If You're Paying for Cable, You're Paying for the Channels You Watch

A blog about business and economics.
Jan. 26 2013 12:57 PM

If You're Paying for Cable, You're Paying for the Channels You Watch

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This picture taken on Jan. 24, 2013 shows laborers working on wire in Jiashan, east China's Zhejiang province

Photograph by STR/AFP/Getty Images.

Here's the basic situation. Many people love to watch sports channels on their cable package, and especially in a world where live sports is really the thing that can't be replicated without cable, this is a big deal. So cable channels charge a per subscriber high carriage fee to cable providers for the right to carry their channel. But many other people don't like to watch sports. So people think that if the channels were unbundled, non-fans could get their non-sports channels for less.

But that's too quick. Say you pay $60 a month for your cable package. Lots of channels come with the package, but you really only watch MSNBC, the Food Network, SyFy, Bravo, and USA. Sure, every once in a while you flip to Fox to see hilarious conservative coverage of Obama speaking, and every couple of years you watch a few Olympic events on other cable networks. And perhaps from time to time scrolling the channels you find yourself watching a Law & Order rerun on TNT. And, okay, you've seen a few reality shows here and there on other channels. But if you could keep getting the broadcast networks without needing to futz with an antenna and watch MSNBC, the Food Network, SyFy, Bravo, and USA you'd be happy. So why can't you ditch the sports networks and get a discount?

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Well, because the hypothesis here is that you're already paying $60 a month for a cable package that really only offers five channels you watch. You would rather have access to those five channels than have $60. So since those channels are worth $60 to you, even if unbundling happens your cable provider is going to find a way to charge you approximately $60 for them. Because at the end of the day, you're paying your cable provider for access to the channels you do watch—not for access to the channels you don't watch. The channels you don't watch are just there. If the channels you do watch are worth $60 to you, then $60 is what you'll pay for them.

What would change the game here isn't unbundling, it's competition. If a typical neighborhood was served by a dozen different cable providers, then consumers could get a much better deal. But that's the problem with the telecom market—there's very little competition, so you end up getting screwed. But the bundling isn't what's screwing you.