Wednesday, January 20, 2010

Cable Networks: Biting The Hands That Feed?

A big question facing the cable television industry: Can individual cable networks survive if they are forced to stand on their own as à-la-carte products outside cable's bundled pricing model?

These networks were initially offered to consumers along with dozens (now hundreds) of other programming options by the cable operators at a price somewhat reflective of their combined value.

This strategy, called bundling, enabled all these networks to slowly and steadily build their audience and brand recognition. And while not much has changed since Bruce Springsteen wrote "57 Channels (And Nothin' On)" in 1992, the quality was much worse when most of the networks launched in the 1980s. CNN was widely ridiculed as the chicken noodle network, E! was an endless loop of movie trailers and TNT featured mainly old movies.

Today, amidst the mostly dead wood, these cable networks do feature some of the most widely viewed sporting events and original programming on television; and many have become iconic global media brands.

Yet, it seems their future, much like their birth and life to this point, is intricately tied to the cable operators who provide more than half their total revenue in programming fees, enabling them to spend the money to pepper their line up with hits.

Which leads me to the well publicized battles here in New York between Time Warner Cable and Fox, and Cablevision and Scripps over these fees. How can two sides of an enormously successful business relationship air their grievances in such a public manner? (Millions have been spent on newspaper and TV ads.)

In The New Yorker this week, James Surowiecki eloquently describes the consumer appeal of bundling and why à-la-carte pricing could disrupt the entire cable industry.

"Successful bundling depends on the idea that what your are paying for is 'cable television,' rather than a collection of channels. Public fighting over programming costs disrupt that idea. When HGTV says it wants more money for its programming, it makes people who don't watch HGTV wonder why they should pay anything for it at all."

Will more of these battles force a public outcry for à-la-carte pricing and which networks, other than the top few would survive?