One of my favorite myths is that information is free. We think information is free because we're used to paying for access -- cable bills, smart phone data packages, Internet -- but not for content -- like ABC, or Google's mobile search, or a magazine website. But we're still paying. In that vein, Eduardo Porter wonders whether TV should move away from cable buffets to an a la carte model where we pay for individual shows.
This is an interesting idea with implications for TV, music, movies, journalism and just about all of media. But let's fact check of his numbers first.
His first stats consider what we pay for cable TV. Monthly cable bills are about $50, he says. An American's average monthly TV time is 150 hours (via Nielsen). So today we pay about 30 cents per hour of TV, right? Not exactly. Monthly cable bills are by household. Monthly TV hours are by individual. I live with two roommates. I pay $17 for cable and consume 150 hours of television. My TV experience costs more like 11 cents per hour.
Porter then looks at advertising. To reach an audience of 10 million homes, advertisers will pay around $230,000 for a 30-second spot. That amounts to 79 cents an hour for each home (and a smaller number per individual, but anyway...). Porter asks: might it be cheaper to transition to a pay-to-watch system?
Imagine a world in which information isn't free. Your TV set is fitted with a coin slot -- or a PayPal account. Wouldn't you rather pay 79 cents for an hourlong [sic] show to get rid of the ads.
But it's wrong to assume that ad rates would stay constant if we moved to a pay-to-watch TV system, for a couple reasons. First, bundling brings down costs for consumers. Second, we pay for general access because we value the ability to choose from a number of networks we might or might not watch.* That freedom has a price.
Third, a great deal of TV time is spent "surfing" for nothing in particular, or watching shows to which we ascribe no real monetary value but we watch anyway because we've already paid the monthly access bill. That means that if you start charging for television shows a la carte, total TV watching time will plummet. That makes advertising less lucrative. The revenue drop-off would also encourage cable companies to charge much higher a la carte rates to viewers to make up for lost revenue. It's wrong to apply today's rates to a tomorrow-world where TV viewing plummets and viewers are only paying to watch their favorite shows.
This lessons has implications for journalism, too. The New York Times, which published the this Porter article, will introduce a "metered" system next year to charge for navigating articles within its website. I don't know if it will work, but I hope the Times understands the trade-offs. Raising the price of news will raise some money but also reduce the consumption of news. That affects ad revenue. It might also encourage advertisers to pay a premium to access readers who demonstrate greater interest in the product (which I understand is the case at FT and WSJ), but we don't know. What we do know is that media consumers generally pay for specific content, even if they're happy to pay quite a bit to access that content. That's why bundling works, and if we're going to advocate moving to an a la carte TV world, we have to be prepared to live in a world with very different rates.
*There are separate arguments to make on whether paying per TV show would make us more productive, but I don't really want to wade into that debate right now.