It’s a pipe dream, I know, but I’m a huge proponent a la carte cable programming. We shouldn’t have to pay for channels we don’t watch, right? In a dream world, we could call our cable providers and order the 10 or 12 channels that we do watch and spend, what? $20 – $25 a month. It’s never going to happen, of course, because it doesn’t make financial sense to the networks.
Why? Let’s say, in this example, that there are 100,000 cable subscribers in your city. Let’s say you wanted to buy only the FX Network, and the FX Network would cost you $5 per month. Let’s also say that maybe 20 percent of the 100,000 cable subscribers in your area wanted FX. In an a la carte model, FX would earn $100,000 from the 20,000 subscribers. Even if, in an a la carte model, you made subscribers pay double for individual channels, FX still earns only $200,000.
However, in the all or nothing model, if you want one channel, you have to pay for them all, so FX earns $5 from all 100,000 subscribers, or $500,000. Eighty percent of their revenue comes from the 80,000 subscribers who don’t want their channel. Changing to an a la carte model would essentially deprive FX of 80 percent of its revenue.
I was curious, however, how much each channel costs the individual, and what my cable bill would look like if I could order a la carte. I found wholesale estimated channel costs for 2009, and as it turns out, the only channel we spend much for is ESPN. In fact, most channels are relatively cheap — the industry average is around $.20 per channel wholesale, but when there are 150 channels, that costs adds up. Let’s say the retail costs is double ($.40 average per channel) and that we have to pay for all 150 channels to get even one: The cost comes out to around $60 a month, which is about how much each of us pay for cable before taxes, DVR, HD, satellite service, and other fees are taken into account (or HBO or Showtime, which adds another $12-$15 per month per channel).
But, if we could purchase cable programming a la carte, using that chart and doubling for retail costs, my cable bill (and probably most of yours) before taxes and fees would probably look like this:
NFL Network: $.75
Comedy Central: $.14
BBC America: $.12
Food Network: $.08
PBS Kids: $.04
Wholesale Costs: $8.81
Retail Costs (x2): $17.62
So, in an a la carte model, I could watch all the channels I normally watch for $17.62 per month before taxes and fees. I suspect most of our cable bills would look much more like $20 a month instead of $60 a month, and that’s exactly what the cable industry doesn’t want, which is why we’ll never get an a la carte model.