We’re calling out silly things in the TV trade media (like Variety) all the time, but it’s pretty rare that I do that for the Wall Street Journal. However, a piece today that suggests that the “TV industry” shrink the number of channels betrays a fundamental mis-understanding of why things work the way they do.
As the TV industry tries to come up with a new business model to deal with the challenges posed by online video, it should consider shrinking the number of channels.
It is doubtful viewers want as many as they have. In 2007, the average household tuned into only 16 channels of the 118 channels available, estimates Nielsen.
Indeed, the explosion of channels was driven by cable operators’ need for a marketing tool to convince people to pay for more choice, given the presence of free broadcast TV. That gave rise to a system where channels developed for cable are paid affiliate fees by cable and satellite operators. Broadcast networks, which individually draw much bigger audiences, generally don’t receive fees.
That is indeed why there are so many cable networks. Each new network pays the cable MSO (ex. Comcast) or satellite operator (like DirecTV) a fee to carry its feed. More networks = more revenue for the cable MSO or satco.
But what really distorts the picture is the absence of correlation between the size of the fees paid to individual cable channels and their audiences. Viacom’s Nickelodeon is the most-watched cable channel, averaging about 1.7 million households a day last year, according to Nielsen. Yet it ranked 10th among cable channels in terms of affiliate fees in 2008, excluding premium channels, estimates SNL Kagan.
Kagan estimates Nickelodeon’s annual affiliate revenue was worth $312 a household. In contrast, Discovery Communications’ Discovery Kids earned affiliate revenue of $1,871 for each of its 20,000 average daily household viewers last year.
Channels showing live sports, such as Walt Disney’s ESPN, draw the most fees per viewer, closely followed by channels owned by cable operators.
The industry can’t solve the online-video challenge without dealing with the disparities in these fees. Because broadcasters miss out, cable operators can’t stop them offering some of their best shows on the Internet, where they can seek an incremental audience. That has contributed to worries about people turning off their video subscription and using Internet TV instead.
Industry executives like to claim that people watch TV shows online because it is convenient. Maybe so. But some people also want to spend less on their cable bill. And one big factor driving up that bill is programming charges.
A first step toward reinventing the business model would be to link fees paid by TV distributors to viewership, with a minimum audience level set for any fees.
Some niche networks would likely go out of business. That would be a good thing. The TV industry suffers from an excess of supply. Shedding little-watched networks would restore some semblance of economic reason.
Money saved could be returned to customers through lower charges or redirected to broadcasters. That would level the playing field and make it easier for the industry to come up with a coherent approach to the Web.
Of course, cable MSOs would rather pay less for a network than more, and the networks would rather receive more than less (witness the recent travails of the NFL Network), but suggesting that fees from cable networks be tied to their viewership misses the fundamental relationship between cable networks and MSOs at work today.
Cable MSO’s scarce resource is bandwidth to the home (which limits the number of channels). In a world where they can basically force bundle those channels to subscribers (which is an entirely different issue, but it’s currently a given), their interest is getting the most money per channel they can carry, while simultaneously working to increase the number of channels they can carry.
“Shedding little-watched networks” would certainly benefit remaining cable networks, but why would cable MSOs do that? It doesn’t benefit them.
via WSJ.com.
this is good. why would someone need 9000 channels??? I don’t get it.
Shem, I’m all for ala carte cable channel subscribing by the consumer, and that would certainly change all the economics described above, but that’s not the way things currently work, and your mileage may vary on when, if ever, things will work that way.
As for the way things work today, the cable MSOs have no reason to limit the number of channels and every incentive to increase them.
I think we can all agree we have more channels than any of us use. But can we agree on which ones we don’t need? I must have Speed and Turner Classic Movies. I know those are niche channels, but without them I have to ask myself it is worth $70 a month to get what’s left.
i like having that choice
When Cable TV arrived in my town we were promised two things.
First, we were promised more variety. There would be Specialty Channels for whatever your interests are, such as Sports, Movies, Science Fiction, Oldies, ect.
Second, because we were paying to view these channels, we would see less commercials.
30 years later and what has become of this?
180+ Channels, many of which show essentially the same STALE Programming over and over again, and in some cases over 20 minutes of commercials for each hour of programming, not counting the on-screen ads in the form of pop-ups, scrolls and banners
Because of this I finally decided Cable TV was no longer worth subscribing to, and have consequentially discontinued my subscription.
I dont know, ive got Dish Network and they have 500 channels with nothing on half of them.
Well, I suppose they can start by shutting down their hardly watched Fox Business Network…
It’s kind of like saying “there are too many pages on the internet”.
Bill, I’m with you. I was very surprised to see that story coming from the WSJ.
William Hughes….excellent comment and I totally agree. So many channels have drifted far away from their original mission. Instead of having narrowly-targeted programming we now have 50+ channels all going for the same viewers.
Remember when Bravo was the film and arts network? They can point to their ratings to justify stuff like the Real Housewives series, but is cable TV generally a better product when you sacrifice a legitimate arts network for yet another reality-dominated Women 18-49 channel? I don’t think so.
As for fewer commercials, well, nobody ever promised me that but if they promised it to you there’s no question you were mis-led.
I only have extended basic which means I don’t get TCM, which I would love. I do get a lot of channels I don’t want. Now that so many cable channels have branched out successfully into originals, is it only a matter of time before they start dropping all those network reruns? I doubt USA would want to get rid of NCIS at the moment, or TNT its beloved Law & Order.
But purely in terms of originals, there is no need for so many channels. I’m of the opinion that TNT, TBS, USA and SCI FI could be combined into a single channel easily. Perhaps Lifetime, ABC Family and FX as well. Maybe two channels carved out of these. HGTV, TLC and FOOD could become one as well. MTV, CMT and VH1 could combine and make it easier to ignore all their reality programming.
When was the last time two cable channels merged? The Comedy Channel and Ha! in 1991?
Mikey, I agree with you on the Bravo’s of the world: Sure, Bimbo TV might cost dollar store money to produce, and may be scoring good ratings at the moment, but the second that Frumpy Housfrau programming reaches the oversaturation point, all of these stations like the Style network and TLC are gonna implode, and stations like Bravo are gonna wish they still aired the occasional Kagemusha or Raging Bull, and TLC will wonder where all of their actual “learning” stuff went. Admittedly, these are niche brands, but very durable and enduring–and exactly what drew network viewers to cable to begin with.
While the whole concept of “stick to your knitting” has appeal to me, can you really fault these various cable networks for trying to grab for as much of the demo friendly audience shifting away from broadcast networks as they can? It’s a landrush while broadcast is still losing prime-time share. At some point that share shift is going to slow down (god knows when, it’s been going on for a long time, and accelerating recently), and then I think it’s going to be a lot harder to grab new viewers for the cable nets.
I have had pay channels for almost my whole life. I agree with the continuous onslaught of new cable channels popping up yearly leading to an over saturation of reality tv and so on. However, that said, thank goodness for channels such as TNT, USA, AMC, FX for some of it’s wonderful original programming. I know that they are not all owned under one umbrella thus leading to the churning out channels. Do we need a History, Military History and History International channel? I would think the three could be combined leading to more interesting shows within one channel rather seeing repeats on loop. I tend to stick to my premium channels such as HBO, Showtime, Starz a great deal of the time these days. NBC, for example, imho, is going to the dogs and will see it’s continual downfall with Jay Leno on primetime tv five nights a week. I just went through over 500 channels to see what is on….it’s repetitive. How many channels show NCIS in syndication? At least three on my cable service. I know when there is a demand, a supply comes sometimes too much! Network tv still leads in the end but that is changing with shows on the internet and copious cable channels. I also tend to DVR any network shows or cable channels with commercials so I can fast forward through advertisements.
Robert: Sunday, the demo share of the six networks, including Univision, was 18, and 15 for the 18-34 – and last Thursday, in the throes of Michael and Farah, the demo shares were 28 and 26, respectively…
…and I won’t even go into the Friday and Saturday numbers – so, if you see the missing demo ratings shares for the broadcast networks, call 1-800-CRIME-TV – and you can remain anonymous, like Ben Silverman and Dawn Ostroff wish they were…
…I mean, remember the Valentines’ Day Massacre – Al Capone would have been jealous
This is the same argument you hear about versions of the Linux operating system – there’s “too much choice”. Which is bogus because ninety eight percent of potential Linux users have never heard of any but the top five or six choices. The rest are niche choices for people who are interested in and consequently knowledgeable about those choices.
The same with cable TV channels. Who cares how many channels there are, from the consumer viewpoint? The issue the article brings up is the disparity in fees. But as Bill points out, it’s only a disparity if your bandwidth is limited. Eventually that bandwidth will go up and the fees will go down – unless of course even more channels get created.
How many micro-channels can be created? I’d say the number is close to infinite – which is what the Internet was intended to deal with. Eventually the Internet will take over those micro-channels that can’t afford to pay for cable access.
The problem then will be what happens when “the Internet” is being delivered mostly by cable and not DSL? Do the cable carriers start preventing micro-channel delivery over the Net, claiming bandwidth saturation? Likely. Or does the government force them to be “neutral” and just deliver the data? Or the channels get delivered by some sort of P2P technology?
Or does somebody like Google come along and screw both the cable and telecom companies with some sort of wireless delivery? Which is even more likely to have bandwidth limitations, but might or might not charge cheaper fees than cable.
Who knows? Nobody, that’s the bottom line.
I only have the big 4 MynetTV CW and PBS. 500 Channels and nothing to watch it wasnt worth it to pay so much money, Besides how much material is Cable networks getting from the big 4 its pathetic. They need a service to pick and choose Channels you want. Personally I would have Fox News, Fox Business, Disney XD (Cartoons I Grew Up With From Fox Kids), plus nicktoons and TV Land. I know i have strange tastes
That’s always how cable/dish has been for me. All I watch is Cartoon Network/Adult Swim and Comedy Central.
I don’t need 200+ channels! I barely watch TV
There seem to be two themes of arguments happening – that the proliferation of delivery vectors has overtapped the supply of good content and that the pricing structures that constitute the industry are irrational.
There is clearly some truth in both as the comments here suggest; however both seem to be tinted with nostalgia, there was never a time when TV pricing was rational and the history of programming would suggest that filling the time has always been a problem, as is evidenced in the development of syndication and reruns.
As for specific comments about individual channels, almost all of the channels mentioned (except fox business) haul in nearly a million viewers in prime time, off the top of my head most of the channels on cable proper aren’t near the profitability threshold described in the articles or comments. If anything the article would be more applicable to direct TV, which is why nitche production deals (friday night lights) (passions – depricated) aren’t the way of the future.
Bill, I don’t blame them at all, just lamenting that this is the way of the world.
At one time I naively believed that cable would offer a rich variety of niche channels for narrow targets. Instead it’s turned into 50 flavors of vanilla.
The same thing is happening on the internet, only it’s five million flavors of vanilla.
I don’t know. At least on the internet you bring your own cone.
I don’t mind having all these channels. I just want to be able to PICK and PAY for only the ones I want. Right there, you’d allow the viewers to have a real choice. It’s the best way to thin out the herd.
So for people who love reality-tv, for example, they can watch and PAY for it to their hearts content and for those who don’t, they can avoid it like the devil. It seems to me the current system’s definition of choice is like PT Barnum saying, “Choose any flavour you want as long as it’s vanilla because vanilla’s all we got.” That’s not choice PEOPLE.
As more homes connect to the broadband pipe via fiber (such as via Verizon’s FiOS), I think business models will evolve to offer video subscriptions to certain channels. Just as one might individually subscribe to National Geographic, Forbes or Consumer Reports via the U.S. Mail, a similar model will evolve for many channels that are currently “bundled” by cable providers.