Saturday, January 2, 2010

Trouble in TV Land

The Fox television network’s threat to pull its stations off of a major cable system was narrowly averted with a late-night extension on New Year’s Eve, but the reprieve will not last forever. Even if Fox decides to keep its channels on cable, the current system for distributing television in the United States is close to the breaking point, and it could all start to unravel as soon as this year.

It’s the cable systems that are in the middle of the action in the television industry drama. The channels they carry want them to pay more, a lot more, to cover the cost of creating the programming. According to reports, Fox was asking for $1.00 per subscriber per month. Even if that is somewhat more than the cable systems end up paying, fees at that level, if they catch on across the industry, could increase the subscription fee for a typical standard cable package from about $100 a month to about $200 a month. But most cable subscribers feel like they are paying too much already. They are looking for ways to pay less.

If the industry keeps going the way it is going, here are some of the first ways it could start to break down:

  • One of the major broadcast networks, such as Fox, could pull all its stations off of cable.
  • Major cable channels could demand higher programming fees, and could start to be dropped by cable systems.
  • A few of the smaller cable systems could refuse to pay any programming fees, dropping channels that require them, in order to reduce the fees they charge their customers.
  • Larger numbers of cable subscribers could balk at the higher subscription fees and cancel their television subscriptions entirely.

The important thing to note is that as soon as any of these things start to happen, they will tend to feed on each other, and the situation could snowball. For example, if Fox pulls its stations from cable, that could lead more cable subscribers to cancel. And if that happens, the programming fees available to cable channels will shrink, possibly leading the channels to ask for higher fees. That, in turn, could lead cable systems to drop those channels — and so on.

A wild card in this situation is possible intervention by Congress or the FCC. If cable fees go up to $200 a month, Congress will probably intervene with legislation that changes the rules of the industry. One proposal that was floated three years ago would have permitted cable customers to subscribe to channels one by one. Most cable households only watch about ten channels, and if many of them decided to subscribe only to the channels they actually watched, the revenue available to the whole industry would fall precipitously — but viewers would save a fortune.

The way out of this morass, in my opinion, is for the whole television industry to cut its production budgets so that they don’t rely on programming fees at all. This is fair enough, if you consider that most television channels dedicate nearly one minute out of four to commercial messages — shouldn’t the advertising revenue be enough to pay for the cost of creating the programming? TV producers will have to look for ways to cut costs that won’t degrade the viewer experience too much, but there has to be a way to make that happen. The alternative, after all, is what is happening now. If present trends continue, it won’t be too long before live television is priced out of the reach of the average household, and where will television’s revenue come from then?