A la carte TV pricing would cost industry billions, report says

Consumers want to choose the channels they get from their pay-TV providers, but such a move would not only undermine the business model for media companies, it could also lead to higher prices for customers, according to a new report by Needham & Co. Few have been able to put a price tag on the cost to the industry of a la carte programming, but Needham & Co. media analyst Laura Martin took a stab at it in her study.

"Our calculations conclude that $80 billion to $113 billion of US consumer value would be destroyed by this shrinking channel choice," Martin wrote in her report. [Interesting that she characterizes consumers picking the channels they pay for as “shrinking choice”] She determined that the economic costs would be enormous because so many smaller channels would disappear -- at least 124 channels -- wiping out an estimated 1.4 million jobs in media. Martin figured that at least $45 billion in TV advertising would be at risk. The Needham report estimates that it costs media companies an average of $280 million annually to run an entertainment cable channel. (The costs to program a sports channel -- with big-ticket sports -- are much higher). That means a channel requires at least 165,000 viewers over the course of a year to break even. "By implication, about 56 channels would survive, and 124 channels would disappear, based on 2012 viewing levels," Martin wrote.