DirecTV’s Latest Message To Subscribers: A Plea For A La Carte Pricing?

Next Story

How To Prepare Your Startup To Raise An Angel Round

DirecTV and Viacom continue to be embroiled in a nasty fight over carriage fees, with consumers still unable to view networks like MTV, Nickelodeon, or Comedy Central after several days. Both sides have taken to the web — and Twitter — in recent days, as they attempt to win over public support.

In Viacom’s case, the cable programmer is trying to put pressure on DirecTV by urging customers to switch providers while its networks remain dark. But in the latest volley from DirecTV, CEO Mike White explains the satellite provider’s side of things, with a video message that appears on YouTube.

White touches on all the usual talking points, assuring customers that the blackout of MTV, Nickelodeon, and other networks is temporary, while saying that Viacom is demanding a 30 percent increase in the fees it collects for its networks — which amounts to “an extra billion dollars for the exact same channels you already receive.” By standing firm, White said the satellite provider is fighting to keep subscribers’ bills as low as possible.

That’s nothing new, and matches similar arguments made by other pay TV companies whenever these types of negotiations lead to a blackout of various channels. But White’s message also includes some pretty surprising rhetoric around how content is bundled together for pay TV subscribers:

“Unfortunately, Viacom has decided to take their channels away from our customers. It’s a temporary and regrettable tactic to try to force you to pay substantially more for all their networks — even the ones you don’t watch or care about. We think that’s unreasonable. At the very least, we think Viacom should give you the choice to pay for only those channels you watch, but so far they’ve refused. Viacom continues to insist on an all-or-nothing approach.”

Taken at face value, what White is asking for is the ability to let consumers pick and choose which networks they want to pay for, and which they don’t — so-called “a la carte” pricing of cable channels. And if that’s really what this fight is about, it could mean a major shakeup for the pay TV industry if the satellite company gets its way. That’s because a la carte — if actually implemented — could blow up the pay TV industry as we know it.

The idea behind any cable or satellite package is that there’s popular programming which the majority of people are willing to pay for, which helps to subsidize more niche networks that don’t pull such high ratings. The problem with a la carte is that, if people choose to only purchase the most popular networks, then funding for more niche programming disappears. That, in turn, leads to less choice as networks go under.

But what’s happened over the last several years is that the big media conglomerates — Disney, News Corp, Viacom, and the like — continue to dream up new networks and then package them with their flagship properties, demanding that their distribution partners buy them all as a big bundle.

With their costs rising every year, some cable and satellite providers are beginning to fight back, realizing that perpetually passing on rate increases to their customers is an unsustainable business practice. Equally unsustainable is the plan to hold pricing steady while having margins are eaten away due to the increased cost of programming. Stuck between a rock and a hard place, those distributors are exploring the possibility of creating smaller, less-expensive bundles of content.

Time Warner Cable rolled out its TV Essentials package in 2010, and Comcast has been experimenting with a pricing structure called MyTV Choice, which lets users pick bundles of channels based on a certain theme — for instance, kids programming or movies. The idea is that with more flexible cable packages, they’ll be able to better serve customers who are tired of paying more than $100 for networks they never watch.

That’s seemingly what DirecTV wants to do as well. Win or lose, I don’t actually expect that the company will roll out true a la carte pricing, but it could mean smaller bundles of channels. Will that mean some networks will just disappear? It’s possible, maybe even probable, since it seems unlikely that subscribers will continue to bear ever-increasing cable or satellite bills. The question is how deeply that will affect the channels people don’t watch or care about.