A couple of years ago, I did the math and determined that, if I were to purchase the entire season of every show I watch each year on iTunes, the cost would run me around $1000 per year, and that even includes purchasing shows that are freely available on Hulu, or the various network’s websites. Meanwhile, I pay $1500 a year for the privilege of fast-forwarding through commercials, while if I’d simply bought each season on iTunes, I could do without the commercials, and I’d get to keep those seasons, as well.
Still, I justify the $1500 expense because of sports programming, kids’ programming, and because I don’t like waiting until the next day (or the next month) to see certain shows. For a lot of people, the tipping point is already arriving. Last year, thanks to services like Hulu and Netflix, more than 1 million people cut their cable subscriptions. Since 2008, 2.65 million people have cut the cord. Still fewer people are adding cable subscriptions (there were only 112,000 new cable subscribers last year).
What’s the cable industries plan to combat the losses? Raise the prices, of course. Cable prices are already increasing at around six percent each year. Today, the average cable bill is $86. By 2015, the average cable bill will be $123. By 2020, the average cable bill will be $200. That’s $2400 a year. For that amount of money, right now you could buy full seasons of around 60 shows (40 sitcoms, 20 dramas). Obviously, the cost of downloading a full season will increase over time, too, but even if, say, sitcoms ran $50 a piece and one-hour dramas ran $100 per season, you could still purchase 36 seasons of television a year.
Who watches 36 seasons of television per year? Why does anyone still pay for cable? Just imagine how much better our lives would be if we cut the cord? We’d be more selective about the individual shows we pay to watch, and we might get out of the house more to watch sports programming. That may sound inconvenient now, but when cable bills begin to rise toward $200, we may finally reach our tipping point.
It’s a pipe dream, I know, but I’m a huge proponent a la carte cable programming. We shouldn’t have to pay for channels we don’t watch, right? In a dream world, we could call our cable providers and order the 10 or 12 channels that we do watch and spend, what? $20 – $25 a month. It’s never going to happen, of course, because it doesn’t make financial sense to the networks.
Why? Let’s say, in this example, that there are 100,000 cable subscribers in your city. Let’s say you wanted to buy only the FX Network, and the FX Network would cost you $5 per month. Let’s also say that maybe 20 percent of the 100,000 cable subscribers in your area wanted FX. In an a la carte model, FX would earn $100,000 from the 20,000 subscribers. Even if, in an a la carte model, you made subscribers pay double for individual channels, FX still earns only $200,000.
However, in the all or nothing model, if you want one channel, you have to pay for them all, so FX earns $5 from all 100,000 subscribers, or $500,000. Eighty percent of their revenue comes from the 80,000 subscribers who don’t want their channel. Changing to an a la carte model would essentially deprive FX of 80 percent of its revenue.
I was curious, however, how much each channel costs the individual, and what my cable bill would look like if I could order a la carte. I found wholesale estimated channel costs for 2009, and as it turns out, the only channel we spend much for is ESPN. In fact, most channels are relatively cheap — the industry average is around $.20 per channel wholesale, but when there are 150 channels, that costs adds up. Let’s say the retail costs is double ($.40 average per channel) and that we have to pay for all 150 channels to get even one: The cost comes out to around $60 a month, which is about how much each of us pay for cable before taxes, DVR, HD, satellite service, and other fees are taken into account (or HBO or Showtime, which adds another $12-$15 per month per channel).
But, if we could purchase cable programming a la carte, using that chart and doubling for retail costs, my cable bill (and probably most of yours) before taxes and fees would probably look like this:
NFL Network: $.75
Comedy Central: $.14
BBC America: $.12
Food Network: $.08
PBS Kids: $.04
Wholesale Costs: $8.81
Retail Costs (x2): $17.62
So, in an a la carte model, I could watch all the channels I normally watch for $17.62 per month before taxes and fees. I suspect most of our cable bills would look much more like $20 a month instead of $60 a month, and that’s exactly what the cable industry doesn’t want, which is why we’ll never get an a la carte model.