The Fog of Time Warner
As far out as the a la carte talk seems, some observers say it's worth considering just how little sense it makes economically. Haverty says history shows that no more than 30% of the general population will typically pay for a given channel.
So if 80 million Americans subscribe to a premium channel like Disney's (DIS) ESPN at a cost to cable programmers of $2.50 per month, that's $200 million in monthly revenue for the channel. If you replace the current bundled system with an a la carte one, with only 30% willing to pay for a premium channel, then to make that $200 million in revenue Disney would have to charge more than $8 per month.
Haverty suggests networks would be likely to charge a significant premium to make up for the decreased ratings and lost ad revenue associated with those viewership declines, suggesting that ESPN would be priced in the $10 to $12 range. Similarly, Haverty says a property like the Disney Channel, which currently charges programmers about 50 cents a month and has some 5 million subscribers, would need to charge $8 to $12 to replicate its current revenue stream.
Haverty suggests only 10 of the 100 or so channels out there would remain economically viable for their owners, because the others would not have enough revenue to produce content. Lost jobs would be significant. Most Americans probably aren't aware that filmed entertainment is also the country's second-largest export. With no channels to sell filmed entertainment, that steady stream goes, well, kaput.Companies such as Verizon (VZ), currently testing and investing big bucks to develop and compete in the video industry, may also do a quick about-face on such uncertainty. Others are more measured if similarily pessimistic. Merrill Lynch media analyst Jessica Rief Cohen sees little chance that a la carte pricing will take effect, because of the lobbying power of pay-TV and content companies and the difficulty of implementing change. Still, she writes, "The exact impact of any potential change is difficult to quantify, but it is hard to see how it could be positive for either pay TV operators or content providers."
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