Network end users to pull down 2 gigabytes a day, continuously?

Sat Jan 13 22:53:41 UTC 2007

This is the case of bundling, discussed in the paper I referenced in
the previous message,

  http://www.dtc.umn.edu/~odlyzko/doc/history.communications1b.pdf

It is impossible, at least without detailed studies, to tell what
the effect of selling individual channels would have.  Bundling
can have benefits for both consumers and producers (and that is
what the cable industry in the US claims applies to their case,
although all we can conclude for sure from their claims is that
they believe it has benefits to them).

Here is a simple example of bundling (something that has been known
in standard economics literature for about 30 years, although in
practice this has been done for thousands of years in various markets):

>From what Marshall wrote, it appears that the 2 channels that he and
his family care about are worth at least $40 in total to him, and
everything else is useless.  Suppose (and this may or may not be true)
he and his family value each of these channels, call them A and B,
at $30/month and $20/month, respectively, so in principle the cable 
network could even raise their bundles' prices to a total of $50 
without losing him as a subscriber.

Now suppose that the universe of users consists just of Marshall
and Mikael, except that Mikael and his family are interested in
3 channels, the two channels A and B that Marshall cares about,
and channel C, and suppose the willingness to pay for them is
$10, $5, and $25, respectively.  If the cable company has to
price the channels separately (and let's exclude the ability to
price discriminate, namely charge different prices to Marshall
and Mikael, something that is generally excluded by local franchise
agreements), what will they do?  They will surely ask for $30
for channel A, $20 for channel B, and $25 for channel C, and will
get $50 from Marshall and $25 from Mikael, for a total of $75.
On the other hand, if all they offer is a bundle of all 3 channels
for $40/month, both Marshall and Mikael will pay $40 each for a
total of $80/month.  And note that both Marshall and Mikael will
be getting the bundle for no more (less in Marshall's case) than their 
valuations of individual components.  If $75/month is not enough to 
pay the content providers and maintain the network at a profit, the 
lack of bundling may even lead to death of the network.

Andrew

P.S.  And don't forget that having channels is already a form of
bundling, as are newspapers, ...

  > On Sat Jan 13, Marshall Eubanks wrote:

  On Jan 13, 2007, at 7:36 AM, Mikael Abrahamsson wrote:

  >
  > On Sat, 13 Jan 2007, Marshall Eubanks wrote:
  >
  >> A technical issue that I have to deal with is that you get a 30  
  >> minute show (actually 24 minutes of content) as 30 minutes, _with  
  >> the ads slots included_. To show it without ads, you actually have  
  >> to take the show into a video editor and remove the ad slots,  
  >> which costs video editor time, which is expensive.
  >
  > Well, in this case you'd hopefully get the show directly from  
  > whoever is producing it without ads in the first place, basically  
  > the same content you might see if you buy the show on DVD.
  >

  I do get it from the producer; that is what they produce. (And the  
  video editor time referred to is people time, not machine time, which  
  is trivial.)

  >> In the USA at least, the cable companies make you pay for  
  >> "bundles" to get channels you want. I have to pay for 3 bundles to  
  >> get 2 channels we actually want to watch. (One of these bundle is  
  >> apparently only sold if you are already getting another, which we  
  >> don't actually care about.) So, it actually costs us $ 40 + /  
  >> month to get the two channels we want (plus a bunch we don't.) So,  
  >> it occurs to me that there is a business selling solo channels on  
  >> the Internet, as is, with the ads, for order $ 5 - $ 10 per  
  >> subscriber per month, which should leave a substantial profit  
  >> after the payments to the networks and bandwidth costs.
  >
  > There is zero problem for the cable companies to immediately  
  > compete with you by offering the same thing, as soon as there is  
  > competition. Since their channel is the most established, my guess  
  > is that you would have a hard time succeeding where they already  
  > have a footprint and established customers.
  >
  Yes, and that has the potential of immediately reducing their income  
  by a factor of 2 or more.

  I suspect that they would compete at first by putting pressure on the
  channel aggregators not to sell to such businesses. (note : this is  
  NOT a business I am pursuing at present.)

  What I do conclude from this is that the oncoming wave of IPTV and  
  Internet Television is going to be very disruptive.

  > Where you could do well with your proposal, is where there is no  
  > cable TV available at all.

  Regards

  >
  > -- 
  > Mikael Abrahamsson    email: swmike at swm.pp.se