Recent disputes between TV networks and distributors (Viacom (NYSE: VIA) vs. DirecTV (Nasdaq: DTV), Rainbow vs. Dish (Nasdaq: DISH), broadcasters vs. just about everyone) have generated news reports, editorials and blogs about the need for more consumer choice in the selection of TV programming. It is time to set the record straight about who supports more choices for consumers and who does not.
Black Entertainment Television (BET) founder Robert Johnson made some news with a bold statement to the media the other day. He predicted the demise of pay-TV's big programming package within two or three years, saying inexorable pressure from online services like Netflix (Nasdaq: NFLX) and Hulu will compel cable and satellite TV providers to offer their customers smaller video packages.
Mr. Johnson is correct that TV networks must be unbundled to create more choices for consumers, but creating that choice must start at the source: the content providers. Pay-TV providers--be it cable, satellite or telephone company-backed distributors--each want to give consumers more choices. That's what all these recent battles are about: Pay-TV companies trying to find ways to deliver more consumer choice. Content providers simply will not allow that increase in consumer choice. So, someone or something more powerful than these dominant content giants must force these content companies either to unbundle their networks or unlink the bundles of bundles called Basic Cable. That's the only hope for more consumer choice.
Ten media companies control most of the TV channels in the U.S. They are household names: Disney/ABC (NYSE: DIS), CBS (NYSE: CBS), Fox, Comcast/NBC (Nasdaq: CMCSA), Discovery (Nasdaq: DISCA), Viacom, Scripps (NYSE: SNI), A&E, Rainbow, Time Warner/Turner (NYSE: TWX). Mr. Johnson correctly notes that 17 of those channels account for most of the viewing. Yet content providers work tirelessly to keep their dozens of networks tightly bundled together and to create even more networks to add to that bundle. That's why you must take Oprah Winfrey Network (owned by Discovery) if you want Discovery Channel. That's called bundling.
Those same content providers also demand that all of their content be sold together as a "bundle of bundles" called Basic Cable. The content providers have all linked themselves together tightly. If consumers want ESPN from Disney/ABC, they must also buy MTV from Viacom embedded in the same package. That's why Basic Cable has 100 channels of which consumers watch only a dozen. Don't think for a minute that distributors want to raise rates or clutter the lineup with unwatched networks. It is done because the content providers demand it.
Here's something else to know. The last thing content providers want to do is compete with one another for distribution. They all want to be guaranteed full distribution on Basic Cable. That's why content providers won't give consumers the ability to choose or distributors the ability to create smaller program packages. They all want to keep all of their networks linked together to maximize revenue. This practice of bundling networks (owned by the same content provider) and then linking them to other bundles (owned by other content providers) ensures that all of the content providers have full distribution to all consumers. It reduces consumer choice and raises cost. Distributors are unable to break apart either the bundles or the bundle of bundles because the content providers will not allow it.
Bundles and the ability to link bundles together are the foundation of the TV content provider business. It is their path to mutually assured success. Bundling and linking networks are the "business model" content providers allude to in Congressional hearings. Basically, their model is this: "Every TV consumer must take all TV content from all content providers." That includes paying whatever price the content providers set (including increases) and accepting all the new networks they create. Consumers don't like it. Distributors don't like it. But, content providers LOVE IT, because they control the content, so there is only limited choice.
Consumers want more choice. Distributors would like to provide it. Content providers, on the other hand, DO NOT want to offer that choice. Distributors, as the conduit between the two, suffer constant salvos from both sides. Consumers accuse them of intransigence and price-gouging for failing to offer more choices (which they are powerless to create). Content providers label them as greedy and short-sighted when they resist rate increases, try to create program tiers and drop networks.
Despite the content providers' overwhelming power and control, the ultimate end is more consumer choice, not a continuation of the "everyone-must-take-all" model. As Mr. Johnson correctly noted, "In the next two or three years…something is going to give. At some point the consumer is going to say enough is enough." This battle is finally starting to attract Congress' attention. When it reaches a crisis stage, Congress will respond. It won't support one powerful industry over another. Instead, lawmakers will side with those who have real power: the voters.
More choice is inevitable. The only question is when those in favor of more choice can rally the masses to the cause. Distributors support more choices for consumers and are ready to deliver it. Content providers do not support more consumer choice. It is time consumers, Congress and the media understand that difference.
Robert Gessner is President of Massillon Cable TV, Massillon, Ohio. He is also Vice Chairman of the American Cable Association.