How soon before we choose our own cable bundle?

The recent announcements by CBS and HBO to start selling content directly to consumers mark the beginning of the end for the bundling of cable TV stations.  Now consumers can choose between different tiers of programming but are locked into all channels within a tier.  Time Warner Cable in Cary NC has starter TV with 20+ channels (mostly local channels and CSPAN), standard TV with 70+ channels and preferred TV with 200+ channels.

The average person ends up paying for lots of channels that are never watched.  Cable cutters have moved to Hulu, Netflix and Amazon Prime.  These outlets provide plenty of content but they do not include (1) live sports and (2) the latest shows on premium channels.  This is now changing; it will not be long before the other major networks and premium channels match CBS and HBO.

The tough question: will buying the stations you want a la carte save you money?  This WSJ piece argues that the answer will be yes in a single person household where only a few channels get watched.  But in a multi-generational household with varying tastes, the old cable bundle may start to look pretty good.

Another key issue: households still need an internet connection to watch online content, even if they drop cable.  Is there enough competition between cable, DSL and satellite broadband services to keep internet subscription costs down?  If not, cable companies will raise their fees for internet service to make up for lost revenue from cable channels.

Finally, if cable cutting becomes widespread then expect many channels to vanish (will we be able to survive without VH1 Classic?) and others have to raise prices significantly to cover costs. ESPN collects about $5.50 from every cable customer, regardless of whether they ever watch it.  The unbundled version will create pain: either it will end up costing a lot more or college and professional sports may have to learn to get by on less revenue.

What do you do with Google Fiber?

NYT reports on Kansas City's experience with Google Fiber to date.  The service costs $70 for broadband and another $50 for television.  The take-up rate has been reasonably high: three fourths of households in areas with average income of $100k or more have signed up, as have a third of households in low income areas.  Speed is blazing at one gig per second.  

So what are customers using all of this high powered service for?  The same stuff they do on regular systems, of course!  (The article has lots of snarky comments about how many kitten photos can be downloaded.)  This is no real surprise as no one is likely to develop high-powered apps that only can be used in the few cities that have Google Fibre.  

For there to be network externalities, there needs to be a broader network.  In time I would imagine that high-def two way video, sharing of medical data, and connecting schools will be taken for granted.  The world of work is likely to change as well, making work at home more viable.  One added bonus: another competitor for Time Warner!

Viva Google Fiber; come to Cary ASAP!

Economic impact of Comcast - TWC merger

Take two cable monopolists, combine them and stir.  How does this change:

• Consumer choices: Not at all.  You are still going to be stuck with one cable option for television.  You will have Direct TV and Dish as satellite options and in many areas AT&T U-verse through your phone wire (if you have one).  Comcast and TWC do not compete in any market head to head.  Both are notorious for abysmal consumer service and negligible innovation; no reason to expect any improvement here.  
• Prices: Possibly a plus.  By combining overhead functions, the merger should produce some economies of scale.  More importantly, the combined company will have more bargaining power with content providers.  People see the rising cable bills year after year and blame the cable provider; they do not see the upward ratchets in content costs, so they give Walt Disney (owner of ESPN) and NBC Universal (owner of Weather Channel, along with Blackstone and Bain) a pass.  
• Internet speed: If you are thinking about cutting the cable cord, realize that in most places the cable company is likely to be your fastest source for internet.  Triple play pricing makes the cost of basic cable plus internet not all that much higher than basic cable by itself.  Pray that Google Fiber will come to your town soon.  
• Number of cable subscriptions: Still likely to fall.  Too much good stuff for free or at low cost on the internet; sports is the only exception and you have to think ESPN and the major networks will soon figure out a way to sell sporting events on the spot market instead of sticking to the cable bundle.  

Cable TV bundles about to unravel?

There once was a time when there were four major television networks and no recording devices.  Now there are 100s of networks and all sorts of opportunities to watch any show at any time.  But consumers of satellite and cable TV do not have the opportunity for a la carte pricing.  Instead they must select among various bundles of channels.  In Raleigh, Time Warner is the largest service provider and consumers choose between basic cable, various tiers of digital cable, along with HD options and premium channels. 

In essence cable and satellite TV is like a restaurant where everyone must order a full meal at a set price rather than being allowed to pick and choose which dishes they want.  This is not necessarily bad for consumers; imagine a menu where appetizers are $8, dinners are $15 and desserts are $6.  If you can get a three course meal for $25 and you were going to get all three courses anyway, then you are better off than buying each course separately.  So if basic cable is $25 per month and the 200 channel package is $45, a lot of people think they are getting a bargain with the extra surcharge. 

But cable has become so specialized that many viewers do not watch more than 10 channels, which makes them wonder why they should pay for 200.  Some watchers are cutting the cord altogether and relying on broadcast channels, Hulu and Netflix for their TV fix.  WSJ recently reported that Cablevision Systems sued Viacom for antitrust violations because Viacom was forcing them to buy channels they really do not want in order to keep carrying Nickelodeon and MTV. 

My take: over the next five years TV is going to go through the same revolution as the music industry.  Consumers will select the shows they want and watch them when they want.  The companies that catch onto this first will be the winners.