(04-06-2013 08:01 PM)nzmorange Wrote:  1. I can't understand what you are trying to say in your first part. Your grammar got a kind of sketchy, so I can't really argue against it. However, if you are trying to argue that, in an arm's length transaction negotiated by sophisticated business parties, the money should not, or is not, allocated based on value provided, then you are wrong.

I am arguing that the fact that cable content providers fight for a specific guarantee of number of subscribers in a tiers implies that they feel that being in that tier is of additional value to them, and the fact that the cable service providers fight against it implies that it affects the division of revenues between the two.

Which implies that gaining carriage on a more broadly distributed tier generates additional revenue for sports channels that are able to win that access in their negotiations.

Quote: If you are trying to argue that value provided isn't based on utility provided to the end customer, then you are wrong.

If the value provided is based on willingness to pay of the end user, whatever the abstraction is used to model willingness to pay, then the observed willingness to pay for the collection of channels offered by a more expensive tier is the incremental different between the cost of that tier and the cost of the most highly valued less expensive tier that the customer is considering. For a broadly subscribed tier like Xfinity Premium, that could be any of the digital basic-extended, digital basic, or not subscribing at all, depending on the willingness to pay for the lower tiers.

So it would be absurd to make a universal claim without supporting empirical evidence that the willingness to pay for the broadly distributed premium tier is the willingness to pay for those channels restricted to that tier and the basic or basic plus channels are "free".

(04-06-2013 09:39 PM)blunderbuss Wrote:  

(04-04-2013 09:12 PM)USAFMEDIC Wrote:  

(04-03-2013 02:46 PM)TardisCaptain Wrote:  Yet the high cost of cable (mostly from sports networks) are driving more people to cut the cord. IMHO there is a bubble in the sports television market.

I will gladly pay the five bucks to DISH... How many football games per month does five bucks get me? A bunch... And I buy a case of brews for fifteen bucks and watch on my deck. Have to be a huge bubble....

But you're not just paying $5. You're paying a lot more for a crapload of channels you don't even watch most likely. I'm willing to bet that MOST people only watch about 15% of the channels they actually have regularly.

Coming from a childhood of "over the air channels", all five of them in St Louis, my DISH bill is not one of my more painful bills each month...

1. Yes, there is advertising revenue. I mentioned that earlier. I think that my exact words were that many of these channels "want to have their cake and [and to] eat it to [sic]." In general, they are niche channels, so they demanded high carriage rates, and now they are trying to push into the lowest tier possible to maximize advertising revenue. Ones that are owned by schools are also (IMO primarily) advertising vehicles for the schools, so being on lower tiers has obvious academic advantages, which are important to the school's mission. There would also be an increased profit for a party if it could negotiate rates for one environment and then change the environment to make it more advantageous for the party while keeping the old rates. For example, if a party could negotiate a rate in an environment where there were few customers, but each customer surrendered $2 of value for access to the channel, the party could increase profits if they could keep the same rate and switch to a lower tier where there were many more customers, even though the new customers might only be willing to surrender $1 for access to the channel. However, in an arm's length transaction, that doesn't happen. The cable company would be paying the network for no reason, and parties don't just give up money for the heck of it. IMO, that's where you keep tripping up. You assume that if cable companies are willing to pay high carriage rates for premium channels, then they will pay those same rates for basic. That isn't the case. You are even the one who said that the BTN has two rates outside the Midwest. One rate is a high rate when the BTN is a premium channel, and the other is lower rate for when the BTN is on basic (or some other low tier).



2. You are assuming that the customer wants basic. That isn't a valid assumption. If you listened to what I said, I repeatedly said that the amount of money flowing to each tiers is a product of the customers' desire for those tiers. If A is a low tier, and B is a high tier, and one cannot get B without also getting A, then if:
*customer type #1 was willing to pay for A, but not the added cost of B, all of #1's value would flow to A.
*customer type #2 was not interested in A and would not pay the price of A + B to get B, then customer type #2 would not add any value.
*customer type #3 was interested in A, but not interested in A enough to pay for it, and interested in B, but not enough to pay A + B to get it, then if customer type #3 was interested in A + B enough to pay for A + B, the value would be divided up between A and B by the customers' degree of interest.
*customer type #4 was not interested in A at all, but was interested in B enough to pay for A + B, then all of the value from customer type #4 would be allocated to B.
*customer type #5 is interested in A and willing to pay for it, and also interested in B and willing to pay for the difference, then the price difference between A and B would flow to B and the rest would flow to A.
*customer type #6 is interested in A, but not enough to pay for it, but interested in B enough to pay for it, then all the value would be attributed to B.

You are trying to divide it up in a pro rata manner based on the fees charged to the end customer. That isn't the case. The carriage charges are based on a weighted average of the valued added.



3. "So it would be absurd to make a universal claim without supporting empirical evidence that the willingness to pay for the broadly distributed premium tier is the willingness to pay for those channels restricted to that tier and the basic or basic plus channels are 'free.'"

This is where reading is important. My exact words were: "I really don't care about the BTN" and (in a different, but very post concerning a related theme) "[i]f I was to get HBO, I wouldn't be paying for the BTN. I would be paying for HBO and also getting the BTN." You are trying to put words in my mouth and make me say that everyone who gets premium cable is only paying for premium cable and getting the rest for free. I never said that. I have repeatedly said that money flows in a manner that balances out value received. In an arm's length transaction, if someone gets value, then they pay for it. That isn't just my theory. Say the word and I can cite 80 year old Supreme Court precedent where the Court supported the IRS' position. For you to be right, almost 100 years of tax law would have to be wrong.

If your theory that "it doesn't matter what's on basic, people will buy it just for the sake of having cable" was correct, then every channel on basic would showcase a bunch of high school garage bands who were willing to play for free with minimum production-added value. The cable companies wouldn't lose any revenue, but they would slash costs, thereby increasing profits. If the implications of your economic theories were correct, then either there would be a shareholder revolt in every major media company, or there would be shareholder lawsuits involving every major media company. If your theory that economics don't apply to the aggregate of many businesses is correct, then economics don't apply to anything.

I live in South Jersey within 7 miles from the Philly bridges. I have Verizon FIOS, but there is competition between Comcast/Xfinity and Verizon. The point that is often overlooked is that cable companies also provide Internet access and landline phone service bundled together. Are Americans frustrated with paying for over 100 cable channels they don't need each month? Yes. Also, Americans love convenience and writing one check each month is easier than three.

(04-07-2013 10:07 PM)RutgersMike Wrote:  Yes. Also, Americans love convenience and writing one check each month is easier than three.

Yes ~ those who are willing to go with basic cable can get those 3way packages for less, but the difference in cost of a 3way package at basic and a 3way package with premium does not look so forbidding, because the higher cost for the basic 3way package.

Of course, the IP TV offers 3way packages the other way around, running the subscription TV over the internet bandwidth rather than internet over the cable bandwidth.

Using a Trenton, NJ zip code, ESPN / ESPN2 / ESPNU come on the Verizon FIOS channel lineup in their basic-plus tier (and the BTN does as well)

(04-07-2013 06:59 PM)nzmorange Wrote:  2. You are ******** that the customer wants basic. That isn't a valid assumption. If you listened to what I said, I repeatedly said that the amount of money flowing to each tiers is a product of the customers' desire for those tiers.

And the tiers are not a natural force, but constructed by the cable companies to decrease the elasticity of demand for the tiers that are created.

As far as saying that the amount of money flowing to each tier is a product of the customers desire for those tiers, as I quoted before, that was not what I was critiquing. Rather, I critiqued:

Quote:2. Your understanding of cable tiers is flawed. If I was to get HBO, I wouldn't be paying for the BTN. I would be paying for HBO and also getting the BTN. The BIG TEN wouldn't be getting my money.

If the price of the tier required to "get HBO" increased to cover the additional marginal cost of having ESPNU or BTN in the tier, since carriage is paid for all subscribers with access to the channel, then whether or not you paid the increase because they have tapped a willingness to pay for BTN, or they have tapped a willingness to pay more for HBO than had previously been required, you've ended up paying for the ESPNU or BTN or whatever was added to the tier.

For any given carriage rate, the content provider obviously wants to be in the most broadly distributed tier, since that will give them more carriage revenue. For a content provider that gets the large majority of their revenue from carriage rather than advertising, the increase in carriage revenue will be more important than the increase in advertising.

And the claim:

Quote:A. Upper tier may be packaged with lower tiers, but when you pay for upper tiers, you are paying for the upper tier and getting the lower tier for free. Your money goes to the upper tiers, and presuming that youo have zero interest in the lower tiers, then it does not go to any of the lower tier programming.

We know that the majority of the cable TV audience have greater than zero interest in lower tier programming, so saying that your money "goes to" the upper tiers assuming zero interest in the lower tier does not support the broader claim that when anyone in general pays for the upper tiers, they are paying for the upper tiers and getting the lower tiers for free. "Extreme claim because making an extreme and, in general, often untrue assumption it follows logically" makes you sound a lot like the most egregious of professional economists.

In the real world, there are multiple degrees of separation between the willingness to pay for each channel and the distribution of the revenue according to intellectual property laws, uptake of various distribution technologies and contractual agreements , and just presuming that the institutional and technological structures in place bring the two into alignment is silly.

1. The logical extension to what you're saying would mean that if a cable company added a channel that literally nobody in the world wanted to a tier and then raised the price of the tier, the remaining customers' willingness to pay the higher price would be because of the new channel than none of them want, and not the old channels that they valued. Do you honestly believe that?



2. "the broader claim that when anyone in general pays for the upper tiers, they are paying for the upper tiers and getting the lower tiers for free."

You are trying to put words in my mouth again. My exact words in my last post were "My exact words were:

(04-07-2013 06:59 PM)nzmorange Wrote:  3. "So it would be absurd to make a universal claim without supporting empirical evidence that the willingness to pay for the broadly distributed premium tier is the willingness to pay for those channels restricted to that tier and the basic or basic plus channels are 'free.'"

This is where reading is important. My exact words were: "I really don't care about the BTN" and (in a different, but very post concerning a related theme) "f I was to get HBO, I wouldn't be paying for the BTN. I would be paying for HBO and also getting the BTN." You are trying to put words in my mouth and make me say that everyone who gets premium cable is only paying for premium cable and getting the rest for free. I never said that.

What part of "[y]ou are trying to put words in my mouth and make me say that everyone who gets premium cable is only paying for premium cable and getting the rest for free. I never said that." suggests that I am making a "broader claim that when anyone in general pays for the upper tiers, they are paying for the upper tiers and getting the lower tiers for free."?



3. "... just presuming that the institutional and technological structures in place bring the two into alignment is silly."

Presuming that basic econ doesn't apply to a situation because you dug a hole that you are unwilling to climb out of is crazy. No, contractual relationships aren't 100% accurate, but pretending like they have little to no relationship to economic reality is insane. In fact, given the amount of money on the line, and the sophistication of the parties, pretending that they aren't usually fairly accurate is also insane. When is the last time that you bought groceries and then slipped the cashier an extra $10 for no reason other than the fact that you didn't mind paying extra for groceries? I ask, because that is the logical equal of what you're saying is happening.

What you're describing would literally expose every single board of trustee member to personal liability for breaching their fiduciary duty of care, and possibly their fiduciary duty of loyalty. That is [i]many billions of dollars of liability.


4.

(04-08-2013 10:13 AM)BruceMcF Wrote:  

(04-07-2013 06:59 PM)nzmorange Wrote:  2. You are ******** that the customer wants basic. That isn't a valid assumption. If you listened to what I said, I repeatedly said that the amount of money flowing to each tiers is a product of the customers' desire for those tiers.

And the tiers are not a natural force, but constructed by the cable companies to decrease the elasticity of demand for the tiers that are created.

[/quote]
The elasticity of the tier has nothing to do with the fact that the amount of money flowing to the tier is a direct product of the demand for that tier. Elastic and inelastic tiers can both be insanely profitable. If a grouping of channels is so unpopular that nobody wants them under any condition, then the tier would be perfectly inelastic, but the value flowing to and from the tier would be zero. Conversely, a tier could be wildly popular at one price, but its popularity could crash to "just" popular at a slightly higher price. In such a situation, the tier would be very elastic, but also very profitable. Elasticity (or the lack thereof) and value are not causally-related.