Megan McArdle has a post about the merits (or lack thereof) of cable channel unbundling based on a post on The Coyote Blog explaining why he doesn’t believe it should be legislatively mandated. I’m against laws mandating unbundling of channels, but I don’t have the time and energy to debate the subject (my benevolent Webmaster and I have done so on multiple occasions). If you want to know why I believe as I do, ask and I’ll let you know.

But I am going to explore one aspect of bundling, which is that because some people are paying for channels that they’re not watching, some portion of the cable-buying public is subsidizing the viewing habits of another portion.

In the comment section of McArdle’s blog, Shawn Levasseur proclaims the following:

That’s happening now with sports channels, especially ESPN. As it stands now, sports channels are subsidized heavily by people who don’t watch sports. Cable systems bicker every now and again, threatening to drop various sports channels, or demand that they become optional premium stations (like the movie premium channels).

I could go on about how major league sports’ growth is currently driven by forcing the non-fan to pay in many different ways, but that’s a bit too much of a thread drift.

While Levasseur is correct that major league sports growth is financed muchly by non-sports fans (particularly in publically-financed sports venues), I believe that he has it backwards as it pertains to cable television.

I would be willing to bet money that ESPN and the Fox Sports affiliates are among the highest rating cable channels. I also suspect that without those channels, cable subscriptions would drop considerably. If you have any contrary data, feel free to prove me wrong. But insofar as that is the case, it is actually ESPN watchers* subsidizing the rerun networks (TNT, USA, etc) and niche channels (the do-it-yourself channel, fighter plans channel, and so on) which I would wager garner much lower ratings.

So hate on sports all you want and complain as loudly as you like about how publically-financed sports stadiums and student fee financed collegiate athletic programs are unfair to non-sports fans. I’ll agree, for the most part. But insofar as cable and satellite TV is concerned, I believe that they are doing you a favor.

* – Sports fans aren’t the only ones. Cable news networks, for instance, do better as well. Popular original programming channels such as The Cartoon Network and Comedy Central also have large followings and are helping subsidize the less popular networks.


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24 Responses to Who’s Carrying Who in Cable TV

  1. Webmaster says:

    A few things:

    #1 – I would be a lot less supportive of forced cable unbundling were it not for the fact that cable providers have literal monopolies in so many areas, and this is the direct result of the companies colluding to not compete with each other (Comcast and Time Warner, for example, have a mutual non-compete agreement that keeps TW from venturing into Comcast territory and vice versa).

    #2 – They are misreading the legislation. The requirement is not that bundles will not exist, but that bundles will exist *alongside* an a la carte option of reasonable pricing.

    #3 – I’m not sure who is subsidizing who, and I’m not sure if (in terms of what would happen when you spread the $75 or so a month amongst the various channels) there is a lot of subsidizing at all to speak of. I remember that for a long time, the biggest cable channels (except for weekend viewing) were Comedy Central and Discovery Channel, with Croc Hunter being #1 in the ratings (and beating some broadcast shows).

    Even if “A la carte” meant “Pay $75/month for your pick of 60 of this list of 200 channels”, that’d be better. I don’t care about the sports junk, and I’d be much happier being able to give up the sports channels in exchange for some more niche channels that are currently only available by “upgrading” to the $200/month extortion package.

  2. Peter says:

    I have read that the fees which cable and satellite systems pay to carry the Eternally Showing Poker Network are much higher than for any other channels. You are correct, without this particular network subscriptions might drop quite a bit.

    As far as I know, TNT and USA Network actually have quite high ratings.

  3. trumwill says:

    Even if “A la carte” meant “Pay $75/month for your pick of 60 of this list of 200 channels”, that’d be better. I don’t care about the sports junk, and I’d be much happier being able to give up the sports channels in exchange for some more niche channels that are currently only available by “upgrading” to the $200/month extortion package.

    I can’t speak for cable, but when it comes to satellite television (my former employer specifically) you get all the channels they offer for under $50 with the exception of the sports and movie packages. Add the movie packages and you’re still under $100, if I recall.

    Where it starts to get really expensive is actually sports packages. Season tickets for the various sports, regional sports channels, and so on. The people with the most right to complain, in my opinion, are actually those that want to get a season ticket but are forced to pay for a basic satellite package to get it. Another case where sports fans are subsidizing non-sports fans, rather than vice-versa.

    In any case, my main point is not whether forced unbundling is a good idea or a bad one but rather who is subsidizing who in the current regime.

    -{this comment has been modified}-

  4. trumwill says:

    As far as I know, TNT and USA Network actually have quite high ratings.

    When I’m at my folks’ house I spend a disproportionate amount of time watching those two networks because they carry Law & Order and other good dramas.

    I tried to look up cable network ratings but had no luck. I just assumed that what I watch is not what other people watch :).

  5. trumwill says:

    I’m not sure who is subsidizing who, and I’m not sure if (in terms of what would happen when you spread the $75 or so a month amongst the various channels) there is a lot of subsidizing at all to speak of.

    I forgot to comment on this part. If people that buy cable for Channel A are also forced to buy Channels B-F, they are subsidizing them in my mind. This is true whether Channel A is ESPN, Discovery, Nickelodeon, of whatever. Since viewership and interest in cable is significantly segmented and uneven, there are some channels that are earning more than their fraction of the cable/satellite bill and there are others that are earning less.

    That’s how I see it, anyhow.

  6. Peter says:

    Where it starts to get really expensive is actually sports packages. Season tickets for the various sports, regional sports channels, and so on. The people with the most right to complain, in my opinion, are actually those that want to get a season ticket but are forced to pay for a basic satellite package to get it. Another case where sports fans are subsidizing non-sports fans, rather than vice-versa.

    I can tell you from experience that DirecTV is incessantly promoting its sports packages such as NFL Sunday Ticket and MLB League Pass. It’s a reasonable deduction that these packages are major profit centers.

    In theory some of the sports fans who get things like NFL Sunday Ticket are being forced against their will to pay for the basic satellite packages, but I don’t imagine that happens too often. Anyone who’s big enough a sports fan to buy one of the sports packages, which of course aren’t cheap, probably enjoys watching other televised sports shows like those on ESPN and the broadcast networks.

  7. trumwill says:

    You’re probably right, Peter, though which cable/sat provider one signs up with can be determined by exclusive contracts. DirecTV has an exclusive contract with the NFL, so if you want that package you can’t go to Dish Network or cable (unless something has changed recently). I’d imagine that if DirecTV lost that contract (or the exclusivity thereof), they’d lose some of their business (if this weren’t the case, they wouldn’t have signed the contract!). Similarly, if people could buy only that sports package without having to sign up for DirecTV’s main line-up, they might get their basic cable/sat channels from another provider. But they don’t have that option.

  8. Barry says:

    I’m just mad my cable provider has refused to provide more High-Def channels. Right now they offer about 13 HD channels, 4 of which are of the HBO/Showtime variety that I don’t subscribe to anyway. (ABC, CBS, NBC, FOX, ESPN, ESPN2, NBCUniversal, HDNet, DiscoveryHD + the 4 premiums)

    Does anyone know of a list of the current HD channels that are available by various cable carriers these days? I’d like to know what I’m missing and whether it’s worth raising a stink…

  9. Peter says:

    Barry –
    DirecTV currently has 21 HD channels, maybe half of which are premiums. They say they’ll have 70 by the end of October and 100 by the end of the year.

  10. trumwill says:

    What is NBCUniversal?

  11. Barry says:

    http://www.nbcuni.com/

    Mostly movies. They did at one time show Firefly and BSG reruns in HD. Very nice.

  12. Webmaster says:

    Since viewership and interest in cable is significantly segmented and uneven, there are some channels that are earning more than their fraction of the cable/satellite bill and there are others that are earning less.

    Except that when cable ratings come out, the various cable companies renegotiate the rate they pay for the various channels. Each channel’s share of the viewers’ dollar is based roughly on the percentage of viewers watching: drop your ratings too low, and cable providers may drop you or force you to scale back.

    A lot of “niche” channels do advertising (Travel and Discovery love advertising on those pre-show things at the movies as an example) for precisely this reason.

  13. trumwill says:

    Hadn’t thought of that. Assuming that the renegotiation markets are efficient, then because of the bundling the subsidization would be in equilibrium. ESPN viewers are subsidizing Travel Network viewers and vice-virsa, but each in relative proportion to their share of the audience so it all evens out. So in that event neither Levasseur nor I are correct in a discernible way. I’ll have to ponder on this further.

  14. Veronica says:

    I dunno about bundling, but I looked up the Nielsen stuff for this week, and in the top ten rated programs you’ve got: 3 for ESPN, 3 for USA, 3 for Disney, and 2 for TNT. So… you’re half-right. The “re-run” stations do pretty good, it looks like.

  15. trumwill says:

    It didn’t perchance list how the each of the channels did, did it?

  16. Peter says:

    Not all television viewers are created equal. Advertisers prefer shows that appeal to younger people, as they are considered more receptive to trying new products and services. Advertisers also will pay more for programming that reaches mostly male viewers, mostly sports, as men watch less TV than women and therefore are more difficult to reach.

    It’s often possible to gauge a show’s main audience by watching the commercials. For instance, last Sunday I watched a couple episodes of Monk on USA Network. Several of the commercials were for various cosmetics potions that cover up wrinkles and lines. It was a pretty clear indication that the show appeals especially to middle-aged and older women.

  17. Veronica says:

    Not that I saw, but I didn’t really do more than a take a quick look.

  18. Shawn Levasseur says:

    In determining whether or not a channel is being subisdised by TV/Satellite subscribers, ratings are not a factor.

    Ratings show who is watching. The important factor is what channels do subscribers WANT, and how much they are paying for those channels vs. the channels they are indifferent to.

    The real question is this extra cost for sports channels worth it for non-sports fans? The “socialism” of bundled channels is a fair deal only if there is a balance (or at least not too far out of whack). In an age where there is more and more pressure on systems to keep their rates down, it’s hard to tell the movie fan they have to pay more for their programming when that extra money is actually going towards programming they wouldn’t.

    Ultimately, my presumption that sports channels are being subsidized by non-sports fans is based on the many times I hear that these channels are trying to raise rates over the objections of the cable systems, and the resulting disputes. It could be that this “subsidy” is merely a few cents or a buck or two. If so, then it really doesn’t matter much. But I suspect the sports-tv subsidy is growing.

    The fear that cable subscribers are being forced to pay for things they don’t want is what’s driving the push to require ala carte channel pricing. And sports channels are the channels in the bundles that cost the most, as I understand it.

    Ala carte pricing may not be such a great deal as the added cost of un-bundling would make it unappealing for many. But if the imbalance of what you pay for vs. what you want grows it will ala carte will become a reality.

    The movie, news, and entertainment channels will survive (for the most part). But the sports channels will be put into a tight spot. Which in turn, will put the pro sports leagues in a tight spot.

  19. trumwill says:

    Ratings show who is watching. The important factor is what channels do subscribers WANT, and how much they are paying for those channels vs. the channels they are indifferent to.

    The distinction here as it pertains to sports is only relevant if sports programming has a lot of casual and indifferent viewers compared to other networks. I do not believe that this is the case. There are a lot of channels I think people watch because they want to watch something and there is something familiar on, but I really don’t think that ESPN falls into that category.

    The movie, news, and entertainment channels will survive (for the most part). But the sports channels will be put into a tight spot. Which in turn, will put the pro sports leagues in a tight spot.

    This is where I most strongly disagree with you. The reason that sports channels cost so much is because they have so much leverage because they are so popular. The NFL Sunday Ticket goes for a whopping $270 for only five months of programming and people will pay it (primarily on only one day a week at that). An entire year of HBO costs barely more than half that.

    I would expect sports programming to thrive in an a la carte environment. On a per-viewer/subscriber basis the cost wouldn’t even be that much. The less expensive (to the cable/sat company) niche channels on the other hand will become more expensive because fewer subscribers will be putting their dime into the cup.

    So I guess the difference between our points of view is that you believe that the channel pricing market is skewed in favor of sports programming (cable companies pay too much) and I see sports programming as one of the things that make cable television indispensable and therefore one of the pillars of cable/sat TV.

  20. Shawn Levasseur says:

    “This is where I most strongly disagree with you. The reason that sports channels cost so much is because they have so much leverage because they are so popular.”

    Funny, I don’t seem to disagree with that statement. My (poorly communicated) point was that one sports channel can’t substitute for another as well as one enterainment or news station can substitute for another. So the sports team have even MORE leverage on top of their popularity.

    This allows them to charge even more. Which is unfair for the non-sports fan to pay for the intense loyalty of the sports fan.

    Your citation of the DirecTV NFL Sunday Ticket is irrelevant to this discussion, as it is a premium service sold only to those who request it, not bundled into a general cable package. It does show there are some die-hards who will pay for the league’s entire output, not the broad based support for everyone to pay higher rates on basic cable.

    Sports is a pillar of Cable TV, but that pillar threatens to grow so huge that it becomes too much of a burden for the sports non-fan or casual fan.

  21. trumwill says:

    Your citation of the DirecTV NFL Sunday Ticket is irrelevant to this discussion, as it is a premium service sold only to those who request it, not bundled into a general cable package.

    I mention the NFL Sunday Ticket as an example of how sports channels will do just fine in an a la carte model whereas you said that a la carte would put them in a “tight spot”. Sports programming already thrives unbundled. Their cable channels have the ratings, it dominates regular television on weekends several months of the year, and the extra packages are very popular. Though I believe that they have it, they don’t even need broad-based support, really. They have the fan-base.

    Also, people that get the Sunday Ticket are forced to pay for regular cable/sat whether they are watching it or not. As you point out buying the Sunday Ticket is completely voluntary. This is an asymmetrical relationship (and significant source of revenue for DirecTV possibly allowing their basic rates to be lower) that favors non-sports fans.

    My (poorly communicated) point was that one sports channel can’t substitute for another as well as one enterainment or news station can substitute for another. So the sports team have even MORE leverage on top of their popularity.

    That applies to any station with exclusive programming. The last time I recall that cable TV was brought to its knees, it was brought to its knees because of Comedy Central. Why? Comedy Central had The Daily Show and South Park and maybe the Dave Chapelle show at the time. FX has The Shield and Nip/Tuck and USA has Monk and Psyche. Even the cable news channels have Chris Matthews or Bill O’Reilly. They all have exclusive programming that people want very specifically. The negotiations they make presumably are in corrolation with how big the draw is to their exclusive programming.

    This allows them to charge even more. Which is unfair for the non-sports fan to pay for the intense loyalty of the sports fan.

    Yeah, but the intensely loyal sports fan is paying for a whole bunch of channels he’s not watching cause the tube is always on ESPN or FSN. Each of those channels costs less, but they’re being cross-subsidized by a lot more people because there are more sports fans paying for the Niche Network than of the Niche Network paying for ESPN.

    So I guess where we differ is that you see an inefficiency in the market wherein the sports networks are charging out of proportion to their support among the viewers. I don’t believe that’s the case and if there is an inefficiency I believe that it would likely run the other direction: stop forcing the ESPN viewers to kick in some change for Home and Gardens and it is the latter that will suffer more than the former because, while they’re not individually giving as much as the non-sports fan is giving for ESPN, there are a lot more of them giving.

  22. trumwill says:

    One possible explanation for our difference in perspective regarding the broadness of sports channels is that I am from the south where sports are a bigger deal than some other regions. Not sure if you were raised in the northeast, but maybe it’s not such a big deal out there?

  23. Shawn Levasseur says:

    You mistake my economic analysis for a dismissal of sports, and sports fandom. It is a powerful force. My thoughts doesn’t require it not to be, just that there be a portion of the populace that isn’t as interested in sports, yet still has basic cable.

    And no matter how popular it is. It isn’t growing. ALL interests are becoming more spread out and fragmented, even sports.

    If you are right and sports are that important to people then ESPN and other sports channels really should do well to break away from the basic cable tier and provide themselves a premium services, like HBO.

    But I believe that they don’t do this because they rely on two things, the casual fan who won’t subscribe to such a service, yet will watch if they have it in basic cable. The second is the non-fan who doesn’t know how much the sports channels contribute to the cost of cable.

    This isn’t meant to bash sports or sports fans. I am a fan myself (Yankees Suck! 😉 )

    All of this is part of the broader problems faced by all mass communication mediums. The dispersal and fragmentation of audiences, as greater options for entertainment and information are out there.

    If anything, much of my analysis depends on sports dispersing and fragmenting on a lesser degree than the rest of media. Making it (and its expense) more noticeable.

  24. trumwill says:

    I’m not really a big sports fan myself. I follow college football, but not enough to buy cable for it.

    There are a couple reasons why the sports channels didn’t go the way of HBO, both of which rely on the risk-aversion that comes with the kind of success that they’ve had. I think I’m right about how well they would do, but you could be right as well. If I’m right they get a little more money in their pockets, if you’re right it becomes a New Coke-style debacle that no CEO wants to be held responsible for.

    The NFL, MLB, NBA, etc make only some of their money from the televised games. They also make a great deal with merchandising, product tie-ins, tickets, and so on. I am skeptical they’d go along with the subscription model because the leagues and their teams benefit a great deal by way of exposure and the 24/7 sports cycle that cable TV has brought. It may be in ESPN’s interest, but it’s quite likely not in Major League Baseball’s. The NFL may go along with moving Monday Night Football to cable, but I believe they’d be less likely to agree to keep all its contents for subscribers only. It may well be in their best interest to do so, but it’s not without risks. The leagues are constantly under congressional scrutiny, doing things as unpopular as maximizing profit at the expense of keeping their content out of the reach of the little guy could cause them a great deal of headaches.

    Alternately, since the individual leagues handle their current subscription packages, they would cease to need ESPN and Fox Sports. While HBO and Showtime exert a great deal of control over their original programming, ESPN is utterly at the mercy of their content. The biggest thing that ABC/ESPN has going for it is that they will deliver the games to the masses and collect a pretty penny doing so. Any big change threatens ESPN’s stranglehold as the gatekeeper of sports content. Even just by switching to a la carte ESPN could lose its hold. Sports programming, however, would probably continue to do well, but that would be of small comfort to the people at a defunct ESPN. Companies rarely take these kinds of risks unless they have to.

    They have control over the medium of basic cable. Take away the medium and the rest of the sports could go the way of the NFL and handle the subscription package themselves. In an a la carte model, though, they’d still (probably) want the ESPN brand name to rake in the most subscribers in what would likely be a free-for-all competition. Or maybe ESPN would lose out and they’d find a new method of sports programming. Either way, sports programming would move on. Regardless, though, changing the currently successful formula at all poses a pretty big risk.

    And lastly, Fox Sports Network does have a subscription option.

    Another factor is that they don’t need to. Their product is popular with the kinds of viewers that sell a lot of ads for a good premium. No incentive to try something new, even if it might be successful. Also, the sports leagues themselves offer subscription packages. They could pretty easily cut ESPN out of the loop altogether

    Anyhow, to move further into this discussion I would need to see the contracts between the networks and the cable companies and I’d need to see the ratings numbers and I think I’m about out of energy on this discussion.

    So, thanks for stopping by and lending more of your thoughts!

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