Verizon, the 6th-largest cable-TV provider in the US is trying to disrupt pricing in the US cable TV ecosystem. Cable TV pricing is a favorite topic on this blog (previous posts here and here) as some of you may know.
Traditionally large media companies, such as Viacom, have charged Verizon $X per channel based on how many households receive a channel. But in reality, just based on data from my own household, we regularly watch 5 or 6 of the 80 or so that are piped in 24×7. And perhaps 2 or 3 more of those channels once or twice a month, if that.
So in a move that is not (yet) a challenge to the frustrating lack of a-la-carte pricing, Verizon is proposing to pay providers based on how many households actually tune in to a channel for at least 5 minutes each month. Makes sense, right, especially when you consider that viewership numbers and the % of cable fees collected are not very tightly coupled?
Last year, for example, Walt Disney Co.’s ESPN averaged one million viewers watching its programming live on any given day and up to seven days after broadcast. That was slightly less, according to Nielsen, than the 1.3 million who were watching USA Network, owned by Comcast Corp.’s NBCUniversal. Yet distributors like Verizon paid ESPN an average of $5.04 a month per household last year, according to SNL Kagan, while USA got just 68 cents a month.
And Verizon plans to do this using data from its own set-top boxes, in a potential long-term offensive move against Nielsen’s sampling-based viewership data. Of course, Nielsen’s data is used to set ad prices, not determine cable fees, but its not difficult to envision a future where Nielsen’s revenue model is under threat from some kind of aggregated data collected from various providers’ set-top boxes.
Anyway, getting back to Verizon, unfortunately, the move will not reduce the ever-rising monthly cable bill in the near future:
The proposal, if implemented, wouldn’t reduce FiOS subscribers’ cable bills, Mr. Denson said. But over time, he said, he hoped the shift would “stabilize retail prices for consumers,” unless more people started watching smaller and midsize channels. If retail prices increase, “it would be due to consumer consumption,” he said.
So why is Verizon even doing this? Ostensibly because it, along with other cable companies, thinks that if cable prices rise too much then consumers will “cut the cord” and move away to Netflix and Hulu and others in greater numbers. Perhaps…But don’t be surprised if this is just a way for Verizon to pay less to certain channel providers while keeping customers’ costs where they are (analogy: banks in the US these days are enjoying cut-rate mortgage rates thanks to US Treasury policies, but have opted to not pass on most of those low rates to customers, resulting in very high mortgage profits).