carte cable pricing is an idea that’s been around for years. Earlier this year, an RBC Capital Markets found that 92% of consumers were keen on the idea and would be willing to pay for 19 channels at a rate of about $1.50 each. That’s far less than the $84 a month they pay on average now for 91 channels. The impact of such a system would be huge on both content makers and distributors.

“A likely scenario sketched out by RBC’s report envisioned the $34 billion content companies received in affiliate fees last year getting cut roughly in half if consumers could cherry-pick channels,” according to Variety[7]. “With $1.50 the average amount they cited as worth paying per channel, 19 channels would return $28.50 to MSOs, or about a third of what they currently collect from bundled packages.”

Cable companies have argued that a la carte pricing would devastate small channels. Given the recent plunge in ratings on Time Warner‘s (NYSE:TWX[8]) CNN, however, it might hurt bigger ones, too. Some studies have even suggested that consumers may pay more for a la carte service, though that’s in dispute.

In the end, the TV business is going to have to change to adapt to new technology such as Apple TV or viewers will tune out. Comcast realizes this, which may explain why it doesn’t want to give Philadelphia sports fans a choice of where to watch their favorite teams.

As of this writing, Jonathan Berr doesn’t own any securities mentioned here. Follow him on Twitter @jdberr.

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