Why is Cable Bundled?
In the cable TV industry, bundling refers to the practice of requiring cable customers to buy a package of channels instead of picking and choosing individual channels to purchase. This practice is the standard way of doing business in the cable industry.
Cable TV companies bundle their channels for sale because it currently is the most cost-efficient way for them to purchase the channels from media companies and deliver them to cable TV customers. The price of bundles of cable channels has increased steadily through the years. The number of channels included in the bundles also has increased at a steady rate throughout the industry.
Some customers oppose the practice of bundling. They contend that cable TV companies should offer their customers the option of rejecting bundles of channels in favor of an opportunity to select only the specific channels they want to watch. Some consumer advocates maintain that this practice would save money for cable TV viewers and offer them a more pleasant overall viewing experience. Experts on the cable industry are not so sure that this practice would save money for consumers. They suspect that cable companies would simply respond by raising prices on the most popular cable channels to maintain their profit margins.
Arguments in favor of bundling
Bundles can be helpful for consumers because they decrease transaction costs. In economics, transaction costs are defined as any costs associated with participating in an established market. Bundles allow cable TV customers to make a single decision on the value of a purchase instead of constantly worrying about an ongoing series of small monetary expenditures.
Some customers enjoy having the option of watching any one of a large number of channels whenever they feel like doing so. The fact that they might be paying a small premium for this option is virtually irrelevant to them.
Bundling is also a cost-efficient option for the cable companies. Bundling can save cable firms the hassle of negotiating with networks and media companies over the price of each individual channel. Cable companies can pass on the monetary savings to consumers.
Arguments against bundling
Some cable TV customers strongly believe that they would save money if they had the option of buying channels individually instead of in bundles. They contend that they watch only a small handful of channels on a regular basis. They say they should not be forced to shell out more money each month for all of the extra channels that they never watch. The less popular channels among consumers also often rank among the least popular channels with cable companies. If they were free from the process of bundling, cable TV firms could order only the more popular channels from media companies.
Many industry experts have observed that modern consumer behavior is essentially rejecting the concept of bundles. Viewers are increasingly becoming accustomed to ordering single shows and individual channel streams through online sources.
The future of bundling
Eliminating the practice of bundling cable TV channels would certainly represent a revolution in the cable industry. Leaders in the cable business are beginning to take small steps away from their longtime embrace of bundling channels and toward a new paradigm. A couple of powerful cable TV companies have challenged a major media company because executives with the cable firm were unhappy about being required to accept unpopular channels as part of a bundled package. The Federal Communications Commission has sponsored two studies in an effort to determine if eliminating bundling would save consumers money. The two studies reached opposing conclusions. In short, the future of bundling remains unclear.