We finally got it – mostly. ESPN finally agreed to sell its service directly to customers without requiring them to buy a huge cable bundle. What we have now, through SlingTV, is a much smaller $20 bundle that includes ESPN, ESPN2, CNN, Food Network, TNT, TBS, HGTV, Travel and ABC Family.
Is $20 a fair price? That’s the wrong question. The correct question is whether it’s a price the market will accept. Only time will answer that.
For now, let’s look at the pieces. The cable companies have been buying these channels and reselling them to us for years, so what have they been paying for them? Based on a WSJ article from mid 2014, the most expensive – by far – is ESPN, for which the cable companies have been paying $6.04 for each subscriber. If you combine ESPN, ESPN2, TNT and TBS – four of the networks on the SlingTV package – the cable companies have been paying about $9. Add in the others, for whom recent numbers weren’t available, and it probably tops $10. So let’s think of $10 as the “wholesale” price for the channels (retail being the $20 SlingTV price).
I think that’s a reasonable price point, considering the company’s substantial costs for servers, personnel, marketing and administration. An additional factor is that Dish is taking a risk that customers will trade in its full satellite package for SlingTV. And some almost certainly will. But so will customers of DirecTV, Comcast, Charter and UVerse, so Dish at least keeps a piece of the pie while the other cable providers are left holding the bag.
It’s likely, of course, that once the bleeding starts, the other cable companies counter with smaller (and less expensive) packages, if not a la carte pricing.
Ultimately, ESPN and the other cable networks hold all the cards. Even before SlingTV, we’d already seen HBO, CBS and others electing to sell directly to consumers via the Internet. It’s hard to see where this will end up.
There may also be a point where consumers get fed up with a cobbled TV package made up of $8 here, $9 there and another $20 elsewhere. That will open the door to other small bundles, which will probably enable the cable companies to keep most customers even if they shrink in size.
This feels very much like the telephone business did in the 1980s, when people first began to replace the local wireline phone network with satellites, VOIP, third-party long distance companies, cellular and phones they bought at Wal-Mart rather than renting them from the telephone company. It didn’t always result in a lower total cost to consumers, but they had more choice in the matter. And a lot of folks hung on to their wireline phones. As recently as 2012, there were reportedly at least 300,000 homes still renting phones from the phone company!
The end result was that buying phone service got more complicated and fragmented. Rather than one big monthly cost, we had harder-to-figure costs of buying phones, cellular service, long distance, payments to Internet phone companies like Vonage, and the cost of higher-bandwidth Internet to support the data.
As with the phone business, we’ll have more choices. Competition may bring prices down a bit. Some old-line companies may eventually fade. It may or may not be cheaper for us, but it may be so complicated that we don’t notice.