3 ms·

If you've bundled a channel within the "basic cable" package, that channel is now being sold to millions of people. But the costs to produce/buy the content on

by rtpg 10y ago

If you've bundled a channel within the "basic cable" package, that channel is now being sold to millions of people. But the costs to produce/buy the content on that channel don't go up with the number of users, right? It's not that it's cheap, but that it scales relatively quickly. I don't know how much service providers pay to carry these channels though. I'd imagine advertising is still what covers most costs.

PeterisP 10y ago
Cost to buy that content does go up with the number of users, the typical licencing agreement of a cable company to distribute a channel has pricing of $x/subscriber. There can be some other conditions, e.g. if you distribute it to less than 100k subscribers then you still pay for a full 100k; or you pay $x for every subscriber that you have, no matter if you show them our channel or not; or you can distribute the nice channel A only to customers who also have our (not so nice) channels B, C and D, etc... but the core principle is that you do pay for content per subscriber. Furthermore, the big content companies produce a lot of content in all genres, and they're (obviously) focused on their average revenue per user - and if they can get $x ARPU for their bundles, where the demand is driven by a few key channels (e.g. they expect everyone who wants A or B to pay for the whole bundle) then any a la carte unbundled packaging that would allow A or B separately makes business sense only if the a la carte customers would on average pay at least as much as the whole bundle costs. There's no extra cost to the content owner to give the whole bundle, rather the other way around (your 'shit channels' can get more advertising revenue since some of those who got it in a bundle would watch it a bit), but there is a loss of revenue if you start paying less for the channels that you do want. Advertising covers the costs for the many shitty channels, those can be got/distributed nearly for free, but things that people actually want on their cable are quite costly, especially sports.
- rtpg 10y ago
  Thanks for this detailed answer! I was thinking more about production costs, of course it makes sense to sell the content based on number of viewers. I'm not very aware of who pays what though. In an alternative universe cable would work like the internet: content carriers. Netflix is basically the most popular thing (normalized for traffic) and even they are basically paying ISPs to help get served better.
  - seanp2k2 10y ago
    Not basically, but literally: https://qz.com/256586/the-inside-story-of-how-netflix-came-to-pay-comcast-for-internet-traffic/ https://qz.com/256586/the-inside-story-of-how-netflix-came-t... Comcast is charging to put data into their tube, and charging for access to the tube. They get paid on both ends. They can do this because they have no competition in most markets and there is little will in Washington to make this situation better for Americans. Edit: also, get ready for Ajit Pai's FCC where Comcast, Verizon, ATT, TimeWarner, etc will be allowed to "zero rate" "select" services (read: when services pay their ransom). Data caps and speeds for the "regular" internet will go down without this, and first-party offerings from the ISPs will of course be exempt from the caps. https://www.google.com/amp/s/www.wired.com/2016/11/att-time-warner-deal-shows-time-stop-zero-rating/amp/?client=safari https://www.google.com/amp/s/www.wired.com/2016/11/att-time-... it's already happening. ISPs refuse to be dumb pipes and want to open additional revenue channels by figuring out creative new ways to charge everyone for moving bits across their network. They will continue unchecked and without meaningful competition.
    - rtpg 10y ago
      I've read up on this, and have always felt like the nuance is important. Netflix _could_ just rely on the standard infrastructure like everyone else, but doesn't want to because it would provide sub-standard quality. So they also have their own "ISP" that hooks into Comcast and co. This is less like Comcast + a website, and more like Comcast + another ISP. The dynamics are different.
    - massysett 10y ago
      Because being an undifferentiated dumb pipe pushes prices down to marginal cost, which is not sustainable from a business standpoint--which would leave us with no one but the government to invest in the infrastructure. I don't know about you but I don't want Trump, Ajit Pai, and Elizabeth Warren deciding how to allocate capital for network infrastructure. Being undifferentiated, dumb operators of flying tubes left US airlines in a precarious state. As wireless grows increasingly competitive with wireline services, the telecoms will find themselves in the exact same place.
pjc50 10y ago
Cost of production is completely irrelevant to eventual pricing in this kind of thing, it's all down to market power and supply&demand.

by rtpg 10y ago

PeterisP 10y ago

Cost to buy that content does go up with the number of users, the typical licencing agreement of a cable company to distribute a channel has pricing of $x/subscriber. There can be some other conditions, e.g. if you distribute it to less than 100k subscribers then you still pay for a full 100k; or you pay $x for every subscriber that you have, no matter if you show them our channel or not; or you can distribute the nice channel A only to customers who also have our (not so nice) channels B, C and D, etc... but the core principle is that you do pay for content per subscriber. Furthermore, the big content companies produce a lot of content in all genres, and they're (obviously) focused on their average revenue per user - and if they can get $x ARPU for their bundles, where the demand is driven by a few key channels (e.g. they expect everyone who wants A or B to pay for the whole bundle) then any a la carte unbundled packaging that would allow A or B separately makes business sense only if the a la carte customers would on average pay at least as much as the whole bundle costs. There's no extra cost to the content owner to give the whole bundle, rather the other way around (your 'shit channels' can get more advertising revenue since some of those who got it in a bundle would watch it a bit), but there is a loss of revenue if you start paying less for the channels that you do want. Advertising covers the costs for the many shitty channels, those can be got/distributed nearly for free, but things that people actually want on their cable are quite costly, especially sports.

rtpg 10y ago
Thanks for this detailed answer! I was thinking more about production costs, of course it makes sense to sell the content based on number of viewers. I'm not very aware of who pays what though. In an alternative universe cable would work like the internet: content carriers. Netflix is basically the most popular thing (normalized for traffic) and even they are basically paying ISPs to help get served better.
- seanp2k2 10y ago
  Not basically, but literally: https://qz.com/256586/the-inside-story-of-how-netflix-came-to-pay-comcast-for-internet-traffic/ https://qz.com/256586/the-inside-story-of-how-netflix-came-t... Comcast is charging to put data into their tube, and charging for access to the tube. They get paid on both ends. They can do this because they have no competition in most markets and there is little will in Washington to make this situation better for Americans. Edit: also, get ready for Ajit Pai's FCC where Comcast, Verizon, ATT, TimeWarner, etc will be allowed to "zero rate" "select" services (read: when services pay their ransom). Data caps and speeds for the "regular" internet will go down without this, and first-party offerings from the ISPs will of course be exempt from the caps. https://www.google.com/amp/s/www.wired.com/2016/11/att-time-warner-deal-shows-time-stop-zero-rating/amp/?client=safari https://www.google.com/amp/s/www.wired.com/2016/11/att-time-... it's already happening. ISPs refuse to be dumb pipes and want to open additional revenue channels by figuring out creative new ways to charge everyone for moving bits across their network. They will continue unchecked and without meaningful competition.
  - rtpg 10y ago
    I've read up on this, and have always felt like the nuance is important. Netflix _could_ just rely on the standard infrastructure like everyone else, but doesn't want to because it would provide sub-standard quality. So they also have their own "ISP" that hooks into Comcast and co. This is less like Comcast + a website, and more like Comcast + another ISP. The dynamics are different.
  - massysett 10y ago
    Because being an undifferentiated dumb pipe pushes prices down to marginal cost, which is not sustainable from a business standpoint--which would leave us with no one but the government to invest in the infrastructure. I don't know about you but I don't want Trump, Ajit Pai, and Elizabeth Warren deciding how to allocate capital for network infrastructure. Being undifferentiated, dumb operators of flying tubes left US airlines in a precarious state. As wireless grows increasingly competitive with wireline services, the telecoms will find themselves in the exact same place.

pjc50 10y ago

Cost of production is completely irrelevant to eventual pricing in this kind of thing, it's all down to market power and supply&demand.