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A' la carte TV
...explore the potential effects of not only making cable tv a la carte, but also requiring that television content providers allow choice in how the consumer pays for the service - either an advertisement based system or a fee that would eliminate the commercials. Additionally, require that the consumers be given a choice of types of advertisements they would be exposed to (I could choose for example an advertisement-based model, but that I would not want to see ads for children's toys or cereal, and that I wanted to see no political ads).
Here is my earlier post on a'la carte cable. The second question is, in effect, whether a cable company should be allowed to own TiVo and similar providers. Yes, and Grossman and Hart suggest such mergers can encourage joint investments with value specific to that relationship, in this case perhaps computer-TV linkages. By the way, the net effect of TiVo will be more shows with ads; if they add commercials to The Sopranos, the people who hate ads can take them out themselves.
Buying and selling specific ads? The people who want to zap children's ads for sugar are precisely the homes the advertisers wish to reach; I'll bet the Coasian equilibrium keeps the ads running but involves parental quotas on TV watching.
#08 in a series of 50.
Posted by Tyler Cowen on March 1, 2007 at 12:47 PM in Television | Permalink
Comments
Awesome. Thanks, and let me add that I think you going through 50 is a great idea.
Your response on the children's cereal, to me, seems not to apply for political advertising. I would think this would greatly reduce the costs of political campaigns, but not reduce participation (quite a bit of politcal ad's purpose is to keep the other guy's supporters home). It might reduce the amount of information available to voters, but in general tv ads signal to noise ratio is so bad taht I am not sure it reduces the quality of information to voters.
Specifically on ads to children's cereals or toys, I think allowing parental choice would increase the incentives for ad agencies not to engage in the sort of ad that trys to influence children to influence their parents to spend money.
Posted by: theCoach at Mar 1, 2007 1:53:45 PM
Interesting, tks.
Friends in the TV biz tell me that another effect of Tivo and DVRs generally where ads are concerned is that programmers and advertisers
will figure out more ways to insert ad and ad-like
material in between the conventional commercials.
Product placements, maybe "crawls" at the bottom
of the screen, or screens in the background showing ads,
etc. They ain't dumb, and they ain't gonna let us enjoy their product (tv programming) without making us pay for it somehow ...
Posted by: MIchael Blowhard at Mar 1, 2007 2:06:05 PM
Tyler,
I wonder if in a couple of months you couldn't advertise publicly a solid 12-hour blog-off. It'd generate an enormous amount of interest, I think. Just blog constantly and let others ask questions. See how much interesting stuff you can churn out. You might even be able to make some money off of it.
Posted by: The Garbageman at Mar 1, 2007 3:09:11 PM
A' la carte is old school. With digital cable there is no need to have channels, just offer everything on demand. Let me watch my shows when I have the time to watch them, not the other way around.
Posted by: Vincent Clement at Mar 1, 2007 3:31:19 PM
I don't have evidence for this, but I think that forcing customers to buy bundled channels allows for better diversity in programming. A niche channel couldn't survive if viewers were able to decline it--or it would be very expensive. I'm willing to pay so that a channel I don't watch can survive if in return the viewers of that channel have to pay so that the channel I do watch can survive. I think it all evens out.
Posted by: NE2d at Mar 1, 2007 3:41:51 PM
--will figure out more ways to insert ad and ad-like
material in between the conventional commercials.
Product placements, maybe "crawls" at the bottom--
Back to the beginning.
J-E-L-L-O
Lucky Strike means fine tobacco.
Johnson Wax.
Posted by: Sandy P at Mar 1, 2007 3:54:47 PM
No political ads would be unconstitutional according to precedents involving Jehova s Witness and communist party
Posted by: jcm at Mar 1, 2007 6:59:03 PM
Vincent: there is a difference (technologically speaking) between Tyler's a' la carte issue and streaming VOD. The latter is dramatically more expensive (and doesn't even make sense when people can own tivos).
Posted by: Dan K at Mar 1, 2007 8:22:52 PM
I'm with you on the a la carte advertising bit - intuitively the idea of advertising is that your audience doesn't have a choice.
What is a Coasian equilibrium? Nothing obvious popped up on Google/Wikipedia...
Posted by: James Somers at Mar 1, 2007 9:10:14 PM
Ala Carte would be a disaster for most cable channels. If they introduce a new show, they not only have to convince people to watch the program, they would have to convince them to pay for access to the program. It took HBO twenty years to get to the point of beng able to do that. The only channels that would survive would be those that appeal to the lowest common denominator since they are the only ones that could get enough people to pay for access.
Posted by: superdestroyer at Mar 2, 2007 5:25:59 AM
Who cares if it's a disaster for the current industry?
Shows leave TV all the time without enough viewers, and
I doubt many people would cry themselves to sleep if the
corps that support the WB, or whatever it's now called,
finally, gratefully pulled the plug.
In my mind, it's a tying arrangement and per se illegal.
When you've got people - say, my grandparents - FORCED to
buy ESPN and MTV and other very expensive channels, that
they NEVER watch or would desire to watch, solely in order
to watch USA Network.
The technology exists for a la carte. let people order
what they want and pay for each channel individually.
It's true that ebfore long, we'll only care about specific
content that we can order, or watch, on demand via the Inernet,
but why wait for that?
Posted by: glenn at Mar 2, 2007 8:10:30 AM
Glenn,
The question should be whether your grandparents would have ever started watchng USA Network in the first place if they had had to pay for the priviledge. USA Network has taken years to develop shows that draw people. It would haver never reached the point that your grand parents want to watch it excpet that the ESPN and MTV viewers subsidized it.
The current model for a basic cable channel is to average 1 million viewers. The new model would be to average one million subscribers. That is a much higher standard to achieve and most current channels would probably fail.
Posted by: superdestroyer at Mar 2, 2007 9:26:48 AM
Superdestroyer -
You're right. That's how the industry began and probably how it
had to be. But it no longer needs to be that way.
[I'm no expert, but the way the industry started was a bit of
chicken and egg, right? If you build it, they will come.
There's no point in having cable channels without the plant
to the home and vice versa. Wasn't it was TCI that solved
the problem, by laying the cable AND investing in the content?
Then the technology probably did not exist to have a la carte.
And it was a fledging industry. It probably wouldn't have
gotten off the ground, ever, if it were all pay per view.
Though there are some success stories (HBO and Showtime, etc)
there probably weren't enough people willing to pay for specific
content, without knowing what they were getting.]
Things are different now.
1 million subscribers is just under 1% of US households. Sure,
slightly over 1% of households with cable or satellite, but
that would definitely expand with a la carte offerings.
The channel would have the ability to determine what the
market will bear for it's content (ratings and viewership
are pretty well known), and they'd likely be able to collect
more of the direct advertising revenues.
Or we can stay how it is now, with MTV shoving MTV2 and MTV3
... and MTV8 down the public's throat, MEANWHILE hoarding
precious (clearly becoming less so) bandwidth that perhaps could
be more useful for other services....
Posted by: glenn at Mar 2, 2007 10:27:21 AM
I have posted my own response at http://stonecity.blogspot.com/2007/03/loyal-marginal-revolution-reader-asks.html
Also, it occurred to me: how far would these regulations reach? Would there have to be an ad-free, gated version of Marginal Revolution?
Posted by: sammler at Mar 2, 2007 10:52:04 AM
Any value that cable companies lose from services like Tivo due to fewer eyeballs they can make up for by selling market intelligence. Do you record American Chopper, Monster Garage and motorcycle movies? If so, you can: at best expect to see a Harley Davidson advertisement in the programming menu of your recording device; and at worst, expect to receive ads from local motorcycle dealers in your Gmail and USPS mailbox. This is, in my mind, the best and/or worst reason to allow cable companies to offer “Tivo like” services, depending on your viewpoints.
Posted by: Brent at Mar 2, 2007 11:25:51 AM
Glenn--
The problem is that it wouldn't necessarily lower your grandparents' bill by much. If they're only selling channels to people who really like the channel, then the marginal price of the channel will certainly be higher than the average price right now.
It probably depends on people's exact preferences. I would assume that some consumers would benefit but others suffer under a la carte channels. The exact demand curve for various channels differs a lot-- some have a narrowly targeted but fanatical audience, while others have more casual viewers.
Almost everyone only watches 5-15 channels regularly, but those channels are different for everyone. Lifetime is the highest rated cable network, even if no one I know watches it.
Posted by: John Thacker at Mar 2, 2007 1:37:03 PM
Would it be possible to settle these arguments by offering both a la carte service along the (brilliant) model Tyler lays out, and the current systems and see which survive? Or if the combination somehow produces more "offspring" that better serves viewers? If the technology and infrastructure is there to support it, why not have more choice and see what wins?
Posted by: anne at Mar 2, 2007 2:50:57 PM
Anne,
I doubt that media delivery can handle more options. I currently do not see how satellite, cable, and the phone companies can all end up delivering the same product. All they are doing is spreading high fixed costs across three competitors. Why else do you think that the cable companies want to sell phone service and internet while the phone company want to sell television programming.
You should look at how pay per view had killed boxing and harmed professional wrestling. Once you go to pay-per-view, you lock in your most interested fans while stopping the development of new fans. Thus, most television networks would stop developing new customers but just try to maxmize the profits available from their existing customers.
How would a channel like the Sci-fi interst viewers into watching a show like Eureka! if they have to convince new customers to pay for the ability to watch the program.
I doubt if FoodTv, Sci-Fi, Golf Channel, H&G, TLC, etc would have gotten off the ground if every new customer had to pay for the ability to view them.
The model now if to get into basic cable and try to develop program that will draw the casual viewer.
I would love for someone to explain how a new channel would develop under a pay-to-view system.
Posted by: superdestroyer at Mar 2, 2007 3:06:40 PM
Superdestroyer, I like your point, but these channels would be able to offer free access to gain subscribers. If their content was good, people would pick it up.
I think the software/billing software has to be set up to where consumers can add a channel on the spot. That way they could see the show's content, i.e. the titles to their shows, and add it once they have decided the content was enticing enough.
Posted by: Joshua Ross at Mar 2, 2007 5:23:09 PM
Pushing the unhealthy food ads too far may result in a situation where people lobby for them to be banned from TV altogether...
Posted by: Peter Clay at Mar 4, 2007 7:09:33 AM
Yes, the cost of a popular channel (such as The History Channel or Fox News Channel, for me) would be more than 1/50th of a hypothetical 50 channel lineup that includes QVC, Oxygen, CNN, MSNBC, etc. They are very heavily viewed channels, thus they can command higher prices for their viewing. But their bundling with less popular channels, in effect subsidizes the less popular channels that cannot (and should not) compete in the free market. For a hypothetical $50 cable bill (to keep the math simple!), Fox News Channel will cost perhaps $10, and QVC or CNN might garner $0.07. Let CNN (or QVC or MSNBC) change their programming content if they want to charge the cable companies more for their programming. So, I would pay $20,not the $50 of forced channels that I am being forced to purchase) to watch just what I want to watch, Fox News & The History Channel. Like everything else in this country, we should let the free market dictate.
By the way, when I was 12 in 1983, cable was commercial free...that's why you paid for it. That's why we didn't have it until I was married and 25. But lo and behold, now I get to pay AND get to watch commercials. It's ridiculous, but you know what, it's the free market for better or worse. Intilenough of us complain (ie, stop paying), it will only go up. I wonder if satellite radio is headed that direction.
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