Bailout

The changing landscape of the TV business

By Felix Salmon

Andrew Vanacore has a long and sometimes confusing overview of the state of play in the television industry, which concentrates on the possibility that one or more networks might convert into cable channels sooner or later. But there seem to be lacunae in the story — not least the large number of cable channels which pay for the privilege of being featured in the cable-TV lineup, rather than being paid by the cable companies.

Also missing is any indication of the effects of the move to digital broadcasting. Reader William Wang notes that this vastly increases both the quantity and the quality of free-to-air television stations, which, combined with Hulu and Boxee and YouTube and all the other free sources of TV, should put a lot of pressure on cable companies who have historically had local monopolies and the ability to raise their prices every year with impunity.

The networks are increasingly fighting with the cable operators, now that the likes of Rupert Murdoch have decided that network TV, just like newspapers, is something which should have more than one revenue stream. Now free-to-air digital broadcast TV does not, of, course, come with any kind of monthly subscription stream from a cable operator desperate to still be able to serve up American Idol to its loyal customers. But the networks still reach vastly more viewers than any cable channel, and so if they started adding their in-house cable channels, like Fox News, to the digital broadcast spectrum, they might be able to get a significant bump in viewership.

I still think that by far the best outcome for most constituencies would be a la carte pricing, where viewers — rather than cable companies — decide what’s worth paying for. Every television station on cable could then charge as much as it liked, with an eye to maximizing the sum of subscription revenues and advertising revenues. But what’s clear is that we’re moving to a world where the number of options is multiplying, and corporate strategy is going to get extremely complex extremely quickly.

The latest round of fights between producers and distributors smells like the dying gasp of a 20th-century TV business model to me, with essentially only two sides in the game. The consumer is left out in the cold, shivering as cable bills rise much faster than inflation. Pretty soon, the consumer is going to have a lot more power, and that’s going to change the game in profound and fundamental ways.

Full post as published by Macroprudential on December 30, 2009 (boomark / email).