Monday, June 25, 2012

Analyst suggests a la carte pricing for cable disastrous

With the FCC and the DOJ looking into cable pricing policies - with a focus on why consumers are not given the option to pay only for the channels they want (a la carte pricing) - analysts are pondering what the impact of a la carte pricing would be on the cable and other multichannel video programming services (MVPS).
  One, Laura Martin, an analyst with Needham & Co., suggests that the impact of an imposed a la carte pricing strategy could be a disaster for cable and consumers both.  Using the FCC's own numbers, she calculates that with a la carte pricing, the cable industry would lose 75% of its advertising revenues and 15-20% of its subscription revenues.  In addition, going to a direct consumer purchase model will cost consumers and additional $5 billion annually, as with the loss of advertising value, channels and programmers would need to increase their prices to consumers. Finally, she estimates that only 5-10 hit channels would be profitable enough on a stand-alone basis to survive unbundling (another 125 channels examined would likely become uneconomic to produce).  The long-term impact of unbundling could put more than a million jobs in the cable, networks, and TV production companies at risk.
  Information economists have long found that the bundling of information goods can have substantial benefits to consumers and to society.  Bundling tends to reduce price, while giving consumers access to a wider range of information sources.  With bundling, consumers also benefit from being exposed to valuable information and content that they might not have specifically been looking for.  Bundling also encourages the development of new channels, promoting diversity.  That added diversity, and the ability to access sources as needed (particularly in unanticipated circumstances) benefits society generally, as well as the consumer.  Forcing unbundling, particularly if the government doesn't also allow for those who wish to take advantage of the bundled services, would be harmful for society, most people, and a broad swath of media industries and firms.  If the FCC and DOJ are truly acting in the public interest, they need to test the impact of unbundling and the offer of a la carte pricing before imposing it on all.  I suspect that if they did so, they'd quickly find the economic, social, and political costs would overwhelm any putative value of the move.

Source -  Federal intervention could slam TV biz, analyst warnsVariety

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