Fox Sports writer Clay Travis wrote a fantastic piece about sports TV and the potential bubble. In that article he did a good job of summing up why the current model is superior to a la carte. It sounds great. But it will eventually lead to a decrease in the quality of content and chase to the lowest common denominator.
While you probably receive in excess of 100 channels, most of us watch only 16 or 17 channels in a given month. If you're a single girl without kids, you probably don't watch Sprout and if you're a single guy you probably don't watch Lifetime, but you pay for every channel you receive. In practice this leads to much better television, because channels can go after small audiences with powerful and compelling programming that might not otherwise be financially feasible. For instance, hardly anyone watches "Mad Men," in the grand scheme of ratings. It's a very smart, slow-paced, intellectual program that appeals to a relatively small audience. On average less than four million people watch each episode of "Mad Men." That leaves over 90 million people who receive the channel and the show but don't watch. Yet these non-viewers subsidize "Mad Men," by paying for AMC. Since most of us receive over 100 stations yet watch only 16 or 17, we all pay for in excess of 80 stations that we don't watch. One positive result of the cable bundle has been a tremendous amount of money rolling into television programming and the flourishing of great shows that wouldn't necessarily work if ten million or more people had to watch. That's why I've written before that I support the idea of cable television bundles, everyone subsidizes everything meaning that the quality of programming is stellar across the television landscape. We may not all like the same shows, but all of us have never had better options. We've been in the midst of the golden age of television.
Well, Mad Men cost an estimated $2.85M per episode (which costs were estimated after Season 4, when it was pulling in an average rating of 2.27M viewers each episode). At $2.99 an episode a la carte, that breaks even at 0.95M. The only season it averaged ratings lower than break-even was the first season, where it averaged 0.90M viewers per episode. This doesn't count the additional profits from streaming licenses and DVD sales, promotional marketing, etc, which are estimated to add well over $1M more per episode.
Maybe that sports columnist chose a bad example, but Mad Men is exactly the type of show which would thrive in an all-a-la-carte world.
I should add that sports in general does get the short end of the a la carte stick, because over 50% of all money going to pay for content in the current bundling scheme goes to funding sports, and sports constitute far less than 50% of the entertainment viewing hours each week. A sports columnist thus has a very significant vested interest in the status quo, because without it the actual costs of the sports he covers would be apparent and likely fewer people would consume as much sports as they do today. In fact, at the link above he clearly states that sports fans are getting massive subsidies from the rest of us.
From a general economics perspective, his argument fails. I'll avoid drawing unflattering parallels between what he is proposing and what his politics likely deem to be evil political systems of the world. Essentially, though, capitalism works best when there is a clear "vote with your dollars" ability on the part of the populace. That is, if someone doesn't like something, they don't buy it. That makes it very clear which products are succeeding today and which are not, so that development dollars tend to go more to those which are successful rather than being wasted on things no one finds valuable (late-night filler or instance). Now, projects can still be funded if there is not an audience for them; that is how the entire production side of the entertainment industry already works. And, if there are projects with socially redeeming value despite low viewer interest those too can be funded via social funding means (NEA grants, etc).
In any case, bundling of services is almost universally seen as consumer-hostile in the world of economics. The only place where bundling is beneficial to the customer when that bundling is itself a service - a way to reduce complexity from an untenable level to something the customer can easily understand and intelligently evaluate. A la carte content purchases are nowhere near untenably confusing, so there is no value in that aspect to bundling. Which leaves us just with the costs of bundling. Which means that a bundling solution is always, on average, worse for the consumer than an a la carte solution.
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Yes, but Netflix is largely reruns and things have made money (both advertising and subscription fees/ticket sales) when it first ran.
Think of Netflix like a company that agreed to buy day old leftovers from a bakery. They sell all you can eat leftovers for a small price. Customers who don't want the fresh items think it's fantastic. They can binge on all the stuff they want for an incredibly low price. The bakery likes it because they've already made money off the stuff they sold fresh and any extra money they get is gravy.
The problem is the day old bakery customers start thinking they should pay that price for all content...not understanding the incentive for the fresh bakery was the large money they get for fresh content.
Add to the mix, the day old bakery is now wanting to make a few fresh items. That's great for the day old bakery customers...but is starting to ruffle some feathers at the fresh bakery....who doesn't like them competing in that market.
It's fine if you like Netflix, I do too. But don't think that the model financially supports the quality of the programs you watch on it.
Of the 11 shows nominated for Golden Globes in the Drama and Musical/Comedy areas this year, 3 were on HBO ($15/mo), 2 on Netflix ($9/month), 2 on Amazon Prime ($8.33/month), and 1 on Hulu ($8/month). With just over $40 in (generally redundant) subscription costs, you have 72% of the best TV out there fully funded (or for just $32.50 you have 64%). And this is assuming that the rest of the stuff on those services (the redundant movie libraries) take none of the subscription revenues to fund themselves, which is of course ludicrous. While this is still bundling, it shows just how inefficient the multi-level bundling operation (shows -> channels, channels -> multi-channel cohorts, multi-channel cohorts -> packages) is at providing what most people consider "good TV".
I don't think the Netflix model is quite as horrible for quality television as you seem to believe it is.
That said, I'd much rather buy each of those shows separately ($40/season on HBO for instance, which is just under 3 months' of the service) to avoid paying for the redundant movie and TV show back-catalogs on multiple services. Since doing so for some of them means I have to wait a year after airing, instead we just binge-watch shows in 1-2 month subscription "bursts" to keep our overall subscription costs per month under $20 reliably.