A la carte would drop U.S. TV revenues almost 50%: analyst

The American television industry's annual revenues of $150 billion US would be cut nearly in half if broadcast distributors moved to an a la carte model, said a report by research firm Needham & Company. Laura Martin, an Internet, entertainment and consumer analyst with Needham & Company, said in a July 11 report that a move to unbundled, or a la carte, TV services would cost the industry $70 billion US in annual revenues as advertising dried up and subscriptions for less popular channels fell. She said TV advertising revenues reached $77 million US in 2012, thanks to “bundling economics” that require consumers to pay for packages of channels, ensuring less popular or lesser-known channels still receive mass distribution. “Unbundling dwarfs any other risk to the TV ecosystem,” Martin said in the report, titled "The Future of TV." “ewer than 20 channels would survive in an a la carte world where consumers are required to bear 100% of the cost of the channel.” A la carte programming has been a hot topic in Canada as the rise of online and over-the-top services have led consumers to cancel or reduce TV subscriptions and demand more flexibility to purchase the channels they want without subsidizing channels they rarely view. This fall, the CRTC will launch a consultation with Canadians about Canada’s TV services, chair Jean-Pierre Blais said last month. The review is expected to look at a range of issues, including channel packaging, pricing, programming, pick-and-pay and on-demand options, and possibly more regulatory flexibility for broadcasters such as the elimination of niche programming requirements known as “genre protection.” Martin said in the report that TV channel packages offered by U.S. distributors have better pricing power and more “stickiness” than individual channels because different household members are likely to enjoy different channels in each package, allowing them to justify their monthly bills. She said channel packages also allow distributors to monetize less popular content by anchoring it to “hit” shows and aggregating advertising buys across shows and channels. “The average household receives more than 200 channels and, on average, watches 12 to 14 each month,” she said. “Our research shows that virtually every household watches several ‘long-tail’ channels that would not survive in an a la carte world.” She said other media industries that began offering unbundled content have seen roughly 60 per cent of their revenues and market capitalization “destroy.” The American music industry's annual revenues, she wrote, have fallen 57 per cent from $38 billion US in 1999, as piracy and Apple Inc.’s iTunes made it possible for consumers to acquire individual songs as opposed to groups of songs bundled on an album. The U.S. newspaper industry's revenues have also fallen 70 per cent since 2000, she wrote, when the demise of the strategy of bundling editorial, retail, real estate and classified ads began. Unbundling popular sports channels like ESPN and putting them in a separate, standalone sports “tier” would drop annual revenues by $13 billion US alone, she said. According to Martin’s report, American broadcasters will invest an estimated $45 billion US on television content in 2013, an increase of $1.5 billion US from 2012. Guaranteed subscriptions to TV distributors, Martin said, ensure that as much as 80 per cent of that funding is available before the programming is made. Much of that funding would be jeopardized by an a la carte system that would reduce distributors’ revenues and place a greater emphasis on funding hit shows, which account for between 10 per cent and 30 per cent of productions. “f only hits are paid for, about 80% of programming makes zero money and content investment collapses,” she wrote. Martin said that online video content is typically ad-supported and will not earn revenue unless that content is viewed, impacting the ability of content creators to “survive” as the online ecosystem “cycles through hits each year”. Online video ad revenues reached $4 billion US in 2012, Martin estimated, while Google Inc.’s YouTube spent $100 million US on content in 2012 and Hulu spent approximately $500 million US. Netflix Inc. spent $200 million US on original content and $1 billion US to license content from other broadcasters and producers, Martin estimated. —With reporting by Nicholas Kyonka and nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

A la carte would drop U.S. TV revenues almost 50%: analyst

Broadcast | July 17, 2013

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A la carte would drop U.S. TV revenues almost 50%: analyst

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