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The Telecom Digest for March 29, 2013
Volume 32 : Issue 74 : "text" Format
====== 31 years of TELECOM Digest -- Founded August 21, 1981 ======
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Date: Thu, 28 Mar 2013 13:46:13 -0500
From: Neal McLain <nmclain.remove-this@and-this-too.annsgarden.com>
To: telecomdigestmoderator.remove-this@and-this-too.telecom-digest.org.
Subject: Re: Verizon, Cablevision emerge as unlikely allies
Message-ID: <51548FF5.7080208@annsgarden.com>
On Wed, 27 Mar 2013 08:25:42 -0700 (PDT), Wes Leatherock
<wleathus@yahoo.com> wrote:
> --- On Mon, 3/25/13, Neal McLain wrote:
>
>> Gee, I wonder if The New York Times would be willing to sell its
>> newspaper on an a-la-carte basis so subscribers could subscribe to
>> only the sections they like? I'm sure is must cost a lot to produce
>> a sports section, so it seems reasonable that the a-la-carte price
>> without the sports section would be substantially lower than the
>> price for the whole package.
>
> The big cost in producing a printed publication is in producting the
> first copy. The margional cost of producing additional copies is only
> a small fraction.
>
> So the savings in not sending the sports section (or any other
> section) to some subscribers (but not all) would be somewhat limited,
> and would be offset by the additional costs of sorting out the papers
> going to customers who do not take that section. This sorting process
> already produces problems to distribution of regional sections and
> advertising sections going to only a certain area, but these are
> sortations by individual subscriber.
Agreed. But you missed my point. The biggest cost to the publisher
of a newspaper of not distributing a sports section to all
subscribers would be the loss of advertising revenue. As I've noted
before in this space, advertising rates are based on (among other
things), "net paid circulation." Newspapers strive to maximize NPC by
offering something for everybody. Any newspaper that offered a
no-sports-section version would face a reduction NPC and a
corresponding reduction in advertising rates. Advertisers that aim
their products at the sports audience might expect a reduction
corresponding to the NPC of just the sports section.
The same argument applies to television programmers and to CATV or
satellite retailers. Like newspapers, advertising rates are based on
(among other things), "net paid circulation"; i.e., the number of
basic subscribers. Which is why virtually all license agreements
require carriage on the basic tier.
Admittedly, my question was rhetorical. Of course the reasons you
cite are correct. But the loss of advertising revenue is the most
significant reason.
+--------------------------------------------------------------+
> On Tue, 26 Mar 2013 20:34:18 -0400, Ron <ron@see.below> wrote:
>> Neal McLain <nmclain.remove-this@and-this-too.annsgarden.com wrote:
>> Gee, I wonder if The New York Times would be willing to sell its
>> newspaper on an a-la-carte basis so subscribers could subscribe to only
>> the sections they like? I'm sure is must cost a lot to produce a
>> sports section, so it seems reasonable that the a-la-carte price
>> without the sports section would be substantially lower than the price
>> for the whole package.
>
> Good idea! I hadn't realized that NYT had no sports department
> of its own and simply passed along, untouched, the material that
> they acquired from other media companies.
I guess a rhetorical question deserves a rhetorical answer. :)
+--------------------------------------------------------------+
On 28 Mar 2013 00:18:49 -0000, "John Levine" <johnl@iecc.com> wrote:
>>The big cost in producing a printed publication is in producting the
>>first copy. The margional cost of producing additional copies is only
>>a small fraction.
>
> The big cost in running a cable system is in running a wire to every
> customer and provisioning the head end, power, and so forth to send
> signals down that wire.
Agreed. That's how I made a living.
> I've seen analyses that say that if cablecos went to a la carte
> pricing, they'd adjust the per channel prices and people would end up
> paying about the same overall, because the cablecos need to generate
> about the same revenue to be viable.
Faced with a-la-carte, programmers would have to raise their licensee
fees, curtail production budgets, or both. Retailers would have to pass
the increased fees along to subscribers.
Of course it's possible that programmers could raise their advertising
rates. But, as I note in my blog about this issue, it's unlikely that
increasing the advertising rates would generate enough revenue to offset
the losses resulting from the smaller number of potential viewers.
Advertising rates are economically elastic, and at some point,
advertisers are simply going to refuse to pay higher rates for fewer
potential viewers.
http://theoldcatvequipmentmuseum.org/320/321/index.html
+--------------------------------------------------------------+
On Thu, 28 Mar 2013 04:03:43 +0000 (UTC), wollman@bimajority.org (Garrett Wollman) wrote:
> In article <20130328001849.92768.qmail@joyce.lan>,John Levine <johnl@iecc.com> wrote:
>
>> I've seen analyses that say that if cablecos went to a la carte
>> pricing, they'd adjust the per channel prices and people would end up
>> paying about the same overall, because the cablecos need to generate
>> about the same revenue to be viable.
>
> This raises a question I'm actually curious: what's the margin on
> higher-tier and premium channel upsells for a cableco -- say, one of
> the big MSOs? There's obviously some incremental cost in equipment,
> but it can't be very much given their economies of scale.
Depends on the type of programming.
For advertising-supported non-broadcast channels, the margin is
directly related to the license fee (wholesale cost) charged by the
programmer. If a channel is moved to an upper tier, the programmer
would lose potential audience. To offset this loss, the programmer
would have to increase the license fee. This certainly represents an
increased "incremental cost" faced by the retailer. In some cases
(e.g., Discovery Communications), the increase is so onerous that the
incremental cost of moving a channel from basic to a tier is a net
loss to the retailer.
Advertising-free premium channels (HBO, Showtime, etc.) can produce
margins as much as 50% for one premium, but the market simply doesn't
support many premiums. Selling more than a couple of premiums to a
given household is a tough job. Furthermore, premiums are subject to
churn: a household that takes three premiums often drops one a month
later.
Home-shopping channels pay a commission to resellers -- that's the
"margin." Although home-shopping channels have a loyal, if small,
audience, it's unlikely that many subscribers would pay a monthly fee
to receive them. Obviously, this "margin" would be even smaller if a
reseller put such a shopping channel on an upper tier.
As for the remaining channels (not advertising-supported, not premium,
not shopping), these channels typically produce low margins no matter
where they're carried. Many channels in this category are "free" to
the retailer (no license fee); e.g., religious, NASA, LINK-TV. But
even if they're free, "margins" are minimal when carried on basic, and
would be close to zero if carried on a tier.
Of course, broadcast signals are never placed on upper tiers for
reasons we've discussed in previous posts.
Neal McLain
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