The A La Carte Mirage

Persistent rumors that Apple will make a more aggressive move into the television market once again seem to have people musing about à la carte television in a way that I doesn’t think makes sense. “I have 400 cable channels available to me right now but I only actually care about 12 of them,” Andy Ihnatko writes, “if Apple worked out how to license those channels independently and allowed me to simply subscribe to them a-la-carte via channel-specific iOS apps, that’d be a huge win.”

But how so?

Think about Starbucks. If Starbucks were a monopoly provider of coffee, they might try to make venti the only available size as a way of maximizing the ratio of revenue to labor costs. But since coffee retailers need to compete with both other vendors and making the coffee yourself, they disaggregate and will sell you a smaller coffee for less money. But the reason they’re willing to charge less for the smaller cup is that it actually costs them less to produce the smaller cup. At the same time, the discount is relatively small compared to the reduction in coffee served because giving you a smaller coffee only reduces their costs slightly. Starbucks faces a lot of fixed and semi-fixed costs associated with just keeping the stores up and running. But each cup ounce of coffee does have a marginal cost associated with it, so discounts are available for drinking less coffee.

Cable’s not like that. Once the cable company has built the infrastructure to deliver cable to your house and given you the box, it doesn’t cost them any more money to give you 100 channels rather than 10. To be sure, building infrastructure capable of delivering more channels costs more money. But once the infrastructure’s built, it can deliver what it can deliver and there are no incremental savings to achieve by not using all the capacity. I think it’s completely true that cable television has become a questionable value proposition—it’s extremely expensive and though the infrastructure to deliver hundreds of channels to the home is impressive, it’s not actually useful since nobody watches that many channels. What we actually need is faster broadband internet. But the infrastructure’s already built. Refusing to use it doesn’t reduce the suppliers’ costs and wouldn’t save customers any money.