Thursday, December 5, 2013

"Unbundling" warnings

A study by Needham & Company media analyst Laura Martin cautions that a full unbundling of cable networks could result in a loss of up to 60% of TV advertising revenues, 124 cable channels would end broadcasting, and up to 1.4 million industry jobs could be lost.  The numbers sound extreme at first, but aren't out of the range of possibility - particularly with the rapid expansion of alternative video content delivery options.

As discussed in the earlier "Bundling vs. A la Carte" series of posts, (see here, here, and here), bundling cable networks works to expand potential audience reach, encourages sampling of channels and content, and permits occasional viewing.  A consequence of full unbundling for most cable nets would be a significant decline in audience, which will result in a big drop in advertising revenues that may or may not be countered by increased subscription/licensing payoffs.  For some, it may result in a death spiral of trying to hike subscription fees to recoup lost advertising, which will further shrink audiences, advertising revenues, as well as subscription revenues.

Currently, advertising counts for about 60% of TV/cable network revenues, and unbundling will undoubtably push the shift to greater reliance on licensing and subscriptions as a mechanism for funding content creation.  How sustainable that is for the 500+ TV programming networks remains uncertain.  Some high-demand high-value content will thrive, but many low-demand, limited and variable value content may not.  And certainly, I'd expect competition to shrink as many viewers are unlikely to want to pay separately for multiple channels in a genre.

As Martin notes,
“All content companies benefit from TV bundling, as well as from new digital platforms that are driving record free cash flows from content creation globally."
I hope that she's equally correct when she concludes that "(b)ecause consumers lose so much value through unbundling, we expect no policy change in the U.S.”  However, I'm a bit more skeptical that U.S. policy is driven more by economics and consumer interests than it is by outside special interests and politics - particularly those that provide campaign talking points..

Source -  Cable Unbundling Puts Majority of TV Ad Revs,  Media Daily News

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