Kagan Research held an audio conference last week explaining why unbundling of cable and satellite programming won’t work. Many groups have been calling for “a la carte” pricing of television programming, so that consumers don’t have to pay for channels that they don’t watch. Kagan makes some good points as to why this won’t work.

First, they make the point that the average cost per channel in a basic package has dropped from $.75 in 2000 to $.71 in 2005. How can this be when cable costs are rising? The answer is that more channels are being included in the basic packages. And the profit margins for cable companies have actually declined; the fees they pay for the programming have risen faster. And it’s not that the channel producers are getting rich, either; ESPN appears to be expensive, but the fees for the rights to cover sporting events are high. Finally, new services such as digital signal, video recording, and HD content have also increased the service costs.

I agree that there is more to watch now than ever before, though I’m not convinced that all consumers want access to all the channels that they have. Still, the penetration of cable and satellite services in the US market is high, and revenue growth is most likely to come from expanding services rather than increasing the subscriber base. (Ever wonder why the satellite companies are willing to make such amazing deals in order to get new customers?) A move to a la carte pricing for individual channels would likely result in a big hit in revenues for these services, so I don’t expect to see it as an option any time soon.

Posted by Alfred Poor, July 19, 2006 6:00 AM