Cable Needs a New Pricing Model

How Much is Too Much?
It’s expensive to have cable television.

By the time I add up the charge for a DVR and a basic package that doesn’t include any movie channels, I’m out at least $70 per month. But I don’t even watch half the channels that I get. So what am I paying for? And how many people don’t have cable because of how expensive even a basic package can be?

Pay-Per-Channel
Cable companies need to offer a new pricing model to attract new price-conscious consumers. They need to offer a pay-per-channel (PPC) model. Think if the system was set up like iTunes. Each channel would cost $0.99 per month. High definition DVRs would come free with service. Installation would be free. There’d be no low initial fee that eventually balloons. No contracts to sign. Pay for what you want.

People who don’t currently have cable because of its cost would flock to the new PPC model.

In the PPC model, you could turn on the channels that you want and turn off the channels that you don’t want each month by using your remote. Most price-conscious consumers would probably purchase the local channels and a few of their favorite cable channels every single month. That would provide the cable company with a solid minimum monthly income from this customer segment.
  • Want to watch the big game on the NFL network? Purchase the channel for that month.
  • Looking forward to that movie on HBO? Purchase the channel it’s going to be on for that month.
Bundles Would Still Do Well
Cable would still do well with its large, more expensive, channel bundles because many customers like having hundreds of channels. Instead of paying $0.99 per channel for 250 channels, customers could select a 250-channel bundle (like they do now) for only $89 per month.

There’s room in the market for both pricing strategies to work because each pricing model serves a specific segment of the market.

Attract Newcomers
I’ve run this idea past a few people that I know who don’t have cable and they tell me that they’d buy cable if it were priced per channel. Why? Because they want a less expensive option and the ability to choose their channels. They want to pay for what they watch. They want a mix of basic and premium channels without all of the channels that they won’t watch, but they can’t get that with cable’s current pricing model.

Cable companies would more than make up for the loss of revenue from people like me who have expensive packages that would downgrade by picking up a host of new budget-conscious customers.

Add This to Your To-Do List
Take a look at your pricing model. Does it offer flexibility? Does it serve all customer segments in the best way possible? Test a new strategy out with a small group of customers and see how it goes. You might be pleasantly surprised.

There’s never a lack of ideas.

Comments

  1. Dave LawsonApril 04, 2009

    The FCC has been looking into ala carte cable channels since at least 2004 and the conclusion is that it would increase your monthly rate and not decrease it.

    http://www.nytimes.com/2007/11/24/business/media/24nocera.html?_r=3&oref=slogin&ref=media&pagewanted=all&oref=slogin

    ReplyDelete
  2. Nick SApril 04, 2009

    Awesome article, thanks Dave.

    What the article fails to discuss, though, is the idea of offering both options. For a person who would just want three channels, they could buy just a few channels. Bundling would then still be an option. I imagine that the number of HBO subscribers would go up immensely. I'd love to see a study on having both options.

    Thanks, Dave!

    ReplyDelete

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