What Happens If TV Goes the Way of Music and Newspapers?

The basic math suggests that buying the TV you love on-demand would probably be either much more expensive than you'd think ... or much lower quality than you'd accept

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Do you love television but hate your cable company? Then you'll be thrilled to hear this bit of news. 

Les Moonves, the chief executive at CBS, said in an interview that if the cord-cutting revolution takes off, he is prepared to distribute TV directly to viewers through apps. "If the universe changes and they [viewers] want us to bring the content directly to them, then we can," he said.

This is music to the ears of those who've been predicting that the End of Cable will be as inevitable and consumer friendly as the webification of newspapers and the iTunes-ification of music. It sounds like the best of both worlds. In an on-demand world, you get the TV you love, and only the TV you love, without those hundreds of pointless channels you don't, and save all this money in the process! That's the dream, at least.

Here's the reality. If the cable bundle dissolves, buying the TV you love on-demand would probably be either much more expensive that you'd think ... or much lower quality than you'd accept.

Let's say for example that you just want to watch ESPN and otherwise be left alone. Right now, you pay $80 to cable every month, which passes along $5 to ESPN (per its agreement with its media company, Disney). So ESPN alone would cost $5 a month, right? That's not so bad.

But wait. Remember, ESPN isn't just getting $5 from every household that wants to watch it. It's also getting $5 per from the millions of TV-watching households who don't care for sports and just happen to have ESPN because they have cable. In our post-cable future, you might have to pay $10 a month to make up for all the households who choose to stop subsidizing your SportsCenter habit.

And we're not finished yet. Most of ESPN's revenue comes from advertising. Once you remove the tens of millions of homes who glance at ESPN every so often since it's on the bundle, ratings will fall and ad revenue will follow. So now, ESPN Watcher, the price you have to pay to watch the same network you love has to cover all those lost homes and all that lost advertising. And that's before we get into paying the cost of delivering the video in high quality to your HDTV or iPad, since it's hardly cheap to house and stream hi-def to tens of millions of homes.

Upshot: If you were hoping that on-demand television could be as cheap as Netflix, consider that back of the envelope math would suggest ESPN would be significantly more expensive that Netflix, per month, on its own.

Back to CBS. Les Moonves said that if the universe changes and viewers abandon the cable bundle en masse, he could simply deliver the television independently. But at what cost? And of what quality? Great television is an awfully expensive and risky thing to make. Most shows are complete failures, after all. The bundle confounds consumers by making us feel force-fed, but it also tricks us into thinking each individual channel is much cheaper than it really is.

I've got a column on the future of the TV business coming out in the next magazine in one week. I don't want to give away everything here. But, what the heck, I'll give away the ending. When you do the math, cable TV is a much better deal than you think.
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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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