Forget the Bundle, Consumers Have an Appetite for Choice

It’s a common dilemma: faced with hundreds of TV channels, you still can’t find anything to watch. This trend was summarized nicely by a September Credit Suisse report.

Even as the average number of channels available has grown, viewers appear to actively watch only a handful of them. Without more a la carte options, the value of subscribers’ TV packages decreases, and they end up overpaying on a per-channel basis. Or so goes the logic goes...

From 2000 to 2010, the average number of TV channels received per home increased to 135 from 62, according to the Credit Suisse report. Meanwhile, on a weekly basis, the number of channels watched has increased slightly to 16 from 11. Essentially, pay TV is delivering more than what the market can absorb.

People pay a lot—$74 per month on average—for cable, but they reap only a fraction of the value of their TV bills. The cost of pay-TV packages have increased at a 7.1 percent rate since 1995, outpacing inflation in 15 of the last 16 years. Dish Network’s most comprehensive package includes 315 channels and 30 commercial-free premium movie channels for $105 a month. College basketball fan? That'll cost an additional $79 a month.

A widening gap exists between the price per channel available versus the price per channel viewed. The decreasing utility of pay TV fuels the cord-cutting phenomenon. In a Credit Suisse survey, 50 percent of respondents said they don’t subscribe to pay TV because the packages are too expensive. 

"When you have $70 for cable, or $7 for Netflix or zero dollars for whatever you can find for free on the Internet—the gulf is too wide," said Peter Stern, executive vice president and chief strategy officer at Time Warner Cable, on a panel back in September. “We need to move away from monolithic packages…. We’re going to have to have more choices,” he said.

After years of resistance, operators are slowly testing out the idea of unbundling their programming. The move could help lower programming costs, which have increased 6 to 10 percent in each of the last 10 years. These costs have typically been passed on to customers, but operators can’t do this forever, especially in a economy wrought with high unemployment and weak job prospects.

But not everyone is won over by the idea of a la carte programming. Networks remain resistant, expecting unbundling to disrupt their revenue streams. Network owners, such as Viacom and Discovery Communications, make money from negotiating large bundles for high prices. Broadcast networks—CBS, ABC, Fox and NBC Universal—could lose leverage negotiating retransmission fees.

When we're talking about options, a la carte programming is just the beginning. Operators are keenly aware of the 21st century’s viewing habits, especially the shift toward the second screen. Given TV's direction, operators stand to gain by finding ways to let subscribers watch the content they want, when they want and on the device or platform they want.

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