Thursday, March 02, 2006

Bundled or a la carte

Apparently Conservatives want pay-by-channel cable — except the TV preachers

This is not so surprising, most people don't want to see home shopping or pseudo-religious broadcasts but these are crammed into the basic cable package because they don't cost the cable company anything.

The problem with the a la carte model is that 1) people don't evaluate the price of a commodity in a rational fashion no matter what idiot economists think, 2) the costs of distribution are fixed regardless of the number of channels 3) existing technology does not support attractive pricing models.

If cable went a la carte most people would cancel the home shopping and religious shows immediately. Only a few hardened news junkies would want more than one 24 hour news channel, only a few hardened music fans would want MTV and all the clones, only people with kids would want the children's shows.

Offered a choice between the 120 channels I allegedly get on satelite TV at $60 and a la carte at $1 per channel I would chose the a la carte option and cut down to about 25 channels. I certainly would not be paying for Fox News, home shopping, ESPN, MTV, VH1, ABC Familly. Court TV is lame, the SciFi Network inept, I don't speak spanish.

Where the a la carte logic falls down of course is that the provider's costs are fixed. If the number of subscribers declines the price has to go up. My guess is that the price would be at least $2 per channel, I would be no better off at best.

This would in turn hit the finances of the channels, their revenue would decline, program quality would fall. Faced with higher prices for worse content most people would further reduce the number of channels they subscribe to and the cycle would repeat.

This particular market ends up with a result that is worse for every participant. The reason is that the goods being sold are not really as fungible as the market theology demands. There is finite bandwidth on the satelite or on the cable distribution drop. Content is not a rival good, my watching a program does not deprive another. Attempting to allocate costs for bits as if they were atoms fails.

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