When The Pay Walls Come Tumbling Down

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ESPN is in trouble:

“ESPN was thrust into the spotlight in November when the ratings company Nielsen predicted the sports juggernaut would lose 621,000 cable subscribers that month. Nielsen estimated the sports network would lose another 555,000 subscribers in December.

The staggering losses have led to calls by analysts for Disney to spin off or sell the beleaguered network, which has lost 9 million subscribers in three years, according to company filings.”

SOURCE: “One of Disney’s Most Popular Brands Has Investors Really Worried” | The Washington Post | Brian Fung | 12/09/2016

The problem is bigger than ESPN or the competition it faces from other cable sports networks. On one level, the days when the TV was “the boob tube” are long gone. Now, there’s an oversupply of high-quality TV drama—the most challenging and expensive programming to produce. If that’s true, then it’s virtually axiomatic that there’s an oversupply of everything else, from reality shows to sports.

On a deeper level, the problem is “the pay wall.” These artificial and sometimes arbitrary barriers are erected to protect the prices of digital goods that would otherwise be over-priced or practically free:

“[I]nformation is corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant. The system’s defence mechanism is to form monopolies – the giant tech companies – on a scale not seen in the past 200 years, yet they cannot last. By building business models and share valuations based on the capture and privatisation of all socially produced information, such firms are constructing a fragile corporate edifice at odds with the most basic need of humanity, which is to use ideas freely.”

SOURCE: “The End Of Capitalism Has Begun” | Paul Mason | The Guardian | 7/15/2015

Pay walls aren’t indestructible. They erode (or, their ability to gauge and adjust to price signals properly weakens) as the marginal value of the digital goods behind them decreases. The marginal value of digital goods decreases when 1) too little money chases a surplus of content; or 2) other options (Netflix, Sling TV, piracy, or weak demand) become opportunities for greater value to consumers. Apple’s arbitrary decision that a song was worth $.99 was totally disrupted once streaming services realized that consumers would rather have access to a universe of songs than own a small library of them.

Both 1) fewer subscribers and 2) more options and different kinds of access are at play in the ESPN case specifically, and cable programming in general.

This means that the traditional cable bundle, which is just another pay wall, has to be re-thought. My solution is to get rid of the bundle altogether. Make all channels except premium channels available for a flat fee that offers real value. Cable and content providers will bring back cord-cutters and minimize piracy.

However, rethinking the cable bundle means messing with the stock prices of cable providers like Comcast and entertainment companies like Disney. I’m not holding my breath, but I do think that the future I described is closer than Comcast or Disney wants us to consider. They can either adapt as the market dictates, or be dragged kicking and screaming into the future.

I’d like to see the latter.

@dexterkflowers

IMAGE SOURCE: Evolution, Continued: The Rise of Post-Capitalism Man (& Woman), ESPN-Red-Logo-large.jpg

VIDEO SOURCE: Capitalism is failing, and it’s time to panic – Paul Mason | Comment is Free

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