Report: Separate channels will end pay TV

2012-06-26 10:53
Cape Town – If pay TV operators were forced to sell TV channels separately to their subscribers on a so-called a la carte basis or as part of a so-called "unbundling" of their TV channels, it would destroy the billion dollar pay TV industry, a new independent analysis on the pay TV industry has found.

A new report warns that so-called "unbundling" would lead to less choice and to only 10 TV channels in America surviving the move.

In America the department of Justice is investigating the pay TV industry as well as the programming and TV channel bundling agreements – the basic premise on which the pay TV industry's model is based.

1 million jobs

This comes as South Africa's National Consumer Commission issued a compliance notice to MultiChoice's DStv, On Digital Media's (ODM) TopTV and the SABC which the commission since had to retract after it acted too hastily.

The Commission wanted them to sell and make various TV channels available separately - in essence selling single crayons instead of crayons by the box.

Now a new independent American analysis by Needham & Co has issued a grave warning that forcing pay TV companies to offer TV channels on an a la carte basis - giving individual TV channels separate prices and allowing each subscriber to choose the TV channels they want to pay for - would present tremendous risk to every company in the TV business, including production companies, separate broadcasters and the entire TV ecosystem.

In the new report by analysts Laura Martin and Dan Medina from Needham & Co, the analysts warn that if pay TV operators are forced to "unbundle" TV channels, it would destroy $300bn of value within just the American TV industry.

It will also endanger 1 million jobs within the TV industry, it will negatively impact consumers' video choices, and that only five to 10 traditional TV channels in America would be able to survive such a move.

Cease to exist

"The government is a bull in the proverbial china shop with unintended consequences likely to destabilise the delicate work of the invisible hand which is working today in the TV ecosystem," Dan Medina and Laura Martin said.

Without the ability to sell TV channels in a bundle to consumers, just five to 10 "hit channels" would be profitable enough on a standalone basis to survive unbundling, says the analysis.

This means that hundreds of TV channels - even though a specific channel may be the favourite of a specific pay TV subscriber - would become uneconomic to produce and run and would simply cease to exist.

The report surveyed 500 TV viewers in America to gauge which TV channels they would like, would select and would pay for if they were able to choose just the TV channels they want.

Pay TV revenue will drastically decline

"Minority and special-interest channels would be unlikely to survive," the Needham & Co analysis found.

"Since the average TV households watches 12 to 14 TV channels each month, every household would lose TV channels which they believe are important to them. In an a la carte world, consumer satisfaction would be destroyed."

The report said an a la carte model would "bankrupt all niche TV channels within five years, destroying enormous value" for TV viewers and pay TV subscribers as well as the industry as a whole.

Pay TV revenue would also drastically decline by between 15% to 20%, and ad revenue will dramatically plunge by 75%, the analysis projects.

It would put 1 million jobs in America at risk which includes employees at pay TV operators, telecommunication forms and 500 000 employees at media companies who all depend on profits generated within the pay TV industry.

"We believe that every job in these companies is at risk if the TV ecosystem is disrupted by the government because TV is the most material contributor to revenue in every case," said the report.

Thinus Ferreira is an independent TV critic, writer and journalist covering South Africa’s TV industry. Read his blog here.

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