Monday, January 28, 2013

Sports and/or Cooking Shows

Skip Saur points out that the dominant TV genre is sport broadcasting. He then explains why viewers of Top Chef are not (necessarily) subsidizing sports.

Cable TV offerings are common examples of product bundling and are much maligned and misunderstood by journalists and lawyers alike. The main policy issue is whether viewers of one genre of programming should have to pay for the programming she does not view.

Students of Managerial Economics know that bundling is profitable when it increases demand (adds value). For example, the costs of producing Top Chef are little different if there are 1,000 or 1,000,000 viewers. Bundling it with sports means that it survives on viewership more like the latter than the former. What would cost $1,000 per viewer a la carte, costs only $1 per viewer in the bundle. A la carte prices are set according to the value from the marginal consumer of a network which can be high for a few. Bundle prices are set according to the marginal network for all viewers which can be low for many. No show or genre is subsidizing any other. It is because most viewers place at least some small value on the option of viewing other genres that they are more willing to buy the bundle than networks one-by-one. The number of paying viewers rises with the bundle and so the price per show falls.

No comments:

Post a Comment