There’s an interesting story in the Los Angeles Times today about the rising cost of sports programming in cable/satellite television package. The upshot: about half of your cable bill now comes from the cost of sports programming, which includes both your local regional sports networks, as well as ESPN, MLB Network, etc. This, predictably, has non-sports fans and a la carte television pricing up in arms, which is about as hilariously awful as you would expect it to be if you have a rough idea of how the economics of cable work.
Here’s the dime store version of how this works. In addition to whatever costs related to physical hardware they may have, cable television providers have to pay networks for the rights to broadcast their content. The laws of supply and demand are pretty straight-forward here: popular networks that get relatively large audiences (like ESPN or YES) are able to demand much higher fees than smaller, nichey networks, and providers have much less leverage to balk at their asking prices, as a cable company that didn’t let you watch ESPN or whichever network broadcasts your local baseball team’s games would likely find themselves losing customers pretty quickly. Then, after all of the fees are paid, the providers package up their offered channels into various packages, with the most popular channels generally going in the cheapest packages, for obvious reasons.
This, then, is why you ostensibly get stuck paying for programming you don’t want. In reality, it’s just an unremarkable example of a firm pricing its product at a level that allows it to earn revenue above its operating costs. If a la carte advocates got their way, more or less nothing would change for consumers in terms of cost*. You want to opt out of ESPN because you only watch the Science Channel? DirecTV is going to charge you more for Science than you’re “paying” now, because they’ll still have to pay the cost of obtaining the rights to popular networks, whether you happen to watch those stations or not.
So what’s the fuss about (outside of people who don’t know what they’re talking about getting angry about their bills, anyway)? It’s simple: cable providers want to make more money. If they can cut the payments they have to make to the regional sport networks (and it’s obviously not a coincidence that this story is running in the market where the Dodgers are just about set to sign a record breaking television contract), it lowers their operating costs, and allows them to put a larger share of revenue into their own pockets. If it were really about unmanageable or unsustainable costs, then they’d simply refuse to pay the rights fees, because it would be better for their bottom line even if they lost customers for it. Since they aren’t doing that, it stands to reason that they’re still making money off of the arrangement, just not as much as they want to.
*(That is, assuming you’re the sort of person who primarily watches television with a certain amount of network loyalty. If you primarily watch individual shows, and those shows are scattered across multiple networks, your life could get very inconvenient under these plans)