Why A La Carte Cable Could Kill TV's Golden Age

Why A La Carte Cable Could Kill TV's Golden Age

Messing with television's business model could wreak havoc on quality programming

Cable subscribers are fed up with blackouts — and with each pulled signal, calls for government action and a massive TV industry overhaul grow louder.

Sen. John McCain has introduced legislation to let customers buy channels a la carte. Time Warner's Jeff Bewkes and AMC's Josh Sapan have discussed the possibility that cable providers could change the way they pay for programming. Consumers are demanding more choice in how they buy cable packages.

They should be careful what they wish for.

Also read: John McCain Makes Case for A La Carte Cable During Wrap Q&A

The system may be broken, but television executives and industry analysts argue that an a la carte world would be detrimental to the quality of programming and could even end the so-called “Golden Age of Television” viewers are currently enjoying.

“The subsidies that come from bundling are a big part of what has contributed to the ‘TV revolution,’ both creatively and financially,” Philip Napoli, an associate professor of communications and media management at Fordham University Schools of Business, told TheWrap. “The production costs for a show like ‘Mad Men,’ which has never drawn a particularly large audience, can be justified in part by the fact that millions of households that never watch ‘Mad Men’ are funding its production through their basic cable subscription to AMC.”

the-walking-dead-season-4The current model supports multiple revenue streams, including advertising and carriage fees from cable companies. To maximize profits, companies like Disney bundle less viewed channels like ABC Family with more popular ones like ESPN.

Also read: Broadcasters, Cable Industry Renew Attacks Over Blackouts

But fiddle with the formula and the landscape could shrink. In an a la carte scenario — or a new alignment that allows cable companies to buy or offer smaller packages — only the strongest channels may survive.

At least, that's what Bewkes suggested in a conference call with analysts last month. The Time Warner chief said that with popular channels like TBS and TNT in its portfolio, his company is well-positioned to thrive in a world of smaller cable packages. But he said that would not be the case for competitors.

Bewkes said that formula would likely result in “more money for the biggest networks like ours. … We do think some of the weaker networks or weaker groups would fail.”

Also read: Jeff Bewkes Doubts a la Carte Cable Will Happen, Argues Pricing Changes Help Time Warner

Some of Bewkes’ comments can be chalked up to corporate bravado, but he's correct that customers wouldn't subscribe to an obscure channel. That means the incredible rise of AMC, which transformed itself from a home for old movies to a creative powerhouse behind iconic programs like “Breaking Bad” and “The Walking Dead,” would be nearly impossible to replicate.

Screen shot 2013-09-11 at 3.23.33 PMIt would also mean channels like BET or Logo, which cater to minority groups, would face an uphill climb when it comes to building an audience.

“From the perspective of fostering a diversity of voices, this kind of change would have a chilling effect,” said Craig Moffett, founder of the boutique research firm Moffett Nathanson. “The only networks likely to succeed would be ones people already know, so breaking through the clutter would be impossible.”

Even the most popular channels could see revenues plummet. As Walt Disney Co. chief financial officer Jay Rasulo told analysts earlier this year, advertising accounts for about 30 percent of ESPN's overall revenues, with another 70 percent from carriage fees. Both businesses would likely suffer if viewers get more choice about putting together cable packages.

Also read: What CBS and TWC Battle Could Mean for Future Retransmission Battles

Not everyone would opt to subscribe to big channels like ESPN, which would take a dent out of their parent company's carriage revenues. That would also limit the amount of money the networks can charge advertisers to run commercials, because the size of their potential audience would shrink as customers get choosier.

That probably means saying sayonara to lavish production values that give shows like “Mad Men” and “Sons of Anarchy” the look and feel of big-screen entertainment.

“You would see a lot more lousy programming as channels slashed their production budgets by 80 or 90 percent,” predicted Derek Baine, an entertainment and media analyst with SNL Kagan.

Of course, there is a strong counter-argument.

Also read: 5 TV Rules That Aren't Rules Anymore

Television remains a for-profit enterprise — and it's not clear why viewers should subsidize an industry more concerned about quarterly earnings than crafting works of lasting cultural importance. Despite critical hosannas, “Mad Men” averages 2.5 million viewers, meaning many subscribers pay to keep Don Draper in chic suits despite never watching the show.

“I do not think consumers should essentially finance and subsidize what are less popular channels,” said Matthew M. Polka, president and CEO of the American Cable Association. “The free market works when customers can determine what content they want to watch and what they shouldn't spend money on because nobody is watching.”

Increased competition could have a galvanizing effect on programming. As channels scramble to attract new customers, they might have to get more inventive in what they decide to air. That paid off for subscription cable channels like HBO, which sparked the small-screen revolution when it bet audiences would care about a middle-aged, neurotic New Jersey crime boss and greenlit “The Sopranos” in the late 1990s.

“All of a sudden, AMC and FX would be in the HBO business and that would mean that they will have to be more distinctive, and distinctive usually means quality,” said Eric Deggans, a television and media critic for the Tampa Bay Times.

As it stands, most analysts predict McCain's legislation won't even make it to the Senate floor. Experiments with smaller bundling seem more likely.

The government and the industry are facing increased pressure to come to some kind of accord: The costs of cable are escalating at alarming rates, with studies indicating subscriptions could cost $200 a month by 2020.

That said, television executives, who admittedly have skin in the game, argue that switching to smaller bundles will not reduce fees. With fewer people paying, channels like ESPN could jack up rates even more.

“The cost per channel would go up significantly and consumers would be paying much more,” one cable executive told TheWrap, “and getting much less.”

  • Jimmy

    I'm going to call BS on this. Every series should be required to prove itself by being actually being watched by people, If they can't bring in the viewers they don't deserve to be on the air. I shouldn't have to subsidize a series I have no interest in watching.

    • tsarstepan

      I slightly disagree with this sentiment. A given series’ fate shouldn't be determined merely by its Nielsen Ratings alone as the system is seriously flawed. True, consumer shouldn't be the ones to prop up a show with a very small audience with the current model of subsidization, but if the network wants to keep it as a trophy series they should find alternative sources for the show's production costs, etc….

  • Steve S

    “Wreak Havoc” indeed. I'm appalled that these (supposedly) very smart people embrace the idea that TV consumers are stupid and cannot sort out the quality programming from the garbage on their own. The current system fosters no accountability, and significant resources are wasted producing vast amounts of content that has no lasting cultural, social, or for that matter, entertainment value. Further, it fosters other cultural abuses such as 8 figure salaries to certain professional athletes. NOTHING about the current system makes sense, and it needs to change.

  • JoeCee

    “…only the strongest channels may survive.” So be it! I am tired of subsidizing programs I never watch.

    • tsarstepan

      What do you mean that you don't want to subsidize the Outdoor Quadriplegic Drag Queen Underwater Knitting Channel?

  • Paw

    Ridiculous arguments against a la carte. Those who want to pay for MAD MEN/AMC would be able to do so under a la carte, as they would for sports channels like ESPN and the like. As such, the “subsidizing” argument fails to hold water,as the relationship between desired channels/programs and fees becomes much more direct. Channels that failed to maintain quality levels would quickly get dropped. In addition, if per channel rates rose too quickly, content providers would quickly see additional loss of audience as those price points rose. This would also incentivize producers to keep costs under control. Finally, “getting much less” doesn't really mean much in a system where 90% of channels that are paid for are never viewed.

    All of this is a stop gap, as eventually smart TV's will allow you to subscribe to channels individually through your broadband connection, without the need for a cable MSO. In a future time, our children will be subscribing to individual shows via smart TV's, with the concept of “channel” becoming as archaic as “rabbit ears”.

  • Andy

    Unfortunately, the biggest crap on cable — all those awful reality shows — garner the largest audiences. So are we really rewarding the Lowest Common Denominator?

    Cable was never intended to reach a broad audience. The idea was to “narrowcast,” reach a large number of people with a wide variety of programming — some of it popular, some of it not so much. In the history of cable viewing, most people only watched six or eight channels on a regular basis. Nothing new there.

    But, unfortunately this model did not account for the huge popularity of sports and the out-of-control rights fees paid by ESPN, regional sports networks, etc., that are passed onto consumers — ALL consumers. I watch sports but I can see a non-sports fan resenting ESPN's $5 or $6 license fee. That's one problem.

    Another issue is that many networks are looking for higher license fees these days — even ones with a relatively small viewership. Providers, such as Dish Network, who stand up to blackmail from networks risk losing subscribers to satellite or telecom services.

    Finally, consumers are hypocrites, weak and selfish. They want companies to hold the line on costs but are not willing to back operators who do so. (Witness Time Warner and CBS). When people would complain to me about the high cost of cable, I said, “Vote with your wallet. Turn it off for a month and cost them some cash flow.” Oh no, I was told, I MUST watch my a) sports, b) Jersey Shore c) HBO. People love to complain but a little sacrifice for a good cause — never!

    With the advent of Netflix, et al, something may have to give. Except for sports. That's still all cable.

  • docsavage

    You obviously don't understand the incredible cost associated with almost any of the content you may or may not watch. Disruption in the traditional cable premium content system has a certain economic threshold. You can't expect high production values if you corrupt the ROI. TV and Film are nothing like music which can be broken down into track and low production costs. If you think the future of programming is disaggregated and splintered ecosystems then look no further than machinima… which can't maker money on the most vaulted target demo and 2.3 B. views a month. TV ad rates are going up because of the traditional TV model. Online and digital platforms cannot create the same equation to substantiate spending $400M on pilots a year to sort out the winners… the best and brightest talents in the industry are hard at work creating epic series as seen on HBO . In fact the flagship motion picture talent are looking to the long form of television to field their projects. That means even more competition and better projects BUT that won't be the landscape if people think that there is any benefit from going ala carte. Netflix, oh the praised Netflix, exists and thrives because it leverages the network and cable ecosystem for expensive product… NF they could pay the $120m in HOC because their ROI was based on small percentage upticks in subscribers and the subsequent rise in stock. At some point they will hit audience saturation and those economics may no longer play. In fact any number of the suppliers of premium content to Netflix could choke them out if they throttled down content. Study after study has pointed out you would pay more ala carte than via cable for an average viewers content demand. So in essence EVERYTHING makes sense about the TV ecosystem… Entertainment is a great US industry… I say stop trying to break down the Value Proposition because it's topical to suggest everything should be cheap and that extra content correlates to higher prices. That's same mentality afflicting the demise of the middle class… let's just ship manufacturing overseas and make it cheaper never mind the quality of the product. I don't my content to drop to the level of a commodity… sorry but I don't want to watch the YouTube crap. I'd rather pay more and have quality product. Let's look to the bigger picture and issues with our economy as a whole that make a $150.00 cable bill; a bad deal. Come on! If you got to a movie with the family by the time you are done it's $100.

    • Edward Washington

      Please go back to your cable television employer and tell them that your efforts to sway the conversation failed. You used a whole lot of words to say absolutely nothing that made sense.

  • Simon

    Less quality TV? You mean if people werent happy with the quality of whats on their television, they might actually people have to talk to each other, go outside, or even, gasp, read a book?
    As much as I enjoy Walking Dead and Mad Men, I'm sure I'd survive if I never saw them again.
    The market always seems to correct itself. These doomsday predictions are laughable. So what if there aren't 145 channels of nothing to watch and only 10 good ones. There are more things to do other than watch television….

    • Hazel

      I also read a great deal but like certain TV programs and wish I had a choice. Do not need nor want 300 channels.

  • FilmDoctor

    I feel like I'm paying for junk I don't watch. I don't really care about “Mad Men,” zombies, “True Blood,” and all the HBO shows. Every time I'm encouraged to watch one of them, they are often over-the-top and offensive or still not as good as regular shows like “NCIS,” “Big Bang Theory,” “Person of Interest,” “Once Upon a Time,” or the slate of programming the USA Network has provided over the years. I'm getting really, really tired of “edgy” and “dark.”

  • BigMediaGluttonsFeedOnLinearTV

    The only ones to FAULT for the growing CONSUMER-backed movement for “ala carte, on-demand programming) is the pure, unadulterated GREED of the ever-consolidating BIG MEDIA GLUTTONS — ABC-Disney, CBS-(tangentially Viacom parent), Fox-News Corp., NBC Universal/Comcast, and Time Warner (including Turner cable holdings, half-ownership of The CW and TWC cable systems) — that own and CONTROL most of the programming content, linear networks and distribution in television.

    The fact that CONSUMERS (aka “cable subscribers”) keep getting JACKED with higher per-month SUB FEES for largely unwanted “linear network bundles” is all because of the arm-twisting that comes from Retransmission Consent negotiating ploys and BLACKOUTS — the most recent in a long line being the high-profile “CLUSTER MEDIA MUCK” between CBS and Time Warner Cable finally resolved after nearly 2 months last week!

    Bottomline, the original language of Retransmission Consent has been so BADLY PERVERTED and ABUSED by the likes of CBS, which, despite CBS ceo Les Moonves’ cries of “poverty,” is reaping massive MULTIPLE REVENUE STREAMS in form of its primary advertising dollar$ stream and then retrans sub fees, pay-per-view linear network licensing fees (from cable, satellite, fiber-optic), streaming online video-on-demand (Amazon, Netflix, Hulu, etc.), other home video DVDs, and international/domestic syndication pipelines!

    Retrans consent had been legislated, much like Must-Carry provisions before it, as largely for “outside-owned” (non-Studio/Network conglomerates) local TV stations’ higher-rated programming to find a way to recoup some cable sub-fee revenues to also help augment their local news coverage/public affair efforts. But when it comes to the larger “Network O&O” station groups (most with 35%-40% U.S. coverage and in largely Top 25 DMA markets), the BIG MEDIA GLUTTONS (also with EXTENSIVE cable network holdings) like to use Retrans negotiations as LEVERAGE to threaten wholesale BLACKOUTS of their higher-rated broadcast stations/networks and cable networks as the 3-million-pound HAMMER to wrest greater DOLLARS and CENTS from per-subscriber cable fees from the cable system operators.

    Pure and simple, it is this overwhelming GLUTTONY by the STUDIO/NETWORK CONGLOMERATES that is slowly KILLING the LINEAR NETWORK BUSINESS (aka “LIVE COMMUNAL TELEVISION” as we've known it since 1948) by their own endlessly PIGGISH yearning to constantly arm-wrestle for higher PER-SUBSCRIBER FEES — they're KILLING THE GOLDEN GOOSE they've been feeding off since TV's founding! Yep, when CBS, Viacom, Fox-News Corp., ABC-Disney-ESPN and NBC Universal (even though owned by mega-cable MSO operator Comcast!) are all SQUEEZING CONSUMERS to pay more for their BUNDLED LINEAR NETWORKS, they now have more and more cable/satellite/fiber-optic subs thinking of how they can just “cherry-pick” the channels and programs they truly WATCH and pay just “ala carte” prices for it individually to SAVE MONEY in a crappy economy!

    Yep, CBS ceo Les Moonves may even see the “writing on the wall” for “linear networks” like CBS, Showtime, etc., because now he's got a second-year renewal for his hit summer miniseries, “Under The Dome,” being sold for secondary streaming video plays on Amazon Instant (or is that Amazon Prime?). No doubt, it is the Les Moonves of the broadcast TV world tightening the nooses on cable system operators (and ultimately CABLE SUBSCRIBERS) to pay more for his network's prime time programming.

    So, if the premise of your article is that the “quality” and budgets for prime time series will go DOWNWARD in a dominant “ALA CARTE” television universe of the future, it will ALL be due to the PENNY-ANTE antics of the Moonves and Chase Careys of CBS and Fox, respectively, continuing to wring out every last cent or buck they can from their RETRANS CONSENT arm-twisting sessions vs. cable/satellite/fiber-optic distributors — all of it coming on top of the BIG MEDIA GLUTTONS already receiving a PLETHORA of front- and back-end advertising, streaming video and on-demand fees, and home video/DVD revenue streams to GORGE THEMSELVES ON at “The Subscriber Smorgasbord!

    Seriously, as long as these BIG MEDIA GLUTTONS “own” most of the programming content and linear networks (and even some of the distribution like with Comcast and Time Warner cable systems), do you seriously think they will be MISSING ANY MONEY from their multiple revenue streams — or take away from the “QUALITY” of their drama/comedy series offerings? Get REAL!

    And if the quality and budgets are going DOWN on the “first-run” series, you can simply THANK the BIG MEDIA GLUTTONS for their unyielding PIGGISHNESS! Oh yeah, you can TRY to END THIS PIGGERY by asking your Congressional reps and federal regulators to get off their arses to SAVE “live communal television” by starting ANTITRUST/DIVESTITURE court proceedings against the BIG MEDIA GLUTTONS — much like the FCC, SEC and FTC once successfully did with the BREAK-UP of Ma Bell/AT&T to foster the emergence of local telephone COMPETITION starting in mid- to late-1980s — even though the RBOCs all re-MERGED like metal shavings to a magnet starting again in the mid-1990s! We sure do LOVE our MONOPOLIES in this “representative republic!”

    Oh well, the PIRANHAS of Big Business America will always feed on each other, I guess??!! No stopping it as long as they can pay off politicians and regulators! ;-D

  • hupto

    The solution is not a la carte but more structured tiers. Don't make people pay for foreign-language channels if they don't speak those languages. Don't make non-sports fans pay for sports channels. Lumping, say, Turner Classic Movies in with Spanish-language soccer channel GolTV pisses off fans of both networks. A little common sense would work wonders.

  • Bes

    So basically Given a choice, TV consumers would choose the crappy content and so the good content would go out of business??!! What a load. Given a choice consumers would stop supporting garbage that takes up space on the dial and requires their time and attention to block. Give consumers the OPTION of cable TV a la carte.

  • Jim

    Great TV shows don't need to cost a LOT of money. They just need good writing and overseers.

  • Bob L Smith

    TWC: Lets have a all news package. CNBC,FOX NEWS,MSNBC, CNN
    I do not want all your other crap.

  • Jerome

    But I NEVER watch AMC….or Mad Men; so, why should I pay for something I never watch???

  • Sferd

    I have DirecTV and wish I could pick a ‘non-sports’ package to reduce the cost. I pay $90/month for 2 DVR receivers and NO premium channels. On the flip side, I would be happy to pay more (assuming I get credit for NOT having ESPN) for additional international news programming such as CNNI and BBC World News.

    Although I do love some of the AMC shows (such as ‘Walking Dead'), no one is mentioning the terrific programming on FX. ‘The Bridge’ and ‘The Americans’ are complicated, engaging shows.

  • Edward Washington

    It's noted that the only people arguing for the current system are those-television industry executives and industry analysts-who gain from the current system. So do writers like Brent Lang & Tony Maglio and The Wrap itself. Clearly, if you don't have these stories to write, you are also affected. Hence, this self-serving piece of debris being passed off as journalism. I as a consumer don't.

    Only the strongest channels will survive if cable is forced to go a la carte: So. That is how evolution came about. Only the strongest survived. Why should I or anyone else be forced to subsidize something I don't want or watch?

    You would see a lot more lousy entertainment: Like we're not seeing it now?!

    The cost per channel would go up and people would be paying much more and getting much less: at the start, maybe. Or, maybe people would cut the cord and once the cable companies and channels realize they can't fleece people anymore, they'll adjust to the new world order.

    There would be less diversity of thought and opinion: Frankly, I don't care about that. I care about my bills going up and being able to afford that.

    I have yet to see an article which makes sense for keeping the current cable television status quo. And after reading this article, I still haven't.

  • DD

    Insular academics weigh in on something about which they clearly know almost nothing.A remarkably shortsighted and stupid article.

    A show like Mad Men is a license to print money. The idea that cable subscribers should subsidize its production is as insane as the government giving enormous tax breaks to the oil and agricultural industries, who don't even know what to do with the enormous profits they make.

    Seriously, get a frigging clue, boys. Try spending some time in the real world with the rest of us. The cablecos are going to go to a la carte, or they will be gone in less than 10 years.

  • Edmund Singleton

    No one will ever be able to convince me that buying milk and not be forced to buy the cereal too is a good thing…

  • texashighway

    The current system is like going to the supermarket to buy a Pepsi and a Sprite and being forced to buy a six-pack which also includes a Mountain Dew, a Fanta, an RC Cola, and a Diet Dr. Pepper. A consumer shouldn't be forced to bundle a product he wants with products he has no interest in. A retired white person in a rural area and a inner-city minority young person generally aren't interested in the same programming. They should each only have to pay for what they want.

    • Hazel

      Well put!

  • radiomantx

    WHY are we paying for channels we never watch? I have NO interest in “Mad Men”, it's a low rated show, therefore it should be gone! That's the way television was and even radio were built. ONLY the STRONG survive! That's also the American way. Good, healthy competition! Therefore the BEST rise to the top. No wonder we're paying stupid rates for cable and satellite TV. STOP IT NOW!

    • tvjunkie

      Though I am for an a la carte system, I strongly disagree with your sentiment. Being the most popular isn't everyone's definition of the “BEST.”

  • voice_reason

    in the end you know damend well that even with ala carte cable, subscribers will end up getting the short end of the stick, and it will be shoved where the sun don't shine….costs will rise for the “channels we watch”, other channels will wither away and overall viewers lose as a result since there will be fewer channels to watch…and we know damned well that cable costs will not come down

  • Radiomantx

    HEY, if you can't afford it, you can't afford it. Maybe we've set the production levels a little too high. People will always watch the best show on. WE can't can't afford it anymore. When you can't afford a Cadillac, you drive a Ford or a Chevy. Like any other business, I would prefer to pick what I want to watch and not end up with 40 channels of garbage dumped on me! Cable channels must stick to making their money from advertisers, NOT cable subscribers! Except, of course the premium channels like HBO and Showtime, which make their money from separate subscriptions. If the cable rates go up anymore and the blackouts continue, I'll be going back to my antenna.

  • ztom6

    People are willing to pay on a subscription basis for HBO. HBO makes quality programming and subscribers are generally happy with the arrangement. People are willing to pay on a subscription basis for Netflix. Netflix offers quality content and is increasingly putting out quality original programming as well. People are very happy with their Netflix subscriptions as well. This idea that TV-by-subscription equals less quality is not the right way of thinking about it. What will happen is that channels that only produce 1 or 2 high quality shows at a time and not much else will have to up their game or get left out. Awful reality shows may get a lot of eyeballs relatively speaking but I bet you channels devoted to that crap wouldn't draw a lot of $$'s subscription-wise.

  • Joy

    I agree with the article. We should just all watch what we want without doing the a la carte thing. Many channels might disappear and the channel I'm most concerned about is PBS. We need quality TV like PBS. People can just ignore the other channels but I completely disapprove of a la carte.

  • Bonita Ringuette

    the solution for my family has slowly become dropping channels and watching what we want on the internet…I know how to hook my computer to my tv and for many smart tv's thats not necessary any more. If cable and satelite providers aren't careful they will “bundle” themselves out of business. I don't want to wade through channel after channel hawking junk from God knows what celebrity nor do I want to surf past espn#1 through infinity to get to AMC or BBCAmerica or what ever. For some families, sports is absolutely necessary….let them pay for it then. I DONT want to watch or care a hoot about bowling, football, soccer, horseracing, auto racing, etc, etc, etc,
    I would rather pay a little more money for a channel lineup I can use than less for something I never EVER watch. It just doesn't make sense.

  • Annoyed

    The arguments not to go a la carte are complete crap. No matter how many channels I have in my package, I probably watch about10-15 of them. Most of the new programming is crass and/or immoral. I have absolutely no interest in subsidizing channels that enrich the Kardashians, the The Real {back biting bimbos} in an affluent suburb, or MTV. But they are bundled in every package with ESPN. That is total crap. I have scaled back to the U-Verse family plan in protest. I lost ESPN- rather, they lost me.

  • SonoranSnoozer

    It's outrageous that people have to pay for hundreds of channels they never watch just to get a few they do. I can no longer afford to subsidize industry fat cats as they create ever more expansive empires, gobbling up competitors like pacman, and putting a death grip on consumers. All the scare tactics are laughable. They aren't fooling anyone.

  • Jazz OZ Hamilton

    Bullshite. Quality products/services/programming would always find supporters/funding. To claim that the only way to make sure you have “quality” is force people into paying for stuff they don't want is to9 admit a total lack of understanding when it comes to logic and rational thinking….

  • Hazel

    I appreciate people who want all those sports channels but I never watch them along with many. I actually watch about 15 channels out of 300 and would like to pay for the 15 only. Tired of speeding through all the others. Hope Senator McCain keeps trying to force cable to offer single channels. Cable has forced overpayment for a long time now and where I live you cannot get TV without cable. Then we were forced to go to type of programming that left millions of TV's in the junk heap so cable could make more money is a travesty.

  • blasphemeous

    That's why I got rid of Cable all together… rather stream and buy seasons in iTunes if I fee im gonna miss something.