Is the death of the TV business model upon us?

Lynne Kiesling

If you’re a Direct TV subscriber, you know that they are embroiled in a contract dispute with Viacom over subscriber fees, which means you haven’t been able to watch Jon Stewart or Stephen Colbert or SpongeBob SquarePants for the past week or so. But is cable/satellite TV becoming an “if it died would anyone notice?” industry?

Put another way, as Derek Thompson did in The Atlantic late last week, has the technology evolved sufficiently that the cable or satellite TV bundle model is obsolete?

First, Viacom yanked its 19 channels — including Nickelodeon, MTV and Comedy Central — from DirecTV after the two companies failed to agree on subscriber fees. Second a federal judge cleared the way for Aereo, an exciting new startup that could bring local TV (NBC, ABC, CBS, PBS) to any device you wish, from a smart phone to an actual TV.

Big deal, you might say, so DirecTV people can’t watch “South Park” and techies can get a crappy stream of “The View” on their iPad. That’s not a wrong interpretation of the news, but it’s too narrow. The bigger story here is the death of the bundle.

“The bundle” has been a matter of tech policy interest for some time, as some consumers argue that they shouldn’t have to pay to access 500 channels when they really only want 20 of them (disclosure: I, too, have ranted after a couple of glasses of wine about how dearly I wanted “a la carte” pricing). Given the prevailing broadcast, cable, and satellite technologies, the economics of content bundling is more nuanced than that, though — in some ways channel bundling is like risk pooling in insurance. By creating bundles that cross genres and interests, cable/satellite companies can offer a higher “potential eyeball rate” for their channels and charge content providers higher subscriber fees at a lower retail price to each subscriber than if the cable/satellite company offered each channel separately. In that model content providers get the revenue both to do Game of Thrones on HBO and to do deep cable shopping channels.

But Internet streaming technologies have been chipping away at the bundle business model for some time, at least the past year or so, and they are getting efficient enough in their use of bandwidth and are complemented by more efficient devices (from laptops to tablets to phones) that streaming is now a viable competitor to cable/satellite. Those who want a la carte can cancel their subscriptions and do so, for a lot of popular content.

Thus, as Steve Titch noted at Technology Liberation Front, there’s been little policy attention to this latest subscriber fee kerfuffle:

This is the new reality of TV viewing. If you are willing to wait a few days, you can download most of Comedy Central’s latest episodes for free (although John Bergmayer at Public Knowledge reports that, in a move related to the DirecTV dispute, Comedy Central has pulled The Daily Show episodes from its site, although they are still available at Hulu).

What’s more, in a decision that should raise eyebrows all around, AMC said it will allow Dish subscribers to watch the season premiere of its hit series Breaking Bad online this Sunday, simultaneous with the broadcast/cablecast. This decision should be the final coffin nail for the regulatory claim of “cable programming bottleneck.” Obviously, studios have other means of reaching their audience, and are willing to use them when they have to. …

While disputes like this are messy for consumers in the short term, the resolution will be a consumer win because it will force multichannel operators and the studios to adapt to actual changes in consumer behavior, not a policymaker’s construct of competitive supply chain. Washington would be wise to stay out.

It’ll be interesting to see how messy that process is for video content, whether incumbents fight it to their detriment as in music or adapt to it thoughtfully as in book publishing. Personally speaking, we’re just waiting for Fox Soccer to become less technologically incompetent, and then we’re off. I can watch cycling and hockey by subscription and most other stuff by direct purchase. I suspect we’ll end up spending almost as much as we do now for Dish, but with more flexibility and less junk to annoy and distract us.

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