Retail pricing is a big deal in the transition from linear to over-the-top video entertainment, and particularly for consumer and provider expectations of “what access to a single channel is worth.” Up to this point, services such as Netflix have been priced below the purchase of a channel such as HBO, which runs about $15 a month (unless HBO is part of a promotional bundle).
Consumers seem to perceive the value of a single ad-supported channel somewhere between $1.40 and $1.60 per channel. Those same respondents suggested they would pay $3 a month for ad-free HBO. That implies a consumer value about 80 percent less than presently charged for HBO.
Consider the stark reality of misalignment: implied wholesale prices for channels in big bundles run from a cents to $1.50 a month, with ESPN costing about $6.10 a month.
In other words, even in volume, the wholesale cost of a single channel--before delivery, marketing and overhead costs--might approach expected retail prices.
“Our projections call for the average TV station's retrans (re-transmission) fee per subscriber per month to rise from $1.40 in 2016 to $2.21 by 2022,” SNL Kagan estimates. In other words, the wholesale content rights cost for video distributors already is about the level consumers tend to believe they would pay.
Any realignment of the ecosystem likely involves higher prices than most consumers expect, but also lower revenues than many content providers expect.
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