Probably not a headline anyone thought to see here at Tales of the Sausage Factory, but the fact is that Verizon’s decision to offer “skinny bundles,” and to (at least so far) defend that decision against the inevitable programmer lawsuits, confronts one of the biggest problems in pay TV. For many years now, I’ve talked about the interrelation between large cable operators exercising control over programmers and programmers responding by consolidating so they can exercise market power over cable operators. The result, as laid out in this 2013 paper by S.Derek Turner at Free Press, big cable and big content have become locked in a death spiral driven by ever-increasing prices to the point where even Americans in love with television increasingly look at “cutting the cord” and dropping their pay TV subscriptions altogether.
Now before anyone jumps on me, I am fully aware that Verizon is a profit maximizing firm that is doing this for the best of all possible reasons — to keep existing customers and hopefully attract new ones. I’m also aware of the limitations of the offer — they sell it with the lower speed FIOS package because they are going after the cost sensitive cord cutter not the higher end customer who either is not cost sensitive or has already cut the cord and now wants super broadband speed. So what? Public policy is not about getting companies (or anyone else) to do the right thing for the “right reason,” it is about getting companies to do the right thing for their own reason. Verizon sees that good policy (giving consumers more choices) is also potentially good business. Hoorah!
Mind you, as with all market dynamics, there is always an interplay between the invisible hand of the market and the very visible hand of government. It is, I would maintain, no coincidence that we are seeing a ferment in pay-tv and online video at a time when the DoJ antitrust division, the FCC and even folks in Congress signal that they will not take kindly to companies exercising market power to get in the way of innovation online. Also, as with the “false dawn” of online video in 2009-10, we can expect the dominant players (including Comcast, now no longer constrained to play nice to try to get its acquisition of Time Warner Cable approved) to fight back. We should by no means declare “mission accomplished” when it comes to breaking up the existing business model/incipient market failure/death spiral. We have a lot of work to do, and companies like Verizon might well settle in court the way DISH and Disney did on the Hopper.
Nevertheless, credit where credit is due. Likewise, huge applause to Cablevision for offering an even more revolutionary “cord cutting package” consisting of a digital antenna for free over-the-air-TV and the option to add HBO Go to the package (pay us a small fee and we’ll authenticate the ap for you). While Cablevision is more revolutionary, it does not require it to withstand lawsuits from ESPN and other disgruntled programmers, and maintains the dichotomy of the industry between all or nothing on cable channels which is why I give Verizon a bit more shout out cred here.
I unpack a bit what’s going on and why, and what additional policy steps need to happen to support pro-consumer changes in the industry, below . . .