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 à la carte pric­ing . The con­cept of à 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 à 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 à 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 à 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 à 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 à 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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