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The Future of Cable—And of Netflix

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"The Future of Cable—And of Netflix"

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Image used under a Creative Commons license courtesy gelund.

Since I wrote my complaint about the value of cable, a couple of people have sent along articles, among them James Surowiecki’s classic on bundled pricing in general, and written thoughtful responses to the idea that cable can or should be unbundled. I should say as a preface that obviously if we moved to a system of unbundled rather than bundled cable, the available offerings would be very different. And it’s possible that what seems like a rising tide of consumer complaint about bundled cable won’t actually translate into a wave of people dropping their subscription that would force the industry to rethink its models and all this speculation might not be necessary. But I’m a fan of spitballing, so onward!

In my conversation with Tim Lee (who passed along this post) and Megan McArdle‘s post, there seem to be several core objections to the prospect of unbundling: 1) It loses consumers valuable choice by eliminating the option of indulging random cravings, 2) It won’t actually save consumers money, 3) an objection raised by some readers, the loss of bundled cable income will kill off some channels, reducing choice further.

It strikes me that the real differences between the arguments here are about the point when choice is meaningful, and how people understand value. Let’s take the first objection, and that question of choice first. The current bundled cable model assumes that we want to push the question of choice down the road a bit, to the moment when we pick up a remote, rather than making a decision based on the general tranches of things we’d like to watch. The appropriate metaphor to me isn’t really that buying cable on a per-channel basis is like buying the chapters of a book—that’s what buying shows on iTunes or DVDs are like. Rather, bundled cable is like buying the whole bookstore when I know I’m never going to visit the self-help section. I understand the idea that suddenly being able to watch a lot of home decorating shows if you feel like it is a decent option to have, but I’m not really sure how many people actually exercise it, and what value people place on being able to do it. As I said to Tim on Twitter last night, are we buying a full-insurance policy for our watching whims? Or do we know our own minds? I essentially trust myself to know my own mind, and I place a higher value on being allowed to consume on that basis than on having an option I’m unlikely to exercise.

Second, the question of whether bundling would make costs go down, and of what feels like a good value, is intimately related to the question of choice. I said in my initial post, and I’d say again, that I’m not actually interested in unbundling as a way to reduce the cost of my cable bill. Maybe that’s crazy irrational behavior that no one else feels and I should be put in a loony bin run by kindly economists. But what I want is the sense that I’m getting the things that I want for my money, not really that I’m spending less of it. That seems like the question cable providers and networks will have to figure out: do consumers just want to pay less? Or do they want to feel like their spending is more directed? If the former, I don’t think anyone has the answer. But that’s not exactly the problem I’m trying to work out for myself.

Third, the question of whether we lose some networks, and thus, some choice. The answer seems to be probably, right? I’m okay with that as a consumer, though I’m sure the networks are less happy about the prospect. But there seems to be something interesting to me about the idea that we should prop up channels that might be unviable outside the bundling system because not enough people would subscribe to them in the name of ensuring consumer choice. I agree with objections that niche channels like SyFy might have had a harder time getting off the ground without the bundling system. But I think we’re in a different consumer moment that makes the continued existence of SyFy, or Logo, or for that matter Bravo, which started life as a premium channel, much more likely.

And now, a final point that I think might help us arrive at a model. Megan points out that of course cable can’t be like Netflix, particularly not as cheap as Netflix:

But Netflix doesn’t do the same thing as cable; specifically, they don’t have premium content. They’re repackaging stuff that has already either made money, or at least had most of its costs paid–through affiliate fees and advertising, in the case of television, and through theater tickets, television sales, and tie-ins in the case of movies. If the cable networks didn’t exist, Netflix’s content would probably be more expensive, and of course some of it wouldn’t exist at all.

A minor quibble: Netflix has a lot of content from the premium cable channels, particularly Showtime and Starz, and it has it not just on discs but streaming. The real holdout is HBO, and I wonder if HBOGO is actually a tool to leverage a more favorable deal with Netflix than it is a stand-alone business model.

It seems to me that the future of cable and Netflix might have a common solution: a basic fee for access to the service, with an a la carte menu on top of that. Obviously there are administrative and bandwidth costs—though I’m not sure why a one-time setup of a la carte cable would be so vastly more burdensome than setting up basic cable, especially if the cable companies significantly improved their customer service websites and automated certain functionalities, like selecting a la carte channels—and it makes sense to have a reasonable fee to pay for those. Included in those costs would be some basic content: NBC, ABC, CBS, Fox, and local access channels, plus maybe a few other low-level things for cable, the large swath of content that isn’t really actively earning money for the networks and studios but that people are still interested in for Netflix. Then, on top of that, you have the a la carte fees. The end result might be cost-neutral, or in the case of Netflix, a bit more expensive. But people would have more choice on the front-end of both services, and more of what they want available to them on Netflix.

Again, maybe consumer behavior isn’t really going to change, and crabby bloggers like me will keep paying for bundled cable and then writing it off on our taxes. But if I were a cable executive or a network president, I imagine I’d be imagining what life would be like without bundling, just in case.

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