Is Time Warner Cable Opening the Door to a la Carte?

As cable subscribers flee by the hundreds of thousands, some cable companies are trying to find new ways to retain their customers. For Time Warner Cable (s TWC), the solution might be to offer subscribers smaller bundles of programming with only the channels that are most important to them. The problem is that smaller and more flexible packages could undermine the entire cable business by enticing viewers to choose only the must-have stations.

On yesterday’s Time Warner Cable earnings call, CEO Glenn Britt said the cable provider was negotiating with its content partners in a move that could spell the beginning of the end for the big-time cable package.

In the more value- and budget-oriented segments, we’ve heard loud and clear that customers would like more flexibility in video packaging, particularly in the availability of smaller packages. I want to tease you a bit here because we’re not quite ready to make the announcement, but you can expect to see us introduce a video offering that is targeted at more value and budget-oriented segments in the very near future.

In other words, Time Warner Cable could soon be offering a tier of programming that falls below what we currently think of as “basic cable.” Let’s think of this as “really basic cable.”

Of course, the devil is in the details. The problem with most cable packages today is that subscribers increasingly believe there’s not enough value for the amount of money they spend on a month-to-month basis. It’s easy to see why; after all, TV programming hasn’t improved dramatically over the last several years, but prices continue to rise.

Many subscribers currently leaving their cable plans are doing so because the economy is bad, and Time Warner believes that by offering more flexibility, or by enabling subscribers to choose cheaper, smaller packages of content, it might be able to retain those customers. As Britt said on the call, “[T]here is certainly a segment of our economy and our population that is under economic duress and we think it’s important for this broader industry, meaning programmers and distributors, to be responsive to that.”

While smaller or more flexible programming packages might be good for cable providers, consumers and even for a few big broadcasters, it would be bad news for the industry as a whole. The potential impact would depend heavily on what Time Warner Cable is offering as part of this new “really basic cable” package, but it’s easy to imagine that it would look like. The package would probably contain some combination of the top four major broadcasters (ABC (s dis), CBS (s cbs), NBC (s ge) and Fox (s nws)), some highly popular channels like ESPN and TBS, and maybe a movie channel or two.

There will be a number of programmers that will be left out of these “really basic cable” packages. Networks with a niche audience or those that operate within a certain vertical — like the Food Network, HGTV and possibly even Discovery (s DISCA) — could see their audiences shrink if subscribers downgrade their service rather than cut the cord.

As audiences shrink, so too, do per-sub fees that cable networks collect from their distributors, as well as advertising revenue that runs against their programming. And as revenues shrink, networks cut back on the amount they can spend on programming. All of which means that the golden era of original cable programming that has given way to hit series like Mad Men and Burn Notice could soon be over. Britt alluded to this, too, on the call, saying, “in the programming business, their costs tend to be somewhat fixed so if they’re facing smaller audiences and/or a smaller subscription, that’s a big problem for them. So it’s natural for those companies to resist.”

This is the whole reason a la carte cable has never taken off — because left to their own devices, consumers would only pick a handful of networks, and the rest would be left to rot. As a result, the whole premise behind the cable package could be undone.

Photo courtesy of Akarsh Simha.

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