Saturday, January 12, 2008

Economics of cable and satellite broadcasting, part one

Some of you may not remember the promise of cable television. Back in the 1970s, cable television seemed like the technology that would open up vast new horizons. No longer would we depend upon the three networks for our daily programming; we would have an unlimited number of channels to choose from, and channels would program to microtastes, ensuring that everyone's needs would be served better than before.

Well, cable (and satellite) television didn't exactly deliver on the promise. I don't understand the entire economics of how cable and satellite television work, but I do know a couple of things.

  • The cable/satellite economic model impedes the introduction of new channels. Theoretically we could build cable/satellite feeds that carry 1,000 or 5,000 or however many channels we want. However, as is often the case, the stumbling blocks are not technology-related, but business related. I don't know how this started, but the content providers are not willing to exist solely on broadcast advertising, but expect the cable/satellite providers to fork up money to carry the content. Thus we have things like the NFL Network fiasco, where everybody's yelling at everyone else because Time Warner et al refuse to pay the NFL Network's fee to carry the channel. The result is that no one is happy, with the possible exception of DISH Network and DirecTV.

  • The number of cable/satellite channels is not unlimited, but limited. The reason that cable isn't regulated as heavily as over the air broadcasting is because the number of cable stations is theoretically limitless, whereas over the air broadcast licenses are limited. However, it turns out that the cable/satellite channels are limited themselves. As a result, you have the Ovations of the world buying the IMFs of the world. Why? Because Ovation loved IMF's programming? No, because Ovation loved IMF's slot in the DISH Network programming lineup, which it could not obtain otherwise. So Ovation got the slot, IMF programming got the boot, and I'm not sure that anyone - even Ovation - will be happy by the time this is over.
These are just my random thoughts. If anyone cares to share anything - your own views, or links to other stories or posts that examine the economics of the cable/satellite market - please add a comment.

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