A La Carte Pay TV: Why it won't happen

Foxtel’s launch of Foxtel Play last week was met with the usual howls of protest from people who simply want an a la carte TV service. Unfortunately, the current business models mean that’s quite an unlikely prospect.
There’s a great piece over on Sports On Earth covering the US Pay-TV (“Cable”) market, and why the majority of users subsidise the frankly incredible costs of buying TV sports rights, even though (as per the article) a great many viewers simply don’t care. Reading through it inspired me to think about where we are in terms of Australian Pay TV providers, irrespective of delivery mechanism.
The same basic economic argument is true in Australia too, although the most prominent PayTV operator places Sports in a premium bundle, making it something that’s paid for by those who want it. Given the sports-mad nature of many Australians, that’s seemingly quite a decent number of people.
Still, the cries for affordable a la carte go up each and every time there’s a new offering or entrant into the market. The idea feels admirable; if I only want to watch, say, Game Of Thrones and WWE Raw, why can’t I simply pay for those programs?
The problem is that the economics don’t really work out that way given the current costs of TV production. The issue comes down to market size and ongoing viability. Throw everything into an a la carte situation, and you’re effectively charging per episode for content that may or may not exist yet. What’s a fair price there? $3 per episode? $5 per episode? At some point you’ve got to pay the actors, effects designers and the guy holding the boom mike, and if you’re only paying $5 across a small audience, that quickly won’t work, even if you do throw in ads. Advertisers are less likely to want those small audiences (outside certain high-price segments — business news and the like) over time, so you’d be stuck with your $3 or $5 fee per episode.
If, by the way, you’re thinking of a la carte as an “I only want these channels rather than these packages”, you’re still looking at the same kind of argument, spread across slightly more programming. My paying for Doctor Who to be on a Sci-Fi channel (which I would) would subsidise your viewing of Battlestar Galactica, and so on. But you’re still targeting niches with each and every channel, and a lot of them wouldn’t survive that way.
To take a local example, TVTonight reports that last Sunday’s episode of The X-Factor attracted 1,500,000 viewers across all metro capitals. Taking that at face value and $3 per episode (I wouldn’t pay it, because I really don’t care, but go with me here), that’d be roughly $4.5million in revenue, which sounds nice, and would probably pay for a few more episodes presuming, say, costs of $1 million per episode.
Pure guesswork there, by the way, but then there seems to be a lot of advertising around for the X-Factor, so I might not be that far off. The thing is, if ratings (and paying viewers) drop, you quickly fall into a black hole, and that’s only for the absolute top-rated program. That’s a single hour of programming, too; you don’t have to go too far down the ratings list to hit programs that hit far more modest national figures. Again, free to air TV is obviously ad subsidised rather than pay-per-view, but if you’re talking paid a la carte, that’s the kind of model you’re looking at.
The issues of production costs are only part of the problem for a la carte TV, too. There’s also the issue of theoretically-all-you-can-eat services such as Netflix.
It is perfectly feasible (albeit breaking the T&Cs) to access US paid services such as Netflix or Hulu Plus from Australia, and while there’s little in the way of hard data, it certainly appears that more and more Australians are taking advantage of this, especially in light of the IT pricing inquiry and Choice’s ongoing education campaigns.
Still, while Netflix is an alternative at a more attractive price point for many, it’s still not an a la carte service; it’s a flat fee. You’re paying (as you do with Foxtel or FetchTV) to subsidise somebody else watching their choice of niche programming, and as a result the costs are low. If you pay $9.95 a month for Netflix, who’s going to pay $3 for a single episode? A la carte sounds attractive, but right now with current production costs and diverse audiences, it seems like an unlikely thing to make work.