It sounds so good, but it is so bad……(a la carte that is)

Today's guest post is written by Geraldine Laybourne. Laybourne is a cable pioneer who lead the team that created Nickelodeon, Nick at Nite, Noggin; headed up Disney's cable division (The Disney Channel, Lifetime, History, A & E, E!); then raised the money for and founded Oxygen Media.  She is currently on the Boards of Insight Communications, Move, Inc, Symantec and Vassar College.

I awarded myself a “gap” year (you know kids who aren’t quite ready to go to college so they take off a year and travel) after I sold Oxygen last winter.  My husband Kit and I have been all over the world and frankly haven’t thought that much about the cable industry. Imagine my surprise to get back to the US and see that once again the “a la carte” debate has yet another life.  I thought when Michael Willner and I testified to the FCC bureau in 2005 that we had seen the last of that “oh so intriguing” notion.

My argument (as one of the last successful independent programmers) was that we would never have been able to raise the capital for Oxygen if we had not had the promise of widespread distribution.   And that we could never create good content in an a la carte world.

An ala carte world for programmers ends up not being very good for consumers.  Instead of spending 80% of  resources on programming and 20% on marketing, you’d need to flip that equation and spend 80% on marketing because you’d need to continuously try to “sell” consumers on your channel to even be in the game. 

When I was briefly at Disney,  I saw the problems that “a la carte” caused The Disney Channel and worked at changing that popular network from a pay to basic channel. As an a la carte pay service, TDC had to spend vast resources on marketing, had a huge marketing staff,  leaving few resources for original content.  Today, a dozen years later, Anne Sweeney and Rich Ross have built the channel into one of the most valued channels on TV.

One of the great things about the  history of the cable industry is that we figured out an economic  partnership that worked for operator and programmer alike.  Operators needed good content to build out their capital intensive technology platform. Programmers needed the assurance that they would have a shot at getting in front of all cable subscribers.  Leaders on the operator side were visionary in their view that to do well, others would also need to do well.

What worries me now is that we have forgotten our beginnings.  The consolidation of power on the programmer and operator side, has everyone wary about each other.  Operators feel like they helped build these brands (they did) and now the programmers are merciless in their increases (some are).

Now Programmers don’t want to be tied to distribution strangleholds so they are relentlessly” multi-platform”-- even though, by far, the lion share of their revenues come from their cable/satellite platform. Operators don’t want to put new applications into business that can eventually squeeze out escalating rates.

It takes good technology and good creative to build a constantly growing industry.   The cable industry took advantage of creativity coming from a wide spectrum of people.  We never thought we should limit the creation of content to our own companies.   I worry that today, operator and programmer alike are so concerned about ownership they may lose the thing they all need: the loyalty of their consumers.

The economic model that enabled programmers to focus on content rather than endless marketing was as inventive as the cable TV industry itself.  It allowed far more resources to be spent on the creation of content.  Sometimes it meant that the big operators got out in front and promised distribution so that entrepreneurial programming companies could raise capital and invest in the future. 

My hope is that  operators would do the same in this stage of our industry growth.  My fear is that they are not doing that, that they are holding resources close to their vests and saying things like “we can’t let this happen again.” 

OMG that is crazy…can’t let what happen again…..the creation of one of the most dynamic industries ever?????

Please tell me this isn’t so.   I’d love to be wrong about this.

Comments

[Cory O'Connor]

I have tried to embrace Gerry's a la carte argument for a year now and I just can't do it. Name another industry sector that forces its customers to buy a brand it doesn't want?

And why should I as a consumer be concerned about Oxygen's profit model, what you spend on marketing versus programming? Every company has to invest in marketing as a cost of doing business. If you can't be profitable without consumer subsidies, you don't belong in business. In the case of Oxygen, you had the wealthiest investors on the planet in Oprah Winfrey and Paul Allen. What a silly notion, Gerry, to argue that middle class American consumers must subsidize your start-up so you can make the richest of the rich even more rich.

Seriously, Gerry, where do you get off?

You also argue that consumers should subsidize your start-up for its good programming. Right. What good is there in The Bad Girls Club, Snapped, Janice Dickinson, or Campus Ladies? The New York Times dismissed your dreck as all about drunken "stupid sluts." I have zero interest in any...any...of Oxygen's programs, so why should I have to pay for the channel just to make Oxygen's extremely rich investors even more rich?

Finally, where do you draw the line? Using the Laybourne argument, every entrepreneur with an idea for a cable network is now entitled to distribution and consumer subsidies. To Laybourne's way of thinking a golfer must pay for The Tennis Channel, an atheist must pay for Trinity Broadcast Network, and the elderly must pay for Nickelodeon.

Hey! I've got an idea for a new channel. It's dedicated to the proposition that women are idiots in the same way Oxygen's premise is that men are dolts. By Gerry's argument, she and all her gal pals should be required to subsidize my "Women are Idiots Network."

But we all know that's nonsense, as is Gerry's self-serving a la carte argument, which enables Gerry and her filthy rich friends to get even richer on the backs of the working class.

Now that's the American way!

[Tom French]

Imagine going to a fast food restaurant to eat lunch and being told that your dinner was going to cost $100 because you had to support all the food producers out there so they could all stay in business when all you wanted was a hamburger!

[Todd Hudgens]

Unfortunately for the operators, the entire media model is shifting towards a la carte. The Internet is making this an inevitability, and if the operators would like to remain relevant, they should embrace these technologies, instead of attempting (and failing) to fight them.

I can now buy a single song off an album, or a single episode from a TV show. Media companies like Viacom are embracing internet streaming of their shows, because they realize that if they do not provide this content, it will be shared via the video-streaming websites or distributed downloads, and these distribution methods don't generate ad revenue. Furthering this movement of consumer choice are technologies like PVR which allow users to watch at their convenience (while skipping commercials). And like David said, a growing number of young people are dropping cable altogether and simply downloading the shows they want to watch.

Internet users don't just want ala carte, they've already grown to expect it. Programmers shouldn't worry about marketing their content. Good content spreads across the Internet very quickly, and viral marketing is free. Operators will need to embrace a la carte online video streaming of their content if they want to experience continued growth.

There's also no reason to assume that a la carte pricing models would be the end of bundling. If I wanted to pay $3 a month for CSPAN, what sense does it make to refuse my money?

[ARGO]

I can see how “a la carte” could limit the number of commercials and revenue for channels and cable companies...commercials pay the light bill, salaries and so on. But, if ANY business floats on a "forced purchase" that can't be a good thing.

This is not about customers, it's more about media business structure.

[David Crowell]

A la carte may end up being more expensive for many TV viewers, but not for me.

I have Insight's broadband, but not cable TV. I have an outdoor antenna, and can pick up local HD broadcasts. I have a PC connected to my TV, and can purchase TV shows, and rent movies with iTunes.

This would be quite expensive if I watched 8 hours of TV a day, but I probably only watch 10 hours a month.

The point it, a la carte is here through online distribution. Traditional cable will be around for a long time, but as more content is available online, and more set-top boxes are available to allow purchase (independent of the cable company) more people will switch.

I assume most cable companies are planning for this eventuality.