A couple of eagle-eyed readers pointed me to a story in yesterday’s Wall Street Journal about Verizon FIOS’ attempt to come up with a new pricing strategy for content that would involve customers paying for channels based on the number of subscribers who actually watch them, and not a set rate.
The story itself is behind a pay wall, so no direct quotes, but the gist of things is that Verizon is looking at a business model that would involve putting a box on a subscriber’s TV that would measure viewing time. The customer would only be charged based on usage that crossed a certain time threshold.
This is coming from Verizon, mind you, so I’m not convinced this would benefit the consumer in terms of saving money. But it clearly indicates that providers are increasingly worried about the impact on-line video outlets are having on the market. And that’s not all. According to the article, ESPN draws less viewers than the USA Network, yet distributors paid ESPN an average of $5.04 a month per household last year, compared to the 68 cents a month USA received. If you’re somebody stuck in the middle like Verizon, you can see where moving to a model based on actual usage has the potential to be an attractive way to avoid price fights with certain content distributors.
The catch is that you can also see how that might not be so great for sports network providers who are pushing product in markets where there isn’t that much interest in the product, say, like the Big Ten Network in the greater New York area. The problem won’t be unavailability. Rather, it’ll be that the price will go up if the customer base interested in the product is small. And that’s got the potential to create a negative feedback loop, as prices go up and fewer people are willing to pay to watch. (Although maybe Jim Delany can figure a way to threaten a few viewers in Brooklyn to keep them in line.)
Right now, it’s hard to say whether this is a canary in the coal mine story. But it bears repeating that the content delivery world is under pressure and it’s more likely that things will change than that they won’t. And that’s something network-owning football conferences should be mindful of.
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UPDATE: More from the Washington Post on this.
“This is the beginning,” said Gene Kimmelman, a former senior antitrust official at the Justice Department. “If the conflict between cable distributors and content owners persists and prices keep rising, there will be enormous market pressure to begin unbundling offerings, give consumers more choices and, from my perspective, ultimately let consumers control what they buy and how much they pay.”
