The video delivery industry has a similar problem to the healthcare industry. In both, fees are negotiated by organizations removed from the consumers who pay for them, and can easily pass on increased costs. Healthcare fees are negotiated by insurance companies. Likewise, the cost of video content is negotiated between the content providers – companies like Sony, CBS, FOX, etc. – and the companies that provide video to consumers – Comcast, TWC, DISH, etc. To maximize revenue and profits, both sets of companies have an incentive to make costs as high as consumers will tolerate. This makes for a market that is opaque and prevents normal market forces from constraining prices. The analogy between healthcare and video delivery does break down. In spite of what some people believe, no one has ever died because they couldn’t afford to pay for access to Monday Night Football. Video consumption is not a necessity for life. So, if consumers don’t feel the price of video delivery is worth the value of what is delivered, they will stop paying for video. This is currently the only constraint on increasing prices for video and is the root of the TWC-CBS disagreement. The fees video delivery companies have been paying to content providers have been rising steadily for decades, with significant increases in the last decade, as a large percentage of consumers moved from over-the-air video to cable. (Nearly 60 percent of U.S. households have cable, including a large fraction of the middle- and higher-income ones.) This led both groups to feel consumers had little choice and would pay whatever costs they demanded.
Cable TV Keeps Losing Ground to New Alternatives
As I worked in the video delivery industry for 15 years and spent nearly two of them at Comcast, three recent news items caught my attention. First, was the introduction of Google’s Chromecast. This was followed by Comcast announcing outstanding quarterly results. Finally, Time Warner Cable could not come to an agreement with CBS over broadcast fees. So, TWC dropped CBS from their channel line up. These three items define the past, present, and future of the video delivery industry and it’s clear that the future will increasingly involve mobile. The video delivery industry has a similar problem to the healthcare industry. In both, fees are negotiated by organizations removed from the consumers who pay for them, and can easily pass on increased costs. Healthcare fees are negotiated by insurance companies. Likewise, the cost of video content is negotiated between the content providers – companies like Sony, CBS, FOX, etc. – and the companies that provide video to consumers – Comcast, TWC, DISH, etc. To maximize revenue and profits, both sets of companies have an incentive to make costs as high as consumers will tolerate. This makes for a market that is opaque and prevents normal market forces from constraining prices. The analogy between healthcare and video delivery does break down. In spite of what some people believe, no one has ever died because they couldn’t afford to pay for access to Monday Night Football. Video consumption is not a necessity for life. So, if consumers don’t feel the price of video delivery is worth the value of what is delivered, they will stop paying for video. This is currently the only constraint on increasing prices for video and is the root of the TWC-CBS disagreement. The fees video delivery companies have been paying to content providers have been rising steadily for decades, with significant increases in the last decade, as a large percentage of consumers moved from over-the-air video to cable. (Nearly 60 percent of U.S. households have cable, including a large fraction of the middle- and higher-income ones.) This led both groups to feel consumers had little choice and would pay whatever costs they demanded.
The video delivery industry has a similar problem to the healthcare industry. In both, fees are negotiated by organizations removed from the consumers who pay for them, and can easily pass on increased costs. Healthcare fees are negotiated by insurance companies. Likewise, the cost of video content is negotiated between the content providers – companies like Sony, CBS, FOX, etc. – and the companies that provide video to consumers – Comcast, TWC, DISH, etc. To maximize revenue and profits, both sets of companies have an incentive to make costs as high as consumers will tolerate. This makes for a market that is opaque and prevents normal market forces from constraining prices. The analogy between healthcare and video delivery does break down. In spite of what some people believe, no one has ever died because they couldn’t afford to pay for access to Monday Night Football. Video consumption is not a necessity for life. So, if consumers don’t feel the price of video delivery is worth the value of what is delivered, they will stop paying for video. This is currently the only constraint on increasing prices for video and is the root of the TWC-CBS disagreement. The fees video delivery companies have been paying to content providers have been rising steadily for decades, with significant increases in the last decade, as a large percentage of consumers moved from over-the-air video to cable. (Nearly 60 percent of U.S. households have cable, including a large fraction of the middle- and higher-income ones.) This led both groups to feel consumers had little choice and would pay whatever costs they demanded.
