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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Economics of cable and satellite broadcasting, part three

So I've talked about the different programming fees that the content providers charge the cable and satellite companies. Would you like to know what those fees are? Well, you can't.

Cable companies and programmers do not reveal their contracted programming rates. The rates presented here have been gleaned from a variety of sources and include the base cost of the programming plus the cable companies mark-up.

So the howcableshouldbe.com took a guess at what the different programming rates are. Here are a few of their guesses:

ESPN $ 3.80/mo.
Regional Sports Network $ 2.25/mo.
Nickelodeon $ 1.40/mo.
ESPN2 $ 1.05/mo.
TNT $ 1.00/mo.
Sci-Fi Channel $ 1.00/mo.
CNN $ 1.00/mo.
Disney $ 0.95/mo.
CNBC $ 0.90/mo.
Bravo $ 0.85/mo.
USA $ 0.85/mo.
MTV $ 0.80/mo.
AMC $ 0.75/mo.
Fox News Channel $ 0.75/mo.
FX $ 0.75/mo.
ABC Family $ 0.75/mo.
MSNBC $ 0.70/mo.
TV Land $ 0.70/mo.
Discovery $ 0.70/mo.
NFL $ 0.70/mo.
Cartoon Network $ 0.70/mo.

So how does howcableshouldbe.com think that cable should be? They are all for a la carte pricing, where customers can select the channels they want without being forced to tolerate the channels they don't want. Here's part of why they say this isn't happening:

Ask a cable company why they can't sell you the networks you want on an à la carte basis and they'll say because the networks won't let them or that the à la carte rates are so high it just wouldn't work.

Ask a network the same question and they'll essentially tell you that without old ladies helping pay for ESPN, pious folks paying for Comedy Central, and the childless paying for Nickelodeon their ability to produce quality programming is utterly laid to waste, destroyed, kaput.

Both big cable companies and networks then quickly add that networks serving niche audiences – and, in particular, minority communities – would vanish in a world of consumer choice widening the "digital divide" and leaving millions of already disadvantaged Americans out of touch and hopelessly behind.

What poppycock. It's the worst kind of hypocrisy. It is an elite group of über-affluent executives hiding behind the human shield of "niche audiences" to preserve and augment the rapacious margins they gleefully extract from a non-competitive industry. They all love, cherish and protect a system that regularly delivers price increases outpacing inflation by 3X. Über-yuck!

So who is controlling this effort?

HowCableShouldBe and HowCableShouldBe.com are trade and service marks of the Parents Television Council™.

Why?

The Parents Television Council was founded in 1995 to ensure that children are not constantly assaulted by sex, violence and profanity on television and in other media. Our national grassroots organization has nearly one million members across the United States, and works with television producers, broadcasters, networks and sponsors in an effort to stem the flow of harmful and negative messages targeted to children. We are a nonpartisan organization that works with elected and appointed government officials to enforce broadcast decency standards. Most importantly, the PTC produces critical research and publications documenting the dramatic increase in sex, violence and profanity in entertainment. This information is provided free of charge so parents can make informed viewing choices for their own families.

Television is the most powerful medium in the world. It can be a wonderful way to educate, inspire, and entertain America's children. Sadly it's doing the opposite and undermining the positive values parents are trying to instill in their young ones.

The PTC agrees that parents have the greatest responsibility when it comes to monitoring the viewing habits of their children, but the PTC challenges actors, writers, producers, musicians, game-makers and advertisers to get serious about the vital role they play in shaping America's culture. The gratuitous sex, foul language, and violence on TV (along with stories and dialogue that create disdain for authority figures, patriotism, and religion) are having a negative effect on children. Much of the PTC's success stems from motivating the public to voice its support of family-friendly programming to network executives, advertisers, public policy leaders, and the creative community in Hollywood. The PTC has employed these efforts to help save values-driven shows such as ITV's Doc and CBS's Joan of Arcadia, and to encourage other shows to get rid of the offensive content, including Coupling, Nip/Tuck, and Skin. The PTC also has a successful campaign to clean up the Family Hour.

And presumably since cable and satellite television is under less government control than the broadcast networks, then cable/satellite television is a target.

Their Celebrity Advisory Board includes names such as Pat Boone, Billy Ray Cyrus, and Tim Conway (although I didn't see Tim Conway Jr. on the board).

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Economics of cable and satellite broadcasting, part two

After my last post, I began to research cable programming fees a little bit more. Here's a little bit about what howcableshouldbe.com says about the industry:

Let's start with the consolidated ownership of cable networks: 4 companies own the 10 networks with the highest programming fees; and, 6 mega-media companies own the 20 networks with the highest programming fees. Put differently, 6 companies pretty much rule Expanded Basic.

Now, let’s add a generous dollop of cross-ownership to our batter of consolidation. For example, Time-Warner, the second biggest cable company, owns 8 cable networks, 5 of which are typically included in the Expanded Basic tier. Comcast, the biggest cable company, owns all or a majority stake in 7 smaller cable networks (with 1 typically in the Expanded Basic tier).

Now, frost this fetid cake with the all-important high fat fact that 5 of the biggest cable network owners are also big time owners of local broadcast television stations (and are affiliated with hundreds and hundreds more broadcast stations).

The end result is a rotten robber-baron cobbler - chock full of smoke-filled, backroom shenanigans - that hits consumers right in their pocketbooks....

In all of this, the most painful con being run on consumers is what economists call tying. This is when one product or service cannot be bought without another. For example, NBC/Universal, the owner of CNBC, MSNBC, USA, SciFi, Bravo, and other networks, makes it very attractive for cable companies to "take them all," and very hard (read economically punishing) for cable companies to "pick and choose" only the nets they want. This rolls right up to consumers because the cable companies' contracts with NBC/Universal make promises to NBC/Universal about how many subscribers its many networks will reach. If the cable companies fall short of the promised "subscriber guarantees" the programming rates are subject to increase and/or the carriage deals may be revoked.

Now, add to this terrifying tying the important fact that NBC/Universal also owns the NBC and Telemundo broadcast television networks. Cable companies must secure permission (so-called "retransmission consent") from local broadcast affiliates to carry the affiliate over the cable system. Permission is, as you can imagine, tied to compensation. A favorite form of compensation is, "We'll ‘give' you the right to retransmit NBC and Telemundo if you carry not only our ‘good stuff' (read our marquee cable networks), but also all the new and/or minor networks we have."

Remember NBC/Universal is just one example. The tying racket is equally valid for News Corp. (Fox), Disney (ABC) and Viacom/CBS.

And here's the website's take on the whole NFL Network issue:

Right now cable companies are in a big fight with the NFL over the NFL Network. The cable companies are making a lot of noise about how their fight to keep the NFL Network off of Expanded Basic is for the good of consumers. That's more deceptive than the ol' Statue of Liberty play. Yes, the cable guys know that non-sports fans are getting tired of paying big bucks for sports networks. They also know that by putting NFL on a digital tier they can sell a lot more of that digital tier and make a boatload of money. Mostly, the big cable companies dare to tangle with the NFL because the NFL doesn't own a bunch of other networks and the big cable guys don't own a piece of the NFL. Regardless, bundling in digital tiers is pretty close to as rotten as bundling in Expanded Basic. If cable's fight with the NFL is really about serving consumers, why not just let people choose and pay for what they want? Blasphemy! That business isn't as fat as the business they're in.

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If entertainment technology providers took over the grocery industry

I could pontificate on how Gol TV is not available on DISH Network at the moment, and tie that to my previous posts on the economics of cable and satellite broadcasting.

But I won't. Instead, I'll tell a story. Again.

Last night my wife sent me to the store to get a dozen eggs and a small bag of peanut M&M's. When I got to the store I found out that they had remodeled. Instead of walking to the aisles and picking exactly what you wanted, you now had to wait for someone behind a counter to help you. This was labeled as a "customer service improvement."

After waiting in line for five minutes, someone came to help me.

ME: I'd like a dozen large eggs and a small bag of peanut M&M's, please.

BOB: We can give you that, and much more! Have you looked through our brochure of monthly offerings?

ME: Monthly offerings?

BOB: Yes. If you look at the Star Grocery Package, you see that you can get a variety of staples, including eggs, bread, milk -

ME: I already have bread and milk. I just want eggs.

BOB: Oh, but eggs are included in the Star Grocery Package. Now to get the peanut M&M's, you need to upgrade to the Premium Package. You'll see that this package includes licorice, tapioca pudding, mixed vegetables -

ME: I don't like tapioca pudding.

BOB: But there are a variety of other items in the Premium Grocery Package, and you can get everything at a stellar value.

ME: Stellar value?

BOB: Yes, the Premium Grocery Package is only $399.99 a month.

ME: $400 a month?

BOB: No. $399.99 a month. We could have charged $400, but we're working hard at controlling costs and passing the extra savings on to you.

ME: So if I don't want the M&M's and only want the eggs, how much do I pay?

BOB: That would be $199.99 a month - oh wait a minute, we have a special! We can give you the Star Grocery Package, along with a subscription to Omaha Steaks, for only $149.99 a month for the first three months. And during that initial period, the Omaha Steaks are free! That's $150 in savings!

ME: Not $149.99?

BOB: No, that's a full $150 in savings! We pass the savings on to you.

ME: Can I substitute peanut M&M's for the Omaha Steaks?

BOB: Um...no.

ME: What happens at the end of the three months?

BOB: Well, you still get to enjoy the full Star Grocery Package and the Omaha Steaks, just like you had for the initial three months...well, except that you're charged for the Omaha Steaks beginning in the fourth month.

ME: How much, may I ask?

BOB: Well, the full package with the Omaha Steaks and the Star Grocery Package works out to...let me se...$299.98.

ME: Not $299.99?

BOB: No. only $299.98. We've negotiated a special deal with the Omaha Steaks people, and we're passing those savings on to you.

ME: But can't I cancel the steaks before the three months expire?

BOB: Well, let me see...um, there's a minimum 24 month commitment for this special package. That's how we're able to pass the savings on to you.

ME: So let me get this straight. I cannot just buy a dozen eggs and peanut M&M's? I have to buy a whole package?

BOB: Well, um...oh, wait a minute. Peanut M&M's are no longer available.

ME: But I thought they were part of the super duper package.

BOB: Well, we've had a problem with the M&M's provider. They are making unreasonable demands on us, which would make us unable to pass special savings on to you.

ME: So your super duper package -

BOB: Our Premium Grocery Package.

ME: - your Premium Grocery Package no longer includes peanut M&M's.

BOB: That is correct.

ME: So if the package used to be $399.99 a month with the peanut M&M's, what is it without the peanut M&M's?

BOB: Let me check...that price is $399.99 a month.

ME: Well, shouldn't it go down?

BOB: Why should it go down?

ME: You're providing fewer service, so you should subtract the cost of the peanut M&M's. How much do the peanut M&M's cost? Just take that off.

BOB: Um...

ME: How much do the peanut M&M's cost?

BOB: I can't tell you.

ME: Well, this is completely ridiculous. I'm going to go across the street to the 7 Eleven and get my eggs and M&M's over there!

BOB: Um...you can't do that.

ME: Why not?

BOB: Well, the Federal Grocery Commission has just approved a sweeping upgrade of our grocery standards, and...the 7 Eleven doesn't meet the standards any more.

ME: Perhaps I'll just buy a chicken. And a cocoa plant.

Boy, I'm glad that's just a story. I'd hate to see an industry run under those principles.

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