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Move could hurt sports broadcast industry, weaker channels

It's not just you that's irritated that you're paying for television channels you don't want due to bundling.  Cable service providers are also paying a similar price.  And while some -- like Time Warner Cable Inc. (TWC) -- are affiliated with those who profit off bundling themselves, many of the cable market's new players are purely on the losing end of the equation.

Verizon Communications Inc. (VZ), co-owner of America's largest wireless mobile device service network and the FiOS fiber-optic cable service, is looking to put its foot down and reshape a consumer's cable-shopping experience to a "buffet" of sorts.  Chief programming negotiator at Verizon Terry Denson comments, "We are paying for a customer who never goes to the channel."

In an interview with The Wall Street Journal he explains that Verizon is in negotiations to give customers access to the entire spectrum of cable channels (besides a handful of premium channels).  

Verizon FiOS
Verizon is upset about paying bundlers for content its customers don't necessarily want.
[Image Source: Android Community]

Whenever Verizon's set-top box documents a customer watching a particular channel for more than 5 minutes, Verizon would pay the bundler for that channel, and charge the customer for that channel.  Mr. Denson says the deal would cover a "significant number of channels".  He comments, "If you are willing to give a channel five minutes of your time, the cash register would ring in favor of the programmer"

While the idea of paying based on viewership is relatively old, the mechanism for doing so -- the internet connected set-top box -- is relatively new.  In the past there was no way to collect this kind of real-time viewership information, making viewership based pricing more problematic.

Verizon's initial talks have focused on "midtier and smaller" companies.  The executive said the negotiated deals/service pricing scheme could extend to on-demand viewing and mobile device viewing, as well.

II. Pushback From Broadcast Sports, Big Content Providers

Larger firms like Viacom, Inc. (VIAB) and Walt Disney, Comp. (DIS) may be reticent to sign up for the bundling scheme, though.  They often use bundling to prop up content that has low viewership, but which they deem is important.  As Mr. Denson complains, "It feels like certain content players who have a suite of channels attempt to lever the strong ones to prop up the weak ones…without any empirical data to show that these channels are actually viewed or wanted,"

The industry shift may also upset the big-money professional sports industry.  Much of the money of professional sports comes from broadcast deals, and much of that revenue in turn comes from fees associated with bundled channels.  If fees were solely viewership based, fees could dramatically drop.

NFL postgame
Bundling boosts sporting revenue; eliminating it could hurt professional sports.
[Image Source: U.S. Presswire]

For example market researchers Nielsen Holdings NV (NLSN) report that ESPN (owned by Disney only averaged 1 million viewers for content within the first week of its airing.  By contrast Comcast Corp.'s (CMCSA) USA Network (bundled by subsidiary NBCUniversal) averaged 1.3 million viewers within the first week, on average.  But ESPN cost $5.04 per subscriber, while USA Network only cost $0.68 USD, on average.

Bundling
Bundling fees don't always line up with viewership. [Image Source: WSJ]

Bringing fees in line with viewship could dramatically cut broadcast sports revenues, and in turn sports owners' profits and athlete salaries.

For those reasons some don't believe the effort will catch on.  One unnamed executive is quoted as saying that the move would be "resisted fiercely", while another unnamed expert suggest this kind of effort had been around for years and never gone anywhere.  The second source suggested that "unless there is a giant seismic shift", the bundling would continue much as it is today.

Source: WSJ



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This article is over a month old, voting and posting comments is disabled

By Uncle on 3/19/2013 7:06:07 PM , Rating: 2
If you live in a house in the city,you put up an antenna, and get the programming free, paid for by the commercials,as a was told years ago. They strung up cable charged me and still I was fed commercials,cause I was paying for the cable, as I was told. Forty yrs later I was (past tense)still paying for that dam cable, twice the amount of commercials, must be made of gold. Same reason I bought a larger then life TV to watch "Try before you buy" movies, because I paid to see a movie in a theater minus commercials. I don't know who the cable companies Marketing people are, but they sure haven't talked to me. I hope this catches on, because as it is now They don't get a penny from me for tv cable, and as I told my provider wouldn't you rather get 10 or 20 dollars extra from me then none ,as it is now. The company I get my entertainment from lost 39,000 cable subscribers last year, and when you look at what is on TV, I just shake my head. Seems the cable companies make more money from infomercials, because they sure do occupy a lot of channels that consumers pay for.


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