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Cable Unbundling Could Slash Ad Revenues

11 Dec, 2013 By: Doug McPherson

NEW YORK – Unbundling of cable networks – à la carte programming – could cause $45 billion in TV advertising revenue (60 percent of all TV advertising) to disappear, says Laura Martin, a media analyst with Needham & Co.

Martin argues in her report last week that à la carte pricing would lead to higher TV bills: “The notion of creating value through unbundling may be a laudable goal from a public policy point of view, but the world this premise describes can never exist.”

That’s mainly because for every $1 of subscriber revenue, advertisers pay $1.24. Martin also estimates that on average 90 percent of pay TV homes receive up to 180 channels.

“Worst case, if distributors [who collect all the money] kept the first $30 billion [as they did in 2012], that would leave only $7 billion for content, implying only 7 channels would survive and 173 channels would disappear.”

She adds $80 billion to $113 billion in “consumer value” is at risk from a potential major change caused by unbundling. That would be a 65-percent drop. Martin estimates that based on average wage and TV viewing data, consumers are paying about 3 percent of what their TV viewing time is actually worth to them.

Martin doesn’t believe that much will change as a result of all this. “Because consumers lose so much value through unbundling, we expect no policy change in the U.S,” she writes. “All content companies benefit from TV bundling, as well as from new digital platforms that are driving record free cash flows from content creation globally.”

While unbundling cable may not work economically, the Needham report does suggest one solution for people disenchanted over paying for all those unwatched channels: Cut the cord, keep your modem, and stream the shows you like from Hulu, Amazon or Netflix. Says Martin: “That’s how capitalism works.”

Pay-TV cord-cutting and cord-thinning climbed a bit in the third quarter. Among pay TV customers – representing some 90 percent of U.S. TV homes – 17 percent either trimmed pay TV networks/services or removed them completely in the third quarter of 2013. This number was up from 14 percent in the second quarter and 13.4 percent from the first quarter, according to Digitalsmiths, a video discovery company.

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