Hey Mr. Newspaperman! You Think A-La-Carte Makes Sense?

More Misunderstanding About A-La-Carte [Los Angeles Times]

Here we go again.  Now LA Times columnist and newspaperman David Lazarus thinks consumers would be better off if the Federal government required cable operators to offer all of their channels on an a-la-carte basis. You can read my previous posts and my guest blogger, Gerry Laybourne's, that argue that the cost of television would rise dramatically under government-imposed a-la-carte and the diversity of choices would all but evaporate when scores of niche networks simply cease to exist.

Let's use Mr. Lazarus' example to understand the economics.

The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly...

...When I watch TV, it's usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.

Ok.  We believe the studies that suggest that, on average, fewer than 25% of the population would subscribe to any particular channel, like CNN or CNBC.  Let's just say that news and movie channels that are on basic cable, on average, cost cable operators about 50 cents per month, each.  Today, those channels receive that 50 cents per month from all expanded basic customers.  If only 25% of the customers actually were willing to pay for the channel, they would each have to charge about $2.00 per month, just to stay revenue neutral.

But that's only half the story. 

We also know that most networks rely on both subscriber revenue and advertising revenue and about half of their revenue comes from advertising.  We also know that a great deal of a network's viewing comes from channel surfing, so their ratings for advertisers are enhanced by that viewership.  Many people estimate that each channel would lose about 40% of its viewers in an a-la-carte world.  A proportional reduction in advertising revenue, reflective of that lost viewership, would require the network to charge customers another $.80 per customer just to stay revenue neutral.  ...

So for just the three channels Mr. Lazarus identifies that he wants to watch, his bill has gone from $1.50 per month to $8.40, nearly a six-fold increase!  But he also believes that most Americans only watch 17 channels regularly.  For the sake of this analysis, let's accept that.  And for the purposes of this example, lets spread the economics of Mr. Lazarus' three channels to a total of 17.

The result?  Mr. Lazarus would pay around $48.00 per month for his 17 favorite channels, if they all continue to survive.  Most cable operators retail their expanded basic channels for about $50 to $55 for around 70 channels, not to mention the discounts available to customers who also purchase Broadband and/or voice services from their cable provider. 

Maybe Mr. Lazarus should think about it this way. 

I buy the New York Times everyday.  At a retail price of about $60.00 per month, I regularly read the news and business sections.  For part of the year I read the sports, if there's a story about the New York Giants.  Of course, I admit that I often thumb through the arts, home, and local sections, but that's not why I bought the paper and I wouldn't care if they weren't there.  How about if you let me buy the paper on an a-la-carte basis?  I'll buy just the news and business pages (and sometimes the sports).  Think of all the money I could save. 

Not to mention how many trees won't get turned into newsprint.

I'd bet my NY Giants Superbowl shirt that this won't happen.  Why?  Because it would make newspapers prohibitively more expensive and many would simply disappear. 

Sound familiar? 

Washington Post Kills Major Spam, Child Porn Pit [Broadband Reports] 

Yesterday, I linked to a story about a Washington Post reporter who managed to shut down a major producer of junk email, the McColo Corp. The reporter investigated McColo's connection to the Internet, contacted their ISP asking questions about why they were hosting McColo's nefarious behavior, which resulted in McColo's connection being terminated.

Just how much spam was McColo responsible for? Broadband Reports has posted a graph of SpamCop statistics around the time of McColo's disconnection showing a 50% drop in spam. ZDNet has posted an article indicating that many network administrators are noticing a "35% to 50% drop in inbound spam." Our email specialists at Insight reported a similar drop.  They will keep an eye on the issue and see if the spams morph to another origination point.  I'll keep you posted.

Insight adding to its HD channels [Louisville Courier-Journal] 

The Louisville Courier-Journal has published an article about the new HD channels that are coming with Insight Digital 4.0 in the Louisville area. Thirty-three new HD channels are coming by December 18, plus new On Demand HD programming. For all the details, head over to InsightDigital40.com.

Japan Has 10x Fewer PC Infections Than the US? [Sherman's Security Blog] 

Sherman has posted about an idiosyncrasy in the rate of PC infections by malware in the U.S. and Japan. If you live in Japan, your chances of having a malware infection are ten times less than the U.S. (1.8 per 1000 PCs versus 11.2 per 1000 PCs). Sherman asks the obvious question: why are users in the U.S. so much more prone to having a malware infection on their PC?

Is it because U.S. users are much more likely to click on links to malware in junk email or is there some other reason. If you've got a theory, send it to Sherman or post it here. Figuring out how Japanese users manage to avoid these infections has the possibility of creating new ways for users in this country to reduce their rate of infection.

YouTube Ventures Into Live Event Webcasting [Reuters]

Not only is YouTube venturing into partnerships with the Hollywood studios to bring feature films to YouTube, yesterday the popular video-sharing site announced that it will be launching a live webcasting service later this month. On November 22nd, YouTube Live will broadcast a concert featuring several artists who have made popular recorded videos on YouTube. Google, which owns YouTube, is promising additional follow-up events to the November 22nd debut, but details have yet to be released. 

WiFi security vendors buttress products against WPA crack [ArsTechnica]

The recent news that the WPA Wi-Fi encryption protocol might be subject to a crack, has security vendors responding. Of the three major vendors of Wi-Fi security products, two are saying that their products already prevented the type of crack that researchers conducted against WPA. The other vendor has announced a software upgrade that will defend against the crack. Check your Wi-Fi router's documentation to make sure your router's firmware is up-to-date to guard against these type of attacks.

Comments

[Cory O'Connor]

Hey Mr. Cable Man,

While you make the usual economic arguments for a la carte, I remain unconvinced on many different levels. Here's just one. In your post from last May titled "Cable A-La-Carte - A Great Idea, or Is It?" you say the reason you oppose a la carte is that it will dumb down television.

Too late, Michael. You've already done that. Let's talk about just one example: Oxygen.

In February 2000, when Oxygen, co-founded by Nickelodeon's Geraldine Laybourne and Oprah Winfrey, launched with a tremendous publicity effort, there were already two women's channels on my line-up: Lifetime and Romance Classics, soon to be known as WE: Women's Entertainment. As a male consumer, why must I now be forced to pay for a third women's channel when I don't watch the first two ever?

Oxygen launched with lofty ambitions to empower women. Before long Oprah Winfrey was out the door, and Gerry Laybourne did to Oxygen what she did to Nickelodeon: she dumbed it down and targeted the lowest common denominator. Oxygen began marketing its programs on toilet paper, and The New York Times characterized Oxygen's programming as "bawdy" and for drunken, "stupid sluts." If your concern about a la carte is that it dumbs down television, you could not have picked a worse spokeswoman than Gerry Laybourne to do your a la carte bidding for you. Do you not remember all those farts and boogers on Nickelodeon's Ren & Stimpy, or the abusive Angelica Pickles from Rugrats?

Dumbed-down television is already here thanks to you, Mr. Cable Man. You have been delivering it into America's homes for the last decade, thank you very much. Don't kid yourself. This is one of the main reasons I disagree with you. As Tom Freston said, the cable industry is scraping the bottom of the barrel. How much lower can you take us, Michael?

I was SVP of Communications for The Disney Channel when it moved from a la carte to basic. I'm not without some loyalties to your industry, but you guys are overplaying your hand to protect your status quo, forcing us to pay for Sumner Redstone's excrement. Today I am a professor of Entertainment Marketing in the film school of Chapman University in Orange County.

I am firmly in the camp of a la carte, Michael, and I intend to stay on your case about this. I hope David Lazarus from the Los Angeles Times does also.

Sincerely,
Cory O'Connor
Assistant Professor of Advertising and Public Relations
Chapman University

[Cory O'Connor]

Dear Michael,

One more thing. Take a look at the reader comments on David Lazarus' column. Overwhelmingly they support a la carte. It sure looks like consumers want a la carte. It sure looks like you're telling consumers to go jump off a cliff.

Am I wrong?

Cory O'Connor
Assistant Professor of Advertising and Public Relations
Chapman University

[Steve Huff]

I do not understand the ins and outs of this issue as I'm not in the industry, but I do "think" you are wrong on this issue. I think you are seeing things they way they have been instead of how they will be.

People have become use to a la carte world because of the power of the internet.

When I subscribed to InsightBB -- it didn't come with a list of websites that you have, it's not like I have to sit and hope that you add www.digg.com one day cause I'd really like to visit that website.

Same idea on PodCasting, I subscribe to the channels I want and I pull them down.

Why can't TV change to a pull services versus a push service?

It's an idea whos time has come. If a new channel comes out I should be able to just get that channel. I realize that all sorts of changes would need to take place to make this happen, but technology changes fast. Is my idea that far fetched?

-Steve Huff

[John]

The cost of cable television will rise regardless of whether it adopts a la carte or not. The nature of cable television is that the viewer gets socked with high bills for what should be free television. Not only do we have to pay for the programs, but we also have to pay "eyeball time" to the commercials that run while we are watching the shows we already paid for.

A la carte will make cable bills high just like breathing air and drinking water will make cable bills high.

[Adam Blevins]

Michael,

I agree, a-la-carte is a service whose time has come.

For example, I watch boxing on ESPN2 on Friday nights. It is the only thing I watch on ESPN, ever. I follow no other sports aside from boxing.

However, because I want to watch ESPN2 once a week, I have to subscribe to an entire package of channels that I don't watch or need to be burdened with scrolling through.

It makes sense to me that I should be able to add one channel at $.50 a month, instead of an entire package for much more. ESPN is not a channel that is lacking viewers, and I can't imagine that it would "case to exist" if it were not part of a package.

My two cents,
Adam