The cost of running a cable TV service is apparently a lot dearer than many might think, as Needham & Co media analyst Laura Martin announced that the market is one which cannot afford to change their model, claiming that if services were to suddenly offer channels unbundled and ‘à la carte’ in pricing, could result in up to $113m of lost value and a cost of 1.4 million jobs in the industry.
Martin’s report notes that for each $1 currently paid by consumers in funding content creation, advertisers are paying $1.24, suggesting that programming is twice as high in quantity (and/or quality) as it would be with no commercial income, and that by ‘unbundling’ packages their value in turn would become ‘sub-scale’ due to the lack of guaranteed pick-up, and even higher consumer payments than what could be expected of ‘single channels’ in order to compensate for the advertising losses.
Studying average wage and ‘TV viewing data’ of select households measured, Needham & Co suggest that consumers are currently paying an estimated 3% of the total value of their TV-viewing time, with an average TV household noted as viewing 4,400 hours per year with an average payment of $720. Broken down, this equates to $0.16/hour of TV being watched, claimed to represent a 97% discount of what is actually paid, based on the ‘value of an hour’ in comparison to the time and ‘average earnings power’ of a user.
Needham also claim that by those numbers, and the estimated annual cost of $280m/year in running an average ‘entertainment cable channel’ in the USA, an annual subscriber count of around 165,000 is required for breaking even in a given year, with 2012 viewing statistics implying that by this criteria (without the safety blanket of unbundling), around 56 channels could continue, whilst 124 channels would fail on their own merits, hypothetically.
Martin said of this potential were a mass ‘unbundling’ to take effect: “Our calculations conclude that $80 billion to $113 billion of U.S. consumer value would be destroyed by this shrinking channel choice. [In a privately-driven TV market] the direct value destruction to consumers is compounded by millions of jobs lost and billions of lost debt and equity investment value. In addition, tax rates on consumers would have to rise to offset falling taxes paid by companies within a shrinking TV ecosystem. Because consumers lose so much value through unbundling, we expect no policy change in the U.S. All content companies benefit from TV bundling, as well as from new digital platforms that are driving record free cash flows from content creation globally.”
While 90% of American households are paying for reception of up to 180 TV channels in their homes, the increasing numbers of channels on offer in a package actually aid development rather than put people off, in spite of an average home only watching 16-20 channels in any given year, so does the bundle of choices (and statistics/estimates provided by Needham & Co.) mean the message of the day is “cord-cutting… think again”?