A La Carte Video Would Destroy Most Channels, Study Suggests

If the U.S. government mandated that TV channels be sold individually, only five to 10 traditional TV networks would survive, destroying up to $300 billion of value, endangering some one million jobs and curtailing consumers' video choices, according to an analysis by Needham & Co.

Needham calculated that 1 million workers -- typically middle-class Americans, according to the analysts -- are potentially at risk of losing their jobs with a U.S.-mandated shift to a la carte. Those include employees at cable operators, video employees of telcos, and more than 500,000 employees at media companies that depend on TV profits.

An a la carte regime for linear subscription TV would present tremendous risk to every company in the TV business, Needham & Co. analysts Laura Martin and Dan Medina wrote in a report. That great risk exists is hard to refute. It might be less clear whether the number of networks really would decline so much.

Some believe the niche networks would find some other venue, such as YouTube (News - Alert). But there also seems little question but that advertising revenues would be put at serious risk, across the board.

One of the primary advertising rate implications for the current way of creating “basic cable” tiers is that every network can claim to be potentially viewed by a very-large audience. In an a la carte environment, networks would lose that advantage.

"The government is a bull in the proverbial china shop with unintended consequences likely to destabilize the delicate work of the invisible hand, which is working today in the TV ecosystem," the study said.

Without the ability to sell TV channels in a bundle to consumers, just five to 10 "hit channels" would be profitable enough to survive unbundling, suggesting at least 125 channels would become non-viable.

"Since the average household watches 12 to 14 channels each month, every household would lose channels that they believe are important to them,” the study suggests.

While a la carte would lower consumer prices in the short term, "it bankrupts all niche channels within five years," the Needham analysts said.

According to Needham's analysis, with unbundling, TV subscription revenue would decline 15 percent to 20 percent and ad revenue would plummet 75 percent. Meanwhile, if content companies delivered content directly to consumers, they would incur customer service costs estimated at $50 per customer per year, or $5 billion nationally.

Not having access to all the assumptions made as part of the study, it is difficult to assess the particular findings, though one would be hard pressed to find an informed observer who really believes the general statement--that niche channels would flounder--is incorrect. But it is getting harder every year to deflect the notion that change will come, eventually. Programming costs simply cannot keep increasing at rates higher than inflation, indefinitely, at a time when younger consumers increasingly question whether today’s cable TV style subscriptions are necessary, or even desirable.

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