Would You Miss This Cable Channel?

In the research of television audiences, the most common currency is the television ratings.  That is, a panel of television households is recruited, and these households cooperate in proving television usage data.  The most common methodology is the use of people meter equipment which captures television viewing for individual persons continuously.  Such television ratings form the currency system by which television channels and advertising agencies negotiate the rates charged for television advertisements.  Examples of television ratings can be found on this page, which has a history of monthly ratings of cable channels over several years.

But this is not the only way by which cable channels obtain their revenues.  There are some cable channels which carry no advertisements whatsoever.  Examples include premium movie channels such as HBO and Cinemax.  So there exists a separate revenue stream of which the public is rarely aware of, since they are negotiated directly between the cable channels and the cable channels.

When a cable channel asks a cable system for inclusion on the channel line-up, the offer includes a monetary arrangement.  The amount of money will vary depending on the type of network.  Here are some hypothetical numbers:

• A premium movies channel may be able to command as much as US$5 per month per subscriber.  From the consumer's point of view, this is worthwhile compared to the price of admission tickets at cinemas.  After all, the movies are shown on a 24/7 basis, including some exclusives (such as Sex And The City and The Sopranos). 
• A sports network may be able to command $1 per month per subscriber.  For some consumers, it is important to have extensive coverage of their favorite sports (e.g. basketball, baseball, football, etc).  But sports is not universally popular, and that is why the amount is smaller.
• Some channels may in fact give the channels away for free.  A commercial channel may do this because they intend to rely solely on advertising revenues.  A non-profit channel (such as a foreign-language government-sponsored channel) may simply want the time to spread the message.
• Some channels may actually pay the cable system in order to be included.  In the extreme case of a home shopping channel, it may even be necessary to hand a percentage of the sales to the cable system.

What is a cable system to do?  They will always have more petitioners than actual available slots.  But before we do that, we should ask just what the objectives of the parties are.  As far as the cable channels go, they know that they need the largest possible audience for the advertising part of their business.  Other things being equal, being on more systems should result in more audience.  For those cable channels that have subscription revenues, being on more systems automatically generates more subscriber income.  So the objective of the cable channels is to get in.

For the cable systems, the bulk of their revenue will come from subscription fees paid by consumers.  The more subscribers that they can sign up, the larger their revenue will be.  So the question is, How do cable systems get more consumers to subscribe?  They have to find an optimal package around parameters such as price and quality.  On one hand, they can deliver the highest quality (e.g. ten premium movie channels), but the cost may be prohibitively high (e.g. US$100 per month).  On the other hand, they can deliver the lowest price (e.g. all 'free' channels) but the product may not interest many people.  So it is a fine balancing act that they must perform.

What is the information by which the cable system can decide?  Ratings certainly help, but it is not the whole story.  For example, there may be a number of channels which have small ratings but they are in fact critical to attracting new subscribers and retaining existing ones.  So another piece of research consists of asking respondents about qualitative questions.

We will now cite some survey data from the 2004 TGI Argentina study.  This is a survey of 10,244 persons between the ages of 12 to 75 years old in Argentina during the year 2004.  Within this sample, 6,257 of them have cable or satellite services at home.  The question that got ask was this: "Would you miss this channel if it were no longer available?"  This question is one that cable channels would use to either persuade the cable system to retain them or to sell another system into accepting them.   

Here we will do well to remember that a cable subscription is a household service that will be shared by the persons within that household.  So the goal is not necessarily to please everybody in the household, because it is enough to make some people within the household love the channel strongly.  This means that it is not just the overall response rate to the question "Would you miss this channel if it were no longer available?", but it is how the responses work by known subgroups of persons.  In the following chart, we show a correspondence map of the response to the question mapped against the age-gender groups.  As with the ratings data, there are clear patterns of segmentation by age-gender.  

(Source:  2004 TGI Argentina)

This particular map does not bring out the trickier question.  For example, it is clear that sports channels are important to older males.  The map shows five of channel: ESPN International, ESPN+, T y C Sports, Fox Sports Latin America and América Sports.  A cable system may ask, "Is it necessary to have all five of these channels?"  This will depend on the subscription fees charged by the channels, the television ratings and the number of households who may switch to another cable system if this channel were no longer available.  The same question can be asked about the number of music channels and other genres.

These are not necessarily easy decision to make since there are so many trade-offs.  There also will not be any feedback since there is no controlled testing as such.

(posted by Roland Soong, 12/22/2004)

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