Analyst Says Unbundling Would Destroy TV Value

Needham & Co.'s Laura Martin says that TV unbundling would put $80 billion to $113 billion in consumer value at risk

With the price of pay TV rising, increasing consumer choice through replacing the current bundle of channels with an a la system becomes a more popular idea. But a new report from a Wall Street analyst supports industry arguments that deconstructing the TV bundle would have big economic consequence.

Laura Martin, analyst at Needham & Co. says that TV unbundling would put $80 billion to $113 billion in consumer value at risk from the loss of channel choice. Also at risk: $45 billion of TV advertising, 1.4 million jobs, $20 billion of taxes paid and $117 billion of market capitalization.

"Because consumers lose so much value through unbundling, we expect no policy change in the U.S.," Martin says in her report. "All content companies benefit from TV bundling, as well as from new digital platforms that are driving record free cash flows from content creation globally."

Martin argues that in an unbundled world, consumers would have to pay more to retain the 180 channels now available to them because ad revenue would disappear. "In 2012, total payments to content companies to fund TV channels were $45 billion of subscriber fees plus $56 billion of ad revenue, or $101 billion in 2012," she says. "Worst case, to maintain
all 180 channels, consumers would have to pay the $75 billion they pay today plus $56 billion (to make up for the lost advertising.)"

Martin figures that in a world where channels were unbundled to lower the average cost per viewers total revenue to the TV ecosystem would be 104 million homes times $30 per month times 12 months, or $37 billion, down from $131 billion in 2012, or 28% of what it was in 2102. In that example she figures that in the best case only 50 channels would survive and 130 channels would disappear. In the worst case, with distributor passing less money along to programmers, 173 channels would disappear.