Join Us For The Net Neutrality Day Of AdvocacyRSVP For September 27-28
There's a seemingly-endless debate online about whether pay TV companies (cable companies and other MVPDs, such as FiOS TV, DISH, etc) are leaving money on the table by sticking with their traditional business models, which many highly digitally-connected people think are obsolete. (Leave aside for the moment the fact that the pay TV companies themselves are constrained in what they can offer consumers by their contracts with content companies.)
I tend to agree that they are not. These are rational companies and they are motivated to make money, and if they could make more money by changing their business models, and if they were able to, they would. (The same goes for large content companies like Time Warner, which owns HBO.)
But the rationality of these companies doesn't strike me as a very interesting question. What's interesting is whether there are market or regulatory structures that are keeping prices high and the business models stagnant. PK has argued that there are. Cable companies, who are also the largest broadband providers, are able to use data caps and other means to limit the potential of online video competitors like Amazon Instant Video and Netflix. Various statutes and FCC rules limit the universe of entities that qualify as "MVPDs," a status that conveys certain privileges. And longstanding communications and spectrum policies have so distorted the market that it is difficult to know what the "natural" competitive state of affairs should be, if that's even a meaningful question. Sensible policy reforms that weaken the power of content distribution bottlenecks could bring prices down and make business models more flexible, by aligning the interests of pay TV providers with these ends. There's no need to hope that MVPDs start acting against their interests and begin to voluntarily lose money just to make vocal online critics (myself among them) happy.
There are two related points. First, the future of video will likely be more on demand, but it's not likely to be purely à la carte. Users seem to like content bundles like Netflix and Spotify quite a bit--they are generally cheaper than à la carte services like iTunes. Most people don't have strong opinions about whether à la carte or bundles are philosophically superior--they just don't want to get ripped off, and the fact is that the MVPD video bundles today cost too much. In a more competitive marketplace I would expect to see more varied, and more affordable bundles alongside à la carte options, but not the death of the bundle. Second, it's an open question whether, by behaving rationally today, MVPDs are losing the future. A growing body of industry research is showing that "cord-nevers"--young people who simply never subscribe to MVPD service at all--are growing in number. This group might be more telling for the future of video than price-conscious or tech-savvy cord-cutters: they are people who don't even consider pay TV as something they might possibly pay for. If providers don't adapt and try to win younger viewers, they might find themselves first gradually, and then very quickly, fading into irrelevance.