Can you blame them?

In a June 18, 2014 Wall Street Journal article, it was reported that 60 small cable firms elected to discontinue the relationship with Viacom because they believed that the price Viacom wanted for the right to carry its channels was too high.  [The cost increase was quoted as being 100% over five-years.] What was the risk of dropping these channels?  The risk was that many customers who enjoyed watching Viacom programming consisting of Nickelodeon, Comedy Central, and MTV would switch to a competitor (DirecTV or DISH) in the area.  Their only other choice was to pass through the higher programming costs onto consumers.  What was the risk of that alternative?  The risk was that some customers would “cut” the cable cord and seek out cheaper video distribution options.  It was a classic no-win situation for the cable provider.  Or, was it?

As it turns out, fewer than 2% of customers abandoned their cable service.  Why?  For one, if they have broadband service too the only option is to get it from the cable firm in the area--- part of the double or triple play.  To de-couple the services and get them from multiple providers (e.g. broadband from the cable firm and Pay-TV from one of the DBS firms) can be time-consuming and difficult to do.  Moreover, the programming on the Viacom channels is not “time-sensitive” viewing like live broadcasts of sporting events.    So, customers can watch their favorite shows the next day over the Internet with little downside.  Of course, this assumes that the content provider, Viacom in this case, continues to offer its programming online in the disputed areas.

Might the success in pushing-back on rising programming cost become a greater possibility?  In classic economic terms, it depends.  No doubt, in the vertical relationships between content providers and distributors, there is a mutual dependency and the likelihood that one or both parties will try to engage in opportunistic behavior when negotiating transactions.  When the programming is highly-valued, like ESPN, the content provider can withhold its content until it gets the terms and prices it wants.  Other times, the distributor may have the upper-hand in negotiations.   The bottom line is that when there are viable and acceptable choices in how, where, and when content is viewed, bargaining power will shift and maybe, just maybe, consumers will begin paying more reasonable prices to watch their “favorite” television shows.