Cisco Blogs

In Defense of the American Pay-TV Bundle

September 5, 2013 - 0 Comments

By Jason Kohn, Contributing Columnist

It’s not a popular opinion. On the internet, it goes over about as well as saying you hate kittens. But I have to say it: I love the cable bundle.

I realize this goes against the grain. Find any article on the web about bundling of TV channels, and at least 75% of the comments on it will be irate—people fulminating over the injustice of paying for channels they don’t watch, railing at networks for not selling their shows online the day they air, advocating that the entire pay-TV ecosystem be blown up once and for all.

On one level, I can understand the passion. I like low prices. (Who doesn’t?) I like the idea of being able to stream the best shows on TV the night they air, on any device I want, whether or not I have a subscription, for $2 an episode.

But here’s the thing: What I love most is great TV. I love Game of Thrones. I love Mad Men, The Americans, Justified, Homeland. The list goes on and on. And that’s what’s most important to me, that the list does go on and on, because there’s so much amazing TV being produced right now.

So why does it get lost in the Internet noise that the current “New Golden Age of TV” we’re living in exists within the current pay TV model? It’s like people think that’s somehow incidental, that all the great shows they want to watch are getting made in spite of the current pay TV ecosystem rather than because of it. Maybe, just maybe, the TV we all love and the industry model that brings it to the screen are more interdependent than people want to admit.

Breaking Down the Facts

That Atlantic’s fantastic business blogger Derek Thompson laid out the best argument I’ve seen last February for why today’s great shows are a product of the economics of pay TV. The piece is well worth reading, but the gist is this: bundling has spawned an environment in which cable networks are competing with each other to produce more critically acclaimed and buzz-worthy shows, with the goal of making their networks indispensable for carriers.

Cable networks benefit from the reliable, steady revenue stream that bundling affords them, and in turn, use those resources to try to make the better, more interesting TV shows that will make them a “must have” network.

When viewed in this light, the results of this competition are apparent. See the Wired infographic below (also via Thompson) showing how the distribution of networks receiving Emmy nominations has changed and radically diversified since the 1980s.  Our own David Deans recently shared this Flavorwire piece on the degree to which shows that are critical hits are suddenly becoming financially successful as well.


The Cord Cutting “Alternative”

Of course, many “cord-cutters” who get all their TV content from online services will claim that their model is the future of the industry. They point to the success of companies like Netflix, with its growing slate of high-quality original content like House of Cards and Orange Is the New Black, as proof that you don’t need the bundle to make great TV.

But as Thompson argues in a more recent post, even these nontraditional TV successes are very much products of the current pay TV ecosystem:

Netflix has a dependable revenue stream from nearly 30 million paid subscribers. It buys TV rights off media companies who don’t (yet) charge utterly usurious rates to Netflix, because they’re making the vast majority of their revenue from live programming and syndication on pay-TV—that is, from the cable bundle, doubly financed by cable bills and adjacent advertising.

Netflix could afford to pay full-price for “House of Cards” precisely because it was getting a discount on everything else. Its business model thrives because of—not in spite of—the traditional TV industry.

So What Happens Next?

However much I may argue that the bundle isn’t all bad (and however much I can get other people to consider that possibility), even I have to concede that it may not be here forever. It’s not just consumers these days complaining about bundling, it’s pay TV providers themselves.

Cablevision filed an antitrust lawsuit against Viacom earlier this year for forcing it to carry some channels in order to carry others. And public negotiating squabbles between pay TV providers and networks (like the recent one between Viacom and Time Warner) are becoming increasingly common. At some point, the pressure to break up the bundle may well reach a breaking point.

Shalini Ramachandran and William Launder of laid out an analysis of what the unbundled TV world might look like in the Wall Street Journal earlier this year. Dan Bobkoff also explored this question last month on NPR. No one can say definitively how unbundling might affect consumer prices, or what TV distribution would look like under an unbundled model. No doubt, this will be a fascinating story to follow over the next decade.

But from where I sit? My chief concern is watching great TV. So it all makes me a little nervous. Because as much as you can criticize the current pay TV model — and there’s certainly plenty to criticize — there’s one thing I know: it’s produced some of the most amazing television that’s ever been seen. Will that continue to be the case in the unbundled future? We may soon find out.

>>More… Connected Life Exchange

In an effort to keep conversations fresh, Cisco Blogs closes comments after 60 days. Please visit the Cisco Blogs hub page for the latest content.