Who benefits from bundles?

One of the major benefits of the proposed mergers between Comcast and Time Warner Cable and AT&T and DirecTV, is that the program distributors will be able to leverage their greater size in negotiating better programming deals with content providers.  Theoretically, they will be able to then provide that content across multiple platforms (smartphones, PCs, tablets, TVs); all bundled into a triple or quadruple package of products sold to us. 

We get bundles on top of bundles.  For our wireless service, we are offered tiered packages of voice and data minutes.  For our Pay-TV service, we have tiered programming choices that bundle channels we want to watch with a whole slew of ones we have no interest in watching.  The firms lure us in by then bundling the multiple services into “plays” and maybe we “save” $10 per month for a year.  Each month, we get one bill that combines all of these services for us.  That’s the good news.   The bad news is that the bill amounts to several hundred dollars.  So, we get aggravated [again]!  We think about changing services [again].  We make the call to the 1-800 number [again].  We get frustrated when talking to the customer service rep who tries to convince us that any downgrade to our service would be unwise.  We let it go for another month or two. 

Increasingly though, consumers are not letting it go.  Increasingly, consumers are cord-cutting or at least cord-shaving.  Increasingly, they are recognizing that the “bundle” benefits the firm much more than them.  The scale and scope economies that firms realize when selling a customer multiple products can be significant.  As a result, the value of each customer increases as more of these incremental [high-margin) products are purchased.  Then, the trick is to make customers think that the one-stop shop is in their best interest.  Brilliant!  But, it’s not.  It’s only in our best interest if it maximizes our utility.  We are starting to realize that, but, it requires us to learn what the options are in a very complex web of choices.  It may require paying more than one bill per month.  In the end, it may be worth it!