Column: Consumers and pay-TV industry are far apart on a la carte channel pricing
Pay-TV companies lost nearly 800,000 video subscribers last year, almost twice as many as a year before — the latest evidence that a growing number of Americans are sick and tired of paying through the nose for hundreds of channels they never watch.
But if the future of TV is paying only for the channels you want, and I firmly believe that it is, the big question is how much each channel should cost.
A new study indicates that consumers and pay-TV companies are far apart on this score.
Yet it also suggests that the pay-TV industry would be foolish to ignore consumers’ clear preference for a la carte programming choices.
“The warning sign for industry executives is that as a la carte options become more available and easy to use, consumers will gravitate toward them,” said Paul Stathacopoulos, vice president of strategy for the digital recording company TiVo, which conducted the study.
He said “competitive pressure,” rather than legislation, is likely to force pay-TV companies to give customers what they desire.
TiVo surveyed roughly 2,000 Americans about their viewing preferences. More than three-quarters said they wanted a la carte channels.
Of that number, survey respondents said they’d need only 18 channels on average to create the perfect a la carte lineup.
That jibes with data from the ratings firm Nielsen, which says the typical American pay-TV customer watches just 17 channels on a regular basis, or a small fraction of the many channels forced down people’s throats in fat programming bundles.
TiVo’s survey respondents named ABC as their most-desired a la carte channel. About 66% put it on their wish list. ABC was followed by CBS (63.5%), Discovery Channel (62%), NBC (61%) and History (56%).
Rounding out the top 20 were, in order, Fox, A&E, PBS, TNT, FX, HBO, AMC, TBS, National Geographic, USA Network, Food Network, Comedy Central, HGTV, ESPN and the Weather Channel.
Where are the news channels here? Are people so sick of current events that CNN, Fox News and MSNBC didn’t crack the top 20?
I also was surprised by HBO’s relatively weak showing. Stathacopoulos speculated that people are most eager for channels that aren’t currently available a la carte. HBO is available on a stand-alone basis for anyone with a broadband Internet connection.
“People want what they can’t have,” Stathacopoulos said.
It’s striking that ESPN was such a low priority for most people. Keep in mind that sports networks account for as much as $25 of average Los Angeles pay-TV bills, according to the consulting firm SNL Kagan.
The TiVo wish list suggests that more than a few people would be just as happy, if not happier, without any sports programming. It also indicates that the average $7.20 a month that ESPN adds to people’s pay-TV bills is wasted money for many households.
As for pricing, here’s where things get really interesting.
We already have a strong sense of the industry’s preferred prices thanks to Canada requiring that its pay-TV services offer subscribers a la carte channels. Many channels north of the border cost about $2.25 a month, but the more desirable channels, such as AMC and CNN, can surpass $5 apiece.
Premium movie channels, as U.S. cord cutters already know, are even pricier. HBO will set you back $15 a month. Most of the other premiums run about $10 each.
TiVo’s respondents made clear that Canada’s a la carte prices are significantly higher than what U.S. customers think they should pay.
For example, the average monthly price people said they’d pony up for ABC, the single most popular channel, was just $1.25 monthly.
That’s roughly the same amount offered for most of the top 20, with PBS coming in a smidge higher ($1.52), followed by History and Food Network ($1.49 each).
The preferred price for ESPN? That would be $1.82. HBO? A mere $2.81.
Overall, TiVo’s respondents saw fair value in paying an average $28.87 a month for their 20 favorite channels. The average cable bill now tops $100 a month.
Stathacopoulos said it’s possible that U.S. consumers have been influenced by providers of so-called skinny bundles, such as Dish Network’s Sling TV, which offers cord cutters a starting rate of $20 a month for more than 30 channels. That includes ESPN, AMC and CNN.
I asked Stathacopoulos what he saw as pivotal moments in America’s gradual shift to a la carte. He credited Sling TV with making skinny bundles a viable alternative to bigger bundles.
He also said HBO’s stand-alone streaming service sent a clear message that popular programming can be offered directly to consumers, cutting out the pay-TV middleman.
Stathacopoulos said the industry should pay attention to CBS’ decision to make its upcoming “Star Trek Discovery” series available only on its CBS All Access streaming service (after the pilot debuts on the network).
He said this is a strong indication that the industry is coming around to the inevitability of a la carte and is experimenting with ways to make stand-alone services more attractive to potential subscribers.
Like I say, though, the industry and consumers are nowhere close on pricing. CBS All Access, with all its digital bells and whistles, costs $6 a month, or $10 without commercials.
The TiVo study found that consumers see CBS being worth closer to $1.25 monthly.
And so the dance begins.
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