Is the ability to choose satellite programming the best deal for
consumers?
The FCC released a new report last week concerning a second
study on the bundling of TV programming packages in the
satellite TV and cable industries. The study concluded consumers
could be saving money by ordering only the channels they thought
they wanted. However, this was a second study. The first study,
released 15 months earlier, had the opposite conclusion,
bundling programming was best for consumers. So which position
is the FCC really taking? Which option helps American consumers
save money on their cable and satellite bills? Is unbundling TV
programming a viable solution?
Is a la carte programming politically motivated?
If the bundling study was motivated simply by a
question of economics, it would be one thing. But there are
political motivations involved as well. The key political
motivation is from the conservative right who feel it's unfair
for consumers to pay for programming that contains objectionable
content. They contend consumers shouldn't be forced to pay for
content they don't want coming into their homes. The FCC can
only censor content that is sent freely over the airwaves.
Major content providers have reacted to this situation by
offering "Family Programming" packages that feature select
channels at a lower monthly price. Both major satellite
providers DISH
Network and DirecTV recently announced the availability of
family packages. DISH rolled theirs out very quickly in February
for $19.99 a month - about $15 less than any other DISH Network
package combination. DirecTV has plans
to release a family package in mid-April. Cable providers also
f
ollowed suit in hopes that demand for "a la carte"
programming would subside.
TV broadcasters have argued being forced to provide service on
an a la carte basis would force smaller channels with niche
audiences to go off air due to the unwillingness of consumers to
subscribe. Broadcasters think specialty channels like G4, the Golf Channel and the Independent Film Channel couldn't generate enough of an
audience to stay in business.
The economics of a la carte programming.
The recent battle between satellite provider DISH Network and
the Lifetime channel raises some real economic questions about
a la carte programming. The contract for the two entities ended
December 31st without a new contract being signed. DISH Network
claimed Lifetime had asked for a 7
6% rate increase, while Lifetime countered DISH had demanded
a 33% decrease. It was estimated Lifetime would lose $20
million in ad revenue and licensing fees spread over 8.5
million DISH subscribers each year if the agreement terminated.
Lifetime and DISH eventually reached a deal, undisclosed of
course, and Lifetime returned to DISH Network on February 1st.
The Lifetime vs. DISH battle exposed some numbers that show how
much a la carte programming could cost. These numbers are
estimations based on limited data, but let's do the math. If
Lifetime was planning on losing $20 million over 8.5 million
customers, that adds up to $2.35 per customer, per year. That's
only 19.5 cents per month, per customer in profit. Assuming a
gross profit target of 50%, the a la carte price of Lifetime
should be 29.25 cents per month.
If we made the same assumption across the board, a package of 60
channels would cost $17.55 per month. DISH Network charges
$29.99 per month for 60 channels. That is a per channel cost of
49 cents. DirecTV on the other hand doesn't offer a 60 channel
package, but has a package of about 155 for $41.99. That's 28
cents per channel with 49 XM satellite music channels included.
Taking out the music channels yields a per channel price of 39
cents. Comcast cable has a price in my local area of $39.99 for
98 TV channels, or a per channel price of 40 cents.
Satellite and cable providers have an additional expense in
equipment. Satellite providers bundle the satellite equipment
with the programming...that's why they require contract periods.
Cable providers have the same equipment expense, but don't
require contract periods.
Are family programming packages a fair alternative?
If you look at the price comparison with the "Family Packages,"
you'll see getting family programming actually costs more! On
DISH Network, the family package
includes 31 channels for $19.99, which is 64 cents per channel.
DirecTV will begin a family package in mid-April which includes 40 channels for
$34.99...a per channel cost of 87 cents. Comcast's family tier
is $31.20 per month for 16 channels and leads the industry in
per channel cost for family programming at $1.95.
There certainly is an advantage to bundled programming as more
channels in a package lowers the per channel price giving an
advantage over a la carte programming. While family centric
programming packages provide "G" rated options, those options
come at a premium.
Is unbundling satellite programming worth it?
If you look at the numbers, there is a small pricing advantage
to a la carte programming in smaller packages. But as program
choices increase, the price actually comes down. Urging Congress
to force broadcasters to offer a la carte programming won't
benefit consumers financially. However, if the real issue behind
the move to a la carte programming is content and not price,
education about parental controls on satellite equipment would
be a better solution.