Prisoners of Cable

Why we can’t break free from our TV overlords
Kevin Van Aelst

On the Internet, news and entertainment famously want to be free. But in June, tens of thousands of people staged an online protest that was bizarre for its medium. They offered—begged, even—to pay an entertainment company for its content. Almost as strangely, the company told them: “No way.”

The Web site attracted more than 160,000 people in 48 hours, each one promising to pay HBO an average of $12 a month for its streaming app, HBO Go, which offers every episode of the channel’s original programming, plus movies, but is currently available only to cable subscribers. The cheeky site might seem insignificant, but it created a media firestorm around the question of cable TV’s future. Jeff Bewkes, the CEO of Time Warner, the media company that owns HBO, tried to dismiss the issue, saying, “The whole idea that there’s a lot of people out there that want to drop [cable] and just have a Netflix or an HBO—that’s not right.” And indeed, pay-TV services added 200,000 U.S. customers in 2011; HBO and Cinemax subscriptions grew by 7 million globally in the first half of this year.

The cable bundle is under increasing popular assault these days, at least as measured by Web diatribes and water-cooler complaints. Nobody likes to feel forced to buy more than they want, and cable television sticks us with eye-popping bills for hundreds of channels that we couldn’t possibly watch even if we wanted to. The argument behind and its ilk is that this massive bundle could be easily unraveled and sold à la carte, by channel or even by individual show, if we just broke free of cable’s monopoly. Alas, it isn’t so simple.

Your monthly TV bill—if you belong to one of the 83 percent of U.S. households that subscribes to a pay-TV service—is in fact three bundles nestled inside each other. Cable channels (such as TBS) are bundles of shows. Media companies (such as Time Warner, which owns TBS) offer bundles of channels that they refuse to sell one by one. Finally, pay-TV companies—which I’ll call cable companies for short, but which also include satellite companies like DirecTV and telcos like Verizon—bundle and sell the media companies’ offerings. When you pay $80 or so each month for cable, roughly half goes to the cable company to pay for the cost of building and maintaining the infrastructure to transport the content, and the other half goes to the media companies, which divvy it up among channels.

When you turn on your television, there is a 95 percent chance that the channel you tune in to will be owned by one of just seven media companies, such as News Corp (which owns Fox News Channel) or Viacom (which owns Comedy Central). The Big Seven use their oligopolistic power to drive a hard bargain. Cable providers that want to run Viacom’s popular networks, like Comedy Central, must also agree to buy its less popular channels, like MTV2. After dealing with all seven media companies, the cable providers are left with something millions of households will recognize: a bloated offering of channels at an arrestingly high price. The bundle isn’t something Comcast or DirecTV invented to make their customers hate them. It’s something that the largest media companies demand, in take-it-or-leave-it fashion.

But media companies are not the only players with a big stake in the current system. Channels, too, find it congenial to their interests. HBO is a perfect example: Weaned off its media company, Time Warner, HBO would see its costs skyrocket. It would have to build a streaming infrastructure and pay for its own marketing, customer service, and billing. More than 90 percent of HBO’s content is viewed on a television, versus 1 percent through HBO Go. The channel is not about to blow up its business model for that 1 percent.

The benefits of a stable cable bundle are felt all the way down to the show creators. YouTube is a decent outlet for cheap, straight-to-Internet shorts, but creating a full-fledged TV show is extraordinarily expensive and freakishly risky. Established channels provide advertising, branding, and initial attention, plus steady and predictable financing.

If your cable bundle is a Gordian knot, there are really only two ways to imagine it being undone. It might unravel slowly, if today’s younger and preternaturally distracted generations grow up not caring enough about high-production-value cable TV to pay for it. Or a giant might come along and play the role of Alexander the Great, cutting the cable bundle by creating a brand-new way to distribute content. This would take more than cleverness. It would take a lot of money.

Still, the techies and cordless cry out: “Where is our Alexander?”

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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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