Recently, we have seen a huge number of pro cable stories pushing the idea that an a la carte shows system will not work because it will be too expensive for the consumer.
We think these arguments miss the point. People want shows, not channels; channels are just how people get the shows they want.
In the end, we will show that not only is a la carte possible, but it can also be more profitable for channels like AMC. What we need to do is stop thinking of AMC as a channel on a cable box, but as a production house making shows. Even smaller channels could benefit from the a la carte model by cutting out the middle man, a.k.a. the cable TV industry.
Disclaimers before we get started:
Now, lets stop here and say we understand that not every show would survive a move to an a la carte system. Honestly, that may be a good thing if it cuts down on the cheap low quality shows that are just used as filler content. With 200 channels going 24/7, there is a need for just something to be on the air. As for the stuff that wont make it a la carte, this is a free market and there is still room on sites like YouTube for niche content. In the end going a la carte will, if anything, bring out more high quality content.
Another main argument against the a la carte model concerns live events such as sports. We would argue that sports would benefit from a la carte. The future of sports television is in services like MLB.tv, which recently reconfirmed plans to lift all blackout restrictions. A la carte would cut out the middle man and allow the NFL, and other sports, to sell directly to consumers without having to let ESPN, and other networks, get a cut. Yes, there would be a set up cost, but the return would be huge. In the end, the NFL, NCAA, NBA, and others would get more money by keeping all the advertising revenue and not letting ESPN keep an estimated $10.3 billion (in 2012).
The last big argument which keeps coming up is that great shows cost money to make. Some say a la carte would prevent the development of the next Breaking Bad or Dexter. All you have to do is look at Netflix, Hulu, and Amazon to know this is not true.
One last note under the a la carte model is that shows would be available at the same time as they will be live on the networks.
Ok, lets break this down:
As an example, let’s look at how AMC could easily survive in an a la carte world. AMC gets $0.30 per subscriber and there are an estimated 95.5 million cable and satellite subscribers in the United States that carry AMC. This means AMC gets about $28.8 million every month from subscribers.
Breaking Bad had 10.3 million viewers watch the final episode live (not counting people who purchased the show on Amazon, or iTunes, or the people who DVR past the time they would count as watching it live). If AMC sold Breaking Bad for $2 a month to the 10.3 million people who cared enough to watch the show as it aired live, they would make $20.6 million dollars. In addition, if they sold subscriptions to Talking Bad for $1 a month to the 4.4 million people who watched it live, they would receive an additional $4.4 million. The other $3.8 million could be made up by their other shows and deals.
Here are the numbers again:
- AMC currently makes $28.8 million every month.
- Breaking Bad at $2 a month would get them $20.6
- Talking Bad would get them an additional $4.4 million
- $3.8 million would need to be made up from other shows.
So, at $2 a month for only Breaking Bad AMC could cover most of their subscriber loss.
Now lets take a look at The Walking Dead:
17.3 million viewers watched The Walking Dead Season 5 premiere live. At $2 a month AMC would make $34.6 million from the fans who took the time to watch it live. This would leave AMC with a $5.8 million profit over what they currently receive from just subscriptions.
$2 a month per show may seem like it would add up with all the shows you watch, but a recent study done by TiVo shows Americans watch on average 10, or less, new episodes a month. Often they rewatch the same shows over and over again. So, even if you watch 10 shows every month at $2 a show that only comes to $20 a month, or less, if you watch cheaper shows like Talking Bad which sell for $1 a month.
So what about ads? Wouldnt a la carte cut or remove the profit from ads? We would say no, for two reasons: first, these numbers are all based on people who took the time to watch the show live with ads. So, just include ads in the a la carte system. Second, If people do not want ads charge $3 or $4 a month and remove the ads. In the end AMC would end up with more profit than they do with the cable model.
Sports will survive either in a Sling TV type system with cheaper sports only packages streamed online, or with an MLB.tv system where subscribers pay $110 a year directly to MLB, cutting out the middle man. If you think you will miss Sports Center, dont be so concerned; we think the new Sports Illustrated Free daily show on their Roku Channel is a great example of the future of such content.
So what about live 24/7 news? For this lets look at Fox News, the largest of the 24/7 news networks. Recently, they struck a deal with Dish to get $1.50 per subscriber. If we use that number for all 87 million cable subscribers who get Fox News it would give them $130.6 million a month; at $10 a month Fox News would only need about 13.06 million subscribers. $10 a month may seem expensive but Fox News, plus the 10 shows you watch every month (assuming none of them are already Fox News), would only cost you $30 a month; significantly cheaper than the $100 average cable bill.
Not only is a la carte cheaper for the subscriber, it could be more profitable for the networks; it just takes a different point of view on the conversation than looking at channels. Honestly, most of the content on a cable channels every day is reruns. The great thing about the a la carte model is once you pay the $2 a month you own the show and can rewatch it whenever you want.
Will this mean Comcast and others will make less money? Yes, it does, but television will make more in the end; similar to how CD manufacturers lost money, but music continues to grow.
In the end people really want shows, not networks, and these attempts to scare subscribers with inflated and improbably high costs are like record companies trying to ignore the fact that the iPod changed everything.