Consumers, Providers Profoundly Disagree about What A La Carte Video Might Cost

There is a huge disconnect between consumer and content owner or service provider expectations about what a TV channel should cost, if it were possible to buy channels one by one. Consumers think they will save money; distributors and content owners are just as certain they would not save money.

A study by PricewaterhouseCoopers indicates that 44 percent of consumers would like a the ability to buy all their channels one at a time.

Including the 29 percent of respondents that would prefer at least more customization of packages than is currently offered, some 73 percent of consumers surveyed would prefer either the full a la carte purchase option or at least some ability to customize.

Only 14 percent of respondents appear to be satisfied with the current method of packaging.

Of those interested in a customized or a la carte package, 65 percent would be willing to access 10 or more channels in a customized package. Older users (50-59) are more likely to want to buy 10 or more channels, while 55 percent of those 18 to 24 are more likely to prefer a package of 10 or more channels.

The expected pricing “per channel” is where the biggest disconnect exists. About 16 percent of respondents say they would not pay more than 99 cents a month for a channel. Some 24 percent will pay $1.99 and 22 percent will pay $2.99.

At $8 a month per channel, only about five percent of respondents indicated they would pay.

When asked about what they would pay for a single show, the survey found that 57 percent would not pay more than 99 cents a month for access to an individual show each month.

Some 20 percent indicated they would pay $1.99 for access to one TV show for a month (not per episode) and 12 percent would pay $2.99 for such access.

Only two percent would pay $8 a month for a show. If one assumes four episodes a month, tha indicates a fee of $4 per episode was considered too high.

Of respondents interested in a customized package, some 62 percent are willing to pay up to $2.99 per channel per month. About 72 percent are willing to pay up to $1.99 per show per month, driven by the 35-49 demographic, among whom 83 percent are willing to
pay this amount.

But 26 percent of consumers indicated they would be willing to pay between $4.00 to $8.00 per
channel per month.

Studies by the Federal Communications Commission seem to have concluded that unbundling could save money, or wouldn't save money, depending on how many channels a consumer buys under an a la carte regime, compared to what they buy now.

One of the studies suggested “consumers that purchase at least nine networks would likely face an increase in their monthly bills" when buying a la carte.

Likewise, one of the FCC studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.

The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.

An economist might say the typical video bundle works because it allows distributors to apply scale and scope economics.

The corollary is that most networks, which are advertising supported, want to be part of a "no choice" basic tier for business reasons of their own, namely the ability to better sell the advertising that underpins their business models.

According to some studies, relatively few networks actually make a $100 million or more in annual ad revenue, though. That suggests they might have to make up the revenue shortfall some other way, in an a la carte regime.

When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right, economists might say.

Deprived of carriage on a broad "enhanced basic" tier, perhaps 60 percent of networks might find themselves immediately imperiled, as going concerns, some would estimate.

An end to bundling would likely harm most smaller, more-lightly-viewed networks. To the extent that content and program diversity is a desired end user benefit, "choice" in all likelihood would decline in a full a la carte environment, because most people would not buy most channels.

The possible advent of over-the-top TV viewing worries most in the current ecosystem for one compelling reason: "households view less than one quarter of the networks they are forced to buy in the bundle," the Consumers Union noted in an past analysis assuming a 50-channel offering.

Even today, with hundreds of available channels, end user behavior does not seem to have changed much. Most people watch a dozen or so channels on a regular basis.

And there are costs besides content fees. Cable operators have argued that end-user costs might actually climb in an a la carte environment, for a number of reasons. Higher customer care costs, operating and marketing are likely, cable operators have argued.

The point is that it is very hard to tell, conclusively, what might happen if providers shifted to a la carte viewing.

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