If a new report from Michael Nathanson of MoffettNathanson is even close to accurate, Sling TV subscribers that signed up just for access to ESPN are getting quite a deal. In a pure a la carte pricing world, Nathanson estimates that ESPN would cost $36.30 based solely on its current reach among the total television audience.
Of course, this is theoretical pricing, not practical pricing, but it goes to show that going completely a la carte isn't viable for media companies like Disney , Time Warner , or Viacom .
Nobody's going to pay that much for ESPNThe problem with trying to market ESPN for $36.30 per month is that most viewers simply won't pay it, and they'll go elsewhere for their sports fix. That leaves Disney in a fix of its own where it would have to settle for less revenue while the rights to sporting events continue to climb. In the end, it wouldn't be able to compete with broadcast networks for high profile events, and it'd find itself set back 30 years, and only able to afford niche sports rights.
Other channels are just as prohibitively expensive. Is TNT really worth $8.95 per month for its basketball rights and movies? (Regardless of how well it knows drama.) Netflix costs the same amount, and there are no commercials.
Kids programming is relatively expensive as well. Disney Channel would cost $8.25 per month and Nickelodeon would be $4.99, according to the analysis. Nickelodeon recently announced its own streaming service, Noggin, which offers limited on-demand programming for $5.99 a month, so perhaps Viacom thinks that $4.99 estimate is even lower than it should be. Nickelodeon sees Noggin as a supplement to its flagship network, however, not a replacement.
My point is, either way you look at it, media companies will make less revenue in an a la carte world. Either lower reach due to the prohibitively high prices or lower prices due to the need to maximize reach will result in less total revenue. That means media companies will have less money to invest in programming, be it original content or sports rights.
We've already seen the solutionIt's unlikely we'll see very many channels ever go truly a la carte unless compelled to do so by the government. What we could see, however, is smaller bundles. Disney, Time Warner, and Viacom own multiple networks that span several demographics. And they've all got their foot in the door of two of the most valuable demographics -- sports fans and kids.
There are several reasons you can subscribe to Sling TV for just $20 per month. Primarily, the bundle of channels (despite the lineup consisting of just about 20 channels) guarantees that the reach of each network is greater than it would be on a stand-alone basis. So subscribers that sign up for the sports are also paying for kids programming and channels like Food Network and vice versa. That also impacts the ad prices media companies can charge because they can claim they have a broader reach than if they were offered a la carte.
There's little preventing the media companies from offering their own in-house bundles of channels. For Disney, that might include ESPN, Disney Channel, ABC Family, and other less expensive channels for example. Some companies could partner together to make their own bundles, or let distribution companies like Sling TV handle it and the marketing and customer service costs that go along with it. Hulu is another (pseudo) example of that sort of business organized as a joint venture. As is the cable bundle everyone hates.
Can't avoid the bundleMedia companies have created a business model around the cable bundle, and to unbundle things now would throw a wrench in the entire television ecosystem. Considering that the media companies exercise the ultimate control over how their content is distributed and how much it costs, there's very little avoiding the bundle for live television programming.
That's great for Disney and Time Warner, which have invested heavily in sports rights for the next ten years and can't afford to take on lower than expected revenue from a potential shift to a la carte cable. Investors in media companies should rest easy knowing that a main part of their cable networks business is insulated against disruption.
The article Would You Pay $36.30 for ESPN A La Carte? originally appeared on Fool.com.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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