A modest proposal for cable.

Cable system operators howl like moonstruck wolves at the suggestion that they unbundle content. It could actually be great for them.

Think your cable or satellite company is gouging you? Maybe so, but probably not as much as you think.

That $100+ monthly bill for digital cable with all the bells and whistles includes the per-subscriber fees your cable company pays for most of the 175 or so channels they pipe into your home.

Some channels which rely on advertising revenues exclusively are free to cable system operators. A few, like QVC, pay to be carried. But most content is paid for on a per-subscriber basis. From around $3.00 for ESPN to 15¢ or so for some of the more obscure cable nets. That's not per household actually viewing the channel. That's for every single subscriber on the cable system.

The biggest chunk of a $100+ monthly cable bill is for channels that are never watched. The last time Congress took a close look at a la carte cable pricing, in 2004, folks only watched a fraction of the channels available to them. High-tier households with an average of 183.2 available channels watched an average of only 19.2. Those with basic tier service – an average of 15.4 channels – watched an average of just 5.5 of them.

That's a range of from 10.5% to 35.7% of available channels ever watched. Conversely, it means that somewhere between 89.5% and 64.3% of the channels subscribers are paying for are pure waste.

A lot of that money doesn't stay with the cable system operator. In fact, it barely slows down as it passes through the cable companies' coffers on its way to the content providers. Whether the subscribers are watching those providers' channels or not.

The sports fan watching ESPN is subsidized by the 75% of subscribers who never tune into the channel. Just as the sports fan subsidizes the foodie watching Rachael Ray on the Food Network or the preadolescent watching old sitcom reruns on Nickelodeon.

Unbundling means higher cable bills? Hogwash. That's what cable industry spokesfolks have been telling us ever since a la carte pricing first became a glimmer in a Congressperson's eye.

Of course that sports fan we mentioned might have to pony up $6.00 – or even $12.00 – per month for ESPN. But odds are she or he might drop The Wedding Network, Oasis TV (body, mind and spirit news), Philanthropy TV or The Puppy Channel (round-the-clock coverage of, and we quote, "puppies being puppies.")

Remember that 10.5%-to-35.7% viewing rate. Does it seem likely that 10.5% of the channels subscribers watch will cost more than that 10.5% plus the 89.5% they never watch? Or that the 5.5 channels low-tier subscribers watch would cost more than 15.4 presently piped into their homes? Not from our perspective. And even if it initially did, the anomaly wouldn't last long. Because as subscribers dropped individual networks, those nets would be forced to lower their prices to a level viewers considered a good value or they'd disappear.

Fewer networks? How terrible! Or is it? The same industry spokesfolks who warn of higher total costs for less content bewail the loss of programming diversity a la carte pricing would – they believe inevitably – create. Could Yesterday USA continue to stream an audio-only channel of old radio shows? Would Horse Racing TV still gallop into our living rooms? And Infinito? How could their coverage of unexplained phenomena be provided without a subsidy?

Actually, they probably all would still available. Because we suspect that they're among the many marginal networks that pay cable system operators to carry their programming or, at best, provide it free and rely on advertising for all their revenue.

And if they did, in fact, disappear, it might not be a calamity. Because if their audiences are not willing to pay for the content the networks provide and/or are too miniscule to attract advertisers to those nets, the networks aren't of any economic value. No one at BrainPosse would mourn the passing of The Gaming Channel. (And if anyone did miss them there are several other gambling sites to take up the slack.)

This was all academic in the era of analog cable. Individual channel addressability would have been a logistical nightmare, and probably would have driven the cost of providing service to astronomical heights.

But that's all over now.

Cable system operators are migrating subscribers to digital as fast as they can, and will probably eliminate the analog option before too long. With an all-digital system the same technology that lets the cable companies sell pay-per-view programming could be easily adapted to permit addressable channel delivery.

Think that's far-fetched? Leading-edge cable system operators are already selling geographically- and demographically-targeted audiences for commercials. Just put that set-up into reverse and a la carte programming is a practical reality.

Why should cable system operators embrace unbundling and a la carte pricing? We're mystified at the industry's resistance to unbundling content and offering a la carte pricing. Because cable system operators have a lot to gain and, if the change is done right, nothing to lose.

  • A la carte pricing eliminates flak about cost. No more public utility commission hearings every election year. Fewer nasty blog postings. Not as many negative editorials. Because with the cost of content stripped out, cable service looks a lot less expensive. Is ESPN extortionate? Let the subscribers howl at Disney. Or simply drop the channel.

  • A la carte pricing and unbundling ends hassles. The renewal of the ESPN contract is a recurring agony for cable system operators. Go to a la carte pricing and that agony's over. ESPN can charge whatever they want. If the price is too high, they'll lose subscribers. But the cable system won't. Is the NFL network willing to go to court to get on basic tier? They no longer have a case. There is no basic tier. Subscribers choose their content channel by channel.

  • Unbundling eliminates the heat over inappropriate content. We suspect that there's not a cable net out there that someone doesn't consider objectionable. But when subscribers can pick individual networks, it's a lot harder for them to complain about salacious, seditious, environmentally unfriendly or other pet peeve content. Worried about childhood obesity? Don't take The Food Network. Climate change? Drop the Speed Channel. Greed and ostentation? Don't subscribe to Wealth TV. It might be difficult for a demagogue to rant about violence on television when the follow-up question would be: "So why did you subscribe to The Crime Network?"

  • A la carte pricing provides another revenue stream. Cable system operators can let the cable networks set their prices, then charge the nets a fee for collecting from subscribers and passing the revenue along. A flat rate would be simplest. It would also reflect true costs, because it doesn't cost any more to put The Beauty and Fashion Channel into the pipe than HBO. A flat minimum against a percentage of the total gives the cable companies the best of both worlds.

  • Even free channels would provide revenue. A carriage fee could apply to free networks. It might be lower than the fee for paid nets, since there would be a little less back-room work. Unlike the present basic tier system, the free nets would have to be on an opt-in basis to deal with the inappropriate content issue.

  • Unbundling provides a new advertising sales opportunity. Fee-based cable networks would need to gain subscribers to increase revenue. Advertising-supported cable nets would need to build audience to be attractive to advertisers. The natural place for both to recruit viewers would be on cable. And if the cable system operators retained a little additional commercial time on the free nets (in exchange for their lower carriage fee) that time – plus the minutes they now get – would be a prime media vehicle for other networks on the system. Especially since addressable ads would let nets target their prime prospects precisely.

  • A la carte pricing will reduce churn. Churn, the regular loss of customers and the corresponding need to bring in new ones, is one of the banes of the cable industry. Recent studies have shown that many people will drop cable and keep the internet if the economy gets worse – or if the recession costs them their jobs. Of course the cable company usually provides broadband in addition to TV, so potential customer cut-backs wouldn't be a total loss. But with a la carte pricing, a customer feeling a bit pinched could cut a few channels and still keep cable. And with the pipe-plus-a-la-carte pricing model, the revenue loss to the cable company would be minimal.

  • Customers overwhelmingly want unbundled content and a la carte pricing. This potential benefit may not resonate with cable system executives. For quite a while the industry didn't much care what customers wanted. They were the poster child for customer-hostile service. But some companies are beginning to realize that reasonably satisfied customers are a good thing. And unbundling content and offering a la carte pricing will make the vast majority of cable customers happy. Not to mention those pesky Congress people and FCC commissioners.

Unbundling and a la carte pricing are probably inevitable. Smart cable companies will lead the change rather than be dragged into it kicking and screaming. Done right, the conversion to unbundled content and a la carte pricing could reduce cable system operators' hassles and increase their profits. And that's a nice combination.


  1. fitz says

    The Puppy Channel(R) regrets that one couldn't swap us for ESPN, because we did not get the funding to become the 24/7 channel we started to build. But people did say they'd pay for it, and they do send us video, photos and artwork at thepuppychannel.com. Woof!