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Modular by Design — Cable TV

Having looked at how the modular by design approach impacted broadcast television, let’s now look at its impact on cable TV.

The FCC and the cable TV industry recently came head to head when it comes to a la carte pricing . The concept of a la carte pricing is that consumers would be able to buy any TV channel in a model instead of being forced into buying a bundle of shows as part of the standard offering.
The cable industry contends that a la carte pricing is bad because it will wreak havoc with the economic model of the cable business. It’s true that it will do so as large media companies like Viacom and Walt Disney currently force cable operators to broadcast their less popular channels in exchange for the rights to broadcast their top properties, like MTV or ESPN and will no longer be able to do so if a la carte becomes a reality. They will also have a harder time selling an audience package to their advertisers as there will no longer be any guarantee that buying an ad in a package that reaches MTV and Spike will ensure the same kinds of hits.

However, where a la carte works is if a model is established to offer flexible pricing models for those channels. Smaller TV channels could be priced to consumers at a lower monthly rate but a higher premium could be gotten on advertising as they are representing a more targeted audience. This represents a much more difficult financial models for them as it gets closer to a pay for performance approach when it comes to advertising.

Another part of this effort should be to start offering a la carte TV channels over broadband Internet access. The cable packagers are afraid of this because it could represent an intrusion in their model, which packages cable television with broadband Internet access. If a la carte offerings start appearing for anyone with a fast Internet connection, the cable companies will now have increased competition from DSL providers as they would loose their competitive advantage (since no one else can currently offer television and broadband access over the same lines.) This increase in the competitive landscape would eventually result in price wars in terms of package bundle that will benefit consumers. Consumers will eventually be able to either choose your own set of channels or buy some combos of popular ones. For example, a company could offer a deal that would include channels that cater to sports fans and a different deal to people interested in news.

Once again, the only smart approach is not to resist but figure out the best economic approach in this new competitive landscape. Since cable companies have already figured out, to some extend, how to offer bundles (they do offer them on premium TV channels like HBO and Showtime), they are ahead of their phone company competitors. What they will do with that lead is still up in the air.

Tomorrow, we will look at how the telephone companies have their own issues to deal with when it comes to the modular by design approach.

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