Tuesday, December 29, 2009

Network and Cable Battle Over Prices

At the end of 2009, Mediacom customers here in Iowa City and not only in other parts of Iowa, but also Alabama, Florida, Georgia, Illinois, Kentucky, Missouri, Minnesota, Tennessee, Virginia and Wisconsin are wondering if their cable feeds for stations such as FOX or CBS will be suspended starting January 2010. In a New York Times article, FOX is asking for cable providers to pay for the content that is created by Fox (News Corp.) on a per subscriber basis. Now this makes economic sense. If you are producing a good - such as entertainment services, you should be able to charge to sell the right to transmit the service, which is FOX's stance. Cable providers like Mediacom or Time Warner are stating that the prices that FOX is asking is too high, and they cannot afford to pay what is being asked. When this happens, the natural result is for the producer (FOX) to no longer sell to the consumer (Mediacom or Time Warner).

The problem is for the end customer. Consumer's want to have access to content transmitted by FOX - such as American Idol or January NCAA football bowl games. The question that cable providers need to assess is how unhappy (economically) will they be? Will customers be willing to pay higher cable bills for this content, and if so, how much? Given some of the complaining from cable customers, the answer is yes, but the exact amount is unknown; which is what cable providers are now trying to determine.

In response to these periodic "network and cable provider battles", some advocate a la carte pricing, which would allow cable TV customers to pay for only channels they choose. The benefits are that consumers will be paying directly for the content they choose to watch, and the costs are that those customer's cable bills may increase since the price per channel may increase, some channels may go out of business, (or they may be forced to cut costs to stay in business) and new channels may find it more difficult to enter (which is the case with or without a la carte pricing) and create seasonal revenues since customers will drop channels after their shows have finished - or provide an incentive for channels to space out their shows over the whole year, instead of having most shows start their new seasons in the Fall and end in late Spring.

What seems to be lost in the whole scenario is that network and cable TV channels over time will have to provide better content in order to keep their customers, and to me that seems to be a reason to start the ball rolling on a la carte pricing - cable and network TV channels will have to create content that the public wants, as opposed to content that the channels want to produce.

The problem is that cable providers do not have an incentive to offer a la carte pricing. Should it be mandatory for all? No. Should it be an option? Yes. Let's move away from the pure bundling systems of cable providers to a mixed bundling approach, by giving cable customers a choice as to the type of purchasing options they have for television entertainment.

UPDATE: FOX and Time Warner have reached an agreement. Scripps Networks pulled the Food Network and HGTV from some NY cable systems in their dispute over fees received for those channels.

UPDATE: Disney and CableVision's dispute.

No comments: