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Posted at 12:34 PM ET, 03/21/2013

Can we afford the cord-cutter’s utopia?


In a Feb. 15, 2011 file photo, Comcast logos are displayed on installation trucks in Pittsburgh. (Gene J. Puskar - AP)

Hey, TV viewers, be careful what you wish for.

News that cable TV providers Cablevision and Verizon are fighting back against the media companies that they claim force them to bundle cable TV networks for customers has been largely cheered as the much-anticipated arrival of a la carte pricing for cable TV programming. Instead of being forced to pay for channels they never watch, cable TV viewers would only have to pay for the channels they actually watch. While this may be good for your pocketbook, will this unbundling of cable TV also lead to innovative, high-quality programming?

Certainly, the cable TV providers would like you to believe this. In its lawsuit against Viacom, Cablevision notes that the forced bundling of cable TV content leads to a loss of innovation. Instead of being able to encourage innovative, high-quality TV, they are forced to accept all kinds of cable TV channels that nobody ever watches. In the same way that restaurants feature their best, most creative dishes for the a la carte side of the menu, while reserving their prix fixe menus for the reliable crowd-pleasers, cable TV providers would theoretically be able to offer all kinds of innovative, a la carte fare to their customers that they’ve been unable to provide in the past.


A sign is shown at the headquarters of Netflix in Los Gatos, California September 20, 2011. (© Robert Galbraith / Reuters)
But there’s just one thing wrong with this scenario: the reason why a la carte menus can be so experimental and innovative is because there’s competition in the marketplace. If you live in a city like New York or Washington, chances are that your favorite Italian restaurant is also next to a French patisserie or a Spanish tapas bar or a hot new restaurant with a celebrity chef. There’s a need to be creative with your dishes every day because the chef next door is also being creative with his or her dishes.

That’s why there’s so much excitement in innovation circles anytime a company such as Apple, Google, Amazon or Netflix announces they’re considering a new approach to TV. Using the analogy above, it’s like a new celebrity chef arriving in your neighborhood, promising all kinds of delights for foodies.

The example everyone is talking about now is Netflix, which is attempting to become the “HBO of Internet TV” with the release of original programming such as "House of Cards" starring Academy Award-winner Kevin Spacey. Not only is the distribution channel intriguing — streaming cable-quality TV fare only to Netflix subscribers — the way that the series rolled out is interesting as well. Instead of offering 13 episodes over a 13-week period the way a cable network does, Netflix made all of the episodes available at once, encouraging the type of binge viewing that we’ve become accustomed to for cable TV’s most popular shows.

It’s awfully expensive, though, to create the “HBO of Internet TV.” Netflix may have paid as much as $100 million to create “House of Cards,” hoping to recoup these costs primarily through the addition of new Netflix subscribers paying $7.99 per month. But how many more of these shows can Netflix continue to create on an ongoing basis at $100 million a pop, especially if there’s no guarantee the show will be a hit and, on top of that, lead to new subscribers?

A more effective strategy may be to spread your million-dollar bets over a wider mix of TV content and see what all the cord cutters are actually willing to pay for online. With its YouTube Original Channels, Google hopes to do what nobody has been able to do yet - provide original, TV-quality programming online.

In late 2011, the search giant sank $200 million into 100 new YouTube channels from premium content creators and in late 2012, re-upped with another $100 million. That’s right, Google paid $200 million for 100 channels, while Netflix may have paid $100 million for one show. The true test of this strategy comes this spring, when Google plans to start charging between $1 and $5 per month for subscriptions to the most popular of its YouTube Originals. Nobody knows exactly which channels will be included. But most likely they will include a mix of brand names, as well as new upstarts that many people may not recognize, like Machinima, Fullscreen or Maker Studios. Assuming that you’re like most people and watch between five and ten cable TV channels regularly, that’s anywhere from $10 to $50 per month for your TV viewing habit.

Ultimately, the real innovation comes not from unbundling cable TV channels, but from unbundling individual shows from cable TV networks — and then individual episodes from shows. As long as you’re willing to pay up for the high cost of developing all these new shows, it could lead to the TV future that we’re all waiting for — one where you can watch any show that you want, on any device, at any time.

Read more news and ideas on Innovations:

The year’s mind-blowing idea

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By  |  12:34 PM ET, 03/21/2013

 
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