The decline and fall of media bundling

Bambi Francisco at Marketwatch and Craig Moffett at Sanford Bernstein see the recent FCC recommendation to allow a la carte cable channel subscriptions and the rise of by-the-show TV shows at the iTunes music store herald the coming death of media bundling. They point to the fact that cable companies today are taking advantage of the fact that most people are consuming content they don't really want to pay for:

"Cox [Communications] said that 25% of people would pro-actively pay for ESPN," Moffett explained. Translation: 75% of subscribers wouldn't pay for that sports channel, but only have it because they have no choice.

ESPN, which is owned by Disney, gets $2.50 per subscriber, per month from Cox whether a subscriber watches ESPN or not, Moffett said. If Disney were to only sell ESPN to the 25% Cox subscribers who wanted it, Disney would have to charge each subscriber $10 per month. Additionally, Disney would lose advertising bucks because it wouldn't have the 75% of viewers who'd potentially watch a few minutes after flipping channels. "After accounting for lost advertising, media companies would have to charge closer to $20," he said.

"A lot of people who watch ESPN today, watch it because it's there," said Moffett. In an unbundled world, viewership would fall, and advertising would fall with it.

This of course creates a terrible situation for the creators of TV content, who now face the possibility of not getting paid for content that consumers don't really want or like. The article argues that it's just a matter of finding the right business model to keep unbundled content from taking over.

It was predicted back in the heyday of the Net bubble that the more popular model for listening to music online in 2005 would be subscription-based services. Today, no one really talks about RealNetworks Rhapsody, Yahoo's music store, and Napster. Apple's ownership model seems to have taken off.

In like vein, Moffett doesn't think the current crop of TV models will be the ones that take off either. The average consumer watches 57 hours of TV a week, he said. If you charge them $1.99 for an hour show, that's almost a $500 monthly TV bill.

"I won't pay that," I said.

Moffett chuckled and said, "Yeah, neither you nor me -- nor anyone else."

But if we look at this situation in the content of consumers becoming dissatisfied with the tyranny of too much in news, music, and television, another very real possibility exists: consumers may simply watch less TV. Just as consumers have been ditching their land-based telephones in favor of more expensive cellular phones, consumers may also just refuse to watch low value content, and pay for the content that they find valuable. And while this phenomenon may destroy the business models of Comcast and ESPN, today's consumers are too overloaded and time-poor to return to the TV businesses of yesteryear. For media creators and aggregators, the alternatives are simple: experiment and adapt to new consumer behavior, or resist and lose money and customers. The handwriting is on the wall.