ON MONETIZING EYEBALLS ANEW IN THE CABLE INDUSTRY

TO BUNDLE OR TO NOT TO BUNDLE...

While the "A1" page lead story on Memeorandum is focused on Jason Calacanis's response to Om Malik's provocative article "The return of monetized eyeballs" in the Web 2.0 world, there may be another seismic change going on in the way two much older industries  have been "monetizing eyeballs" for decades. 

The lead story in online Wall Street Journal titled "FCC may endorse Cable a la carte, in a policy shift" (via Reuters)  needs to be paid some attention.  With the average US household watching at least six hours of cable TV a day, there's a lot of old-fashioned "sticky eyeballs" at stake.

This is because there are potential changes afoot in the way the cable and media industries have monetized eyeballs in cable households for decades.  And it's changing, partly because of

• the economic politics between the media and cable industries,
• the mounting push-back by consumers on ever-increasing monthly cable bills,
• the economic dynamics between analog and digital TV,
• the imperatives of  HDTV,
• not to mention IP (Internet Protocol) TV, and
• partly because of the need of politicians to present a "family friendly" image in the face of Congressional mid-terms in 2006 and Presidential elections in 2008.

As the Journal article explains it:

"Federal regulators are on the verge of suggesting that cable companies could best serve consumers by letting them subscribe to individual channels instead of offering only prepackaged bundles.

Federal Communications Commission Chairman Kevin Martin is expected to announce today at a Senate forum on indecency that the FCC will soon reissue its review of cable industry "à la carte" pricing with a wholly different conclusion. While the original report concluded that consumers would pay more for individual channels, the new one concludes they could pay less.

"This report will conclude that à la carte could be in the best interest of consumers," said an FCC official familiar with the revised report's contents. The report also finds that "themed tiers" of channels could be "economically feasible," the official said.

This is of concern for the cable industry, partly because it opens a new front in the government's efforts to impose indecency standards on cable and satellite providers. Until now, the cable industry has resisted suggestions from Mr. Martin and some lawmakers to voluntarily offer à la carte choices or set up a "family-friendly tier" of channels suitable for children. By suggesting that consumers won't necessarily pay more for individual channels, the report calls into question the cable industry's revenue model."

This move towards a la carte pricing has potentially seismic implications for the way content has been priced between the media producers and cable distributors:

"While the FCC can't force the cable industry to change its business model, its voice will add considerable weight to the debate and could embolden lawmakers eager to give consumers, particularly parents, more control over which television programming enters their homes.

Aside from the technical challenge of offering hundreds of channels on an individual basis, cable programmers and operators say such a switch would raise costs and reduce choices for consumers. That's because, they say, pooling a group of channels into one cable package effectively lowers the cost of offering all of the channels."

As the laws of unintended consequences would have it, this new potential uncertainty is being introduced in how content producers and cable distributors will price their respective products and services at the same time that Internet/Web 2.0 forces are taking content and distribution into even newer directions (see Fred Wilson's post on microchunking content).

It potentially upsets decades of congealed and comfortable, ever-rising, symbiotic, pricing arrangements.  As the WSJ article explains:

"Cable and satellite operators pay a monthly license fee to carry channels and pass along those costs to subscribers. The fees vary tremendously. Walt Disney Co.'s ESPN costs more than $2.50 a month per subscriber, while Time Warner Inc.'s Cartoon Network costs only about 15 cents.

Many subscribers without children might drop such offerings as Viacom Inc.'s Nickelodeon and Cartoon Network. To make up that lost revenue, channels aimed at children could have higher subscriber fees. And since advertising dollars depend on potential viewership, the end result would be that many channels would have less money to spend on programming.

In large part, the high costs of sports channels have led regulators to push for à la carte. Even some cable operators have taken issue with ESPN's high price. But the fear is that if a separate tier for sports channels is created, then other channels soon could be put on tiers. Mr. Martin has in the past been an advocate of a so-called family-friendly tier that would package such fare as Nickelodeon and the Hallmark Channel."

It allows for new jockeying for position by both the existing players seated at the negotiating table, and the new players yearning to get in on the action.

This of course includes the telcos, discussed in a post yesterday.

And it includes the GYMAAAE players, with lead jockeying of course by Google, Yahoo!, Microsoft and AOL.  Not to mention innumerable startups like Brightcove, who signed a potentially critical distribution deal with AOL and IAC a few days ago.

And not to mention all the recent moves by the media industry to sell content a la carte on mobile phones and devices like the video iPod and Sony PSP, essentially to make more money off of time and place shifting.

There are a fair number of new forces trying to shape this thing into a potentially perfect storm.

It's a whole new ball game for monetizing old eyeballs anew.

Comments

[candice]

I'm not sure where else this happens, but Cox in greater new orleans was already tiering their digital channels for something like $7 per tier with a package deal to get all 5 of them. It was great to not have to pay for all of the espn's to get vh1 classic or bbc america or whatever.