John Green, author of “The Fault in Our Stars” and other top-selling young adult novels, took to Twitter on Tuesday with a complaint about his cable package:
“Imagine you were paying $20 a month for the stuff you watch and someone was like, ‘For another $80, you can get 2,100 things you don’t want.’”
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Naturally, this attracted hundreds of retweets and thousands of favorites. It’s a common complaint, and now that someone famous has said it, it seems like a good time for me to revisit the Great Truth About Cable Bundling.
Here’s the truth: You don’t want your cable unbundled. You just want to pay less for it.
Seriously, guys, you like bundling. You know how I know this? You seek it out in your consumer products. You want your hotel to give you free Wi-Fi and you don’t want it to charge you by the towel. Many of you go on all-inclusive vacations and cruises. You buy mobile-phone contracts to get a “free” phone rather than pay by the minute.
You are constantly – and I mean constantly – complaining that your health insurance is not more comprehensive, even though this would just mean you’d pay more for the insurance. And I won’t even get started on your agonized wails when airlines started charging you to check a bag and stopped providing a “free” plate of congealed mystery meat. You buy books and subscribe to magazines rather than pay by the article or the chapter. You love bundles. What you hate is the size of your cable bill.
Why do you like bundling? Because you don’t want to have to think about it. Oh, sure, there are people who would like to spend their days obsessively managing their minutes, reading and towels in order to save 5 percent, but the rest of us would rather not spend our time worrying about blowing the Wi-Fi budget. So we go for the all-inclusive package.
The Great Unbundling Fallacy is the belief that if you pay $150 now for 1,000 channels, you ought to be able to pay, say, $25 a month for the channels that you watch. Unfortunately, it doesn’t work that way.
In our example, right now you’re paying $150 a month for a large array of cable channels but only watch, say, 15 to 20 of them on a regular basis. In our simplified example, we’ll say that 100 million other subscribers are also paying $150 a month for a large array of channels, of which they each only watch 15 to 20, though not the same 15 to 20 as you. Let’s assume that revenue is distributed to channel operators roughly according to the number of eyeballs they attract, which is basically true – ESPN gets much higher fees than some crafting channel, because many people will subscribe to cable to get ESPN, while few will do so to watch a knitting program.
So what happens when you unbundle? How much do you have to pay for your channels?
That’s right: $150. You aren’t cross-subsidizing the channels you don’t watch, but all those other people aren’t cross-subsidizing the channels they don’t watch, so you have to make up for that lost revenue. The price for each channel goes up until you’re paying about what you were before. By one estimate, average savings from unbundling would be about 35 cents a month.
Yes, the unbundlers will say, but I want to focus my money on the channels I love, making the kind of content I want to watch. This strikes me as even more wrong than the argument from price.
Here’s the thing: The folks making this argument are almost always talking about relatively small niche shows, from “The Wire” to “Mad Men.” These are high-quality shows that networks produce in order to make themselves a more valuable proposition to the cable carriers – shows that will make loyal fans demand their carrier offer your network. But the audiences for these shows are not large. And unbundling would actually put up a barrier to getting more viewers, because now instead of persuading folks to give you an hour on Sunday night, you’d first have to persuade them to subscribe to your channel, then persuade them to watch the show.
Of course, there are channels that do this – HBO, Showtime and now Starz. But more and more shows are coming from channels such as FX and AMC that don’t charge for subscriptions and would probably have a hard time doing so without the exclusive sporting events and movie libraries that attract people to the premium channels.
In an unbundled world, they would have difficulty building an audience for their innovative shows, and a harder time financing those shows without those small but steady carrier fees. That spells less of my favorite television, not more. Really niche channels would probably just die altogether.
To put it another way, if you agree that we’re in a golden age of television, you should be very cautious about making radical changes to the environment that produced that television.
Megan McArdle writes on economics, business and public policy.