The price of pay TV rises faster than both household incomes and inflation, yet consumers keep paying up, with many feeling helpless to control the prices. This largely has to do with consumers understanding of the pay TV product, or perhaps rather a lack of it. For several reasons, cable is seen as a utility. You pay a monthly bill for it, it generally comes into your home via a wire, and via outlets in the wall. For some, it’s even every bit as essential as water and electricity. However, unlike water, electricity, or gas, cable is not a homogenous product. Other utilities are metered, and you’re billed by how much you use. Pay TV is a bundle of channels, each with unique prices, and a final bill that is a flat rate independent of how much or how little you watch each individual one. However despite this crucial different, many have placed utility-like expectations on their pay TV service. They expect each of their common cable channels, and missing out on a handful of them (as Dish Network customers are right now, due to a breakdown in negotiations with Turner Broadcasting) becomes equivalent to not having electricity in one room of the house or one of your taps not working.
The networks understand this, so they can charge and demand whatever they want in their negotiations with the cable providers, who must pay up, and thus pass that cost on to their consumers. Is ESPN worth 43 times more than your average cable channel? Consumers don’t know, and right now, they don’t care, they just expect it to be there when they flip on their TVs the same way they expect electricity when they flip on the lights. That’s dangerous for the entire TV industry, as we’re starting to see with high cable prices reaching a breaking point, and driving consumers to cut the cord entirely.
What’s happened with pay TV is that basic economics have been taken out of the equation. At $6 per month, many consumers would re-think how badly they needed ESPN considering that the median price for a cable TV channel is around $0.14 a month. Some would pay up, but there’s also plenty of consumers with no interest in sports at all who wouldn’t pay a penny for it, much less more than they pay for the 5 next most expensive cable channels combined.
With most products, like the ones you buy on the shelf at your local store, consumers made decisions about how much a product is worth and how much they’re willing to pay. We all remember those supply and demand graphs from economics 101. As the price goes up, the quantity of a product demanded goes down, for exactly that reason: the more it costs, the more people decide that it isn’t worth it and refuse to buy. Ordinarily this results is a price that stabilizes at an optimal point, known in economics as equilibrium, where enough people will buy the product at a price where the seller can make money. It is because that is not taking place in the market for the content we watch on TV that your monthly cable bill is going nowhere but up. That’s why the businesses for your typical products aren’t at risk of becoming unsustainable, but why the current pay TV business is.
But as any economist will tell you, the market will find a way to solve these problems, and that’s what we’re seeing happen now. As consumers cut the cord, content creators see money to be made by selling their content directly to them. That trend is what will eventually bring economics back into the fold. As the networks begin selling their products in a more traditional à la carte basis, rather than as a part of a poorly-understood bundle, the success of these new online products will depend on them being fairly priced. When consumers are paying for individual subscriptions, they’ll think twice about every purchase, asking and answering questions like how much ESPN is really worth to them. I guarantee you that it won’t be 40 times the price of your average subscription video-on-demand service.
As prices stabilize in the direct-to-consumer market, the cable bundles will start to feel the pinch. When the content people want to watch is available at reasonable prices online, these will be less and less sense in paying $100 a month for cable. Even if the per-channel prices are lower in the bundle, being forced to take on hundreds of unwanted channels quickly adds up, hence why these subscription services are priced well above their per-subscriber fees. As more content becomes available online, the perception of pay TV as a utility will start to fade away too. Unlike electricity and water where there is generally no alternative place to get them, the internet will be able to offer everything that cable can in a more consumer-friendly format. ESPN, CNN, TNT and others won’t be basic expectations when it becomes mainstream to opt in or out of receiving those networks’ content via an online TV experience.
That’s what Rabbit TV Plus strives to do. FreeCast Inc is at the forefront of fixing a broken industry, by empowering consumers to make decisions and letting the market set fair prices. Our service has long offered both individual shows and movies as well as premium pay channels on an à la carte basis, bringing them all together in one place the same way cable TV has done in the past. But Rabbit TV Plus does it in a way that both makes economic sense and offers convenience for the modern world.