More Flexible SKY Packages Is A Stupid Idea (Premier League Pass Edition)

The SKY TV sports package costs $49.58 per month for basic and an extra $26.45 for the sports channels. That’s $912.36 a year before My Sky and whatever extras you want with your package.This does not mean you get 54 channels at a “cost” of $1.41 per channel!

You would not save any money if you could “just” get sports or the rugby. In fact, because you make it clear you’d previously pay over $76 a month for SKY, you have already revealed to SKY that you will pay up to that much for pay TV each month.

This is basic stuff. The price of each channel will change to maximise profits for fans of that particular channel. If consumers could pick and choose what channels they want it would be fuel for even more Kiwi whinging. SKY Sport is more likely to be $70 a month by itself, for example.

Consumer choice would actually decrease because fixed network costs like programming costs are split over subscribers. Options are valuable – and because you’d only have the few channels you pick and choose instead of 54, you’d have lower utility from television. More content is better.

In fact, niche channels would probably disappear. Packaging news channels together for example means they don’t need to compete aggressively on price. They can spend money on a better product.

Administration costs under a-la-carte pricing would be far higher. Consumer welfare would be lower. You would not save any money! Can I make that any more clearer? You would not save any money!

The comments on this Stuff article display economic ignorance par excellence. Who would have thought it? Also, while some channel prices would go down because they’re not as valuable, have you thought about what would happen to content production?

You know, the content is the reason you get pay TV. If channels have to compete amongst each other aggressively on price, then they have lower profits with which to invest in new content. Oh snap – the quality of content on your favourite channel is likely to decrease under a-la-carte pricing.

This includes less money available to bid for rights for the channel content you signed up for. Yes – some channels are hardly watched at all, but it doesn’t mean you’re subsidising other channels. It means at the margin more subscribers are part of the network which drives down average total costs and lowers your monthly bill.

If SKY actually listened to their subscribers, who despite moaning continue to show through revealed preferences that they value the content they consume enough to spend almost $1000 a year obtaining it, they would not be able to offer any of the content they currently do.

They certainly would not have been in a position to put up a solid bid for English Premier League rights – which have been awarded to a higher bidder as is the EPL’s perogative.

All of the people commenting on that Stuff article forget that SKY has spent an enormous sum of money building a network, becoming an NZ success story and enabling you to get access to content that you sure as hell would not have been able to consume if it was still just channels 1, 2, 3, & 4.

If enormous numbers of people cancel their SKY subscriptions because of EPL no longer being available, they’ll internalise the costs of that decision on their bottom line.

Some days I can’t believe how silly some people are. We should be happy that people take risks and put their money into big upfront costs that enhance consumer welfare over time.

It’s good stuff that there’s more competition in content consumption, it’s something to celebrate instead of having a whinge about in the Kiwi fashion. Comments like “subscribers should be setting the agenda” are so ignorant that I wonder if there is a relationship between economic ignorance, political ignorance and what I call “commercial ignorance” – not knowing that high fixed costs + low variable costs includes the need to recover fixed costs before turning a profit!

I think Premier League Pass is an interesting experiment. But the pricing we’ve already heard of $12.5 per month is almost 9 times what the silly people commenting on stuff think a channel “really costs bro”. (The $1.41 figure).

I am actually quite interested Premier League Pass, especially if they get the French La Ligue. I wouldn’t subscribe to SKY television because I don’t value anything it offers and the opportunity cost of watching TV is writing informative blog posts like this infused with a healthy dose of realistic thinking.

Forget about the people who will ring up or complain on social media trying to get a discount, I feel sorry for the call centre staff at SKY TV for the next couple of weeks.

They will get exposed to the very worst of Kiwi cheapness and unwillingness to recognise a sweet deal which they would never acknowledge because they are ignorant of how millions of dollars in programming expenses alone gets transformed into a monthly bill that would not be paid if it did not deliver at least as much value to the people paying it.

Just like Kiwis refuse to accept that water costs in what we forego in alternative uses like irrigation, Kiwis refuse to accept that companies should be able to make a profit.

Bundling Pay Television Enhances Consumer Welfare

This video from Alex Tabarrok and the MR University course on Media Economics offers up some good points about why bundling pay television enhances consumer welfare.

He points out that consumers think that “I pay $100 / month for 100 channels so if I could just choose 3-4 channels my pay television bill would be just $3-4”.

This is clearly not the case. The high fixed costs of purchasing content, maintaining a distribution network and splitting the cost of boxes over their useful lives all have to be recovered from the consumer.

Therefore, if John McCain’s bill to force cable TV providers to provide a-la-carte options so ESPN subscribers can just get ESPN while forgoing “paying for something they don’t watch”, the most likely outcome is that ESPN will cost closer to $100 a month!

He also points out the different business models in buying music. You can subscribe to Spotify or Pandora and pay a fixed monthly fee for essentially unlimited, legal music.

The alternative is micropayments through the iTunes store. Micropayments incur higher transaction costs than a monthly subscription fee. iTunes even bunches multiple purchases into a single payment processing transaction to lower their costs of getting paid for $1.79 a track music!

Bundling pay television enhances consumer welfare but consumers don’t realise it – if they were forced to pay for individual channels it is unlikely they would pay less in aggregate.

Consumers hardly win whenever regulators attempt to fiddle with consumer welfare.

There are alternative ways for internet savvy people to enhance their welfare if a pay television provider isn’t giving them what they’re willing to pay for, namely cancelling their subscription and getting a US VPN or billing address.