Cable Companies See Path To Profit In Unbundling
ROBERT SIEGEL, HOST:
A revolution is underway in television. Cable companies are getting rid of huge bundles of channels in favor of leaner, more tailored packages. Stacey Vanek Smith, of our Planet Money podcast, takes a look at the many effects of unbundling.
STACEY VANEK SMITH, BYLINE: Patrick Gottsch spent most of the '90s installing satellite dishes in rural Nebraska. His customers always said they loved getting all the channels, but...
PATRICK GOTTSCH: They always said but why isn't there a channel for farming and ranching for rural America? And just heard that over and over and over again.
SMITH: Gottsch thought he would make that channel. He started shopping the idea around and eventually Dish Network said, OK, you've got your channel, it goes live in one month. Gottsch called up everyone he knew who had anything that might qualify as programming - tapes of cattle auctions, rodeos, a popular polka show that aired on a local station in Omaha, instructional videos from a horse trainer he knew.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED MAN: Have you ever seen a trainer teach a horse to load onto a trailer but you go out and try it yourself and you just can't get the job done?
SMITH: Gottsch was able to cobble together five hours of programming. He sent it to Dish and it ran on a loop for an entire week.
SMITH: Where were you running the station out of?
GOTTSCH: My living room.
SMITH: You were running the station of your living room?
SMITH: How did you do that?
GOTTSCH: It was just myself and my 12-year-old and 9-year-old daughter at the time. So it cost us $28 a week to launch this network, and that's what it cost to send a hard drive by FedEx overnight from Fort Worth, Texas, to Cheyenne, Wyo.
SMITH: Gottsch named his channel RFD TV for rural free delivery, an old postal term. People loved it. It got picked up by DirecTV, Optimum and Verizon. This was the old days of cable when we'd all pay around a hundred bucks a month and cable companies would compete to offer the most channels. Robert Thompson teaches about the business of television at Syracuse University.
ROBERT THOMPSON: It was kind of the idea of the golden age of the shopping mall where you're only going to go to six or seven of the 150 stores there, but your six or seven is going to be different than anybody else's six or seven. "Saturday Night Live," I remember, did that classic sketch where there was a store in a shopping mall that sold nothing but Scotch tape.
SMITH: We all had our own Scotch tape channel on cable TV. But when Netflix, Hulu and iTunes came on the scene, a lot of people started getting their shows a la carte and canceling their cable. This change encouraged channels to make breakout shows worth paying for, like "Mad Men," but there are other effects for customers.
THOMPSON: In many ways they don't realize what might happen if we get rid of bundles entirely.
SMITH: Cable companies have responded with the skinny bundle. For instance, instead of 400-something channels, Verizon now offers bundles of 50-something channels. And they dropped a bunch of stations, including The Weather Channel and RFD TV. Patrick Gottsch says, overnight, his channel's viewership fell by 17 percent. When he saw those numbers, he felt awful.
GOTTSCH: Very depressed. We'd worked so hard for so many years.
SMITH: Michelle Lane Smithwick lives on a horse farm in Middleburg, Va. RFD TV is her favorite channel - or, it was. She's a Verizon customer and she can't get it now.
MICHELLE LANE SMITHWICK: You know, it's nice to sit and watch something about farming and something that you really love, like animals, instead of, like, those goofy real housewives.
SMITH: What are you watching instead?
SMITHWICK: Animal Planet, I'll watch.
SMITH: It's not the same. With more people going a la carte, more channels will go away and cable companies have to figure out what customers want. And so do customers themselves. This year, Verizon updated its skinny bundles and doubled the number of channels. Apparently, people said they wanted fatter skinny bundles. Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.