Ever wish you could pay only for the cable channels you actually watch? Verizon (NYSE:VZ) CEO Lowell McAdam thinks that model is inevitable.
As the company prepares to launch a TV-over-the-Internet service for mobile devices by mid-2015, McAdam spoke to investors at the Goldman Sachs Communacopia conference this month. "No one wants to have 300 channels on your wireless device," he said. "Everyone understands it will go to a la carte. The question is, what does that transition look like."
Personally, I believe the cable bundle isn't going anywhere, but I'll be pretty happy if proven wrong. Other pay-TV providers, like DirecTV (NASDAQ:DTV), have been working on the unbundling problem for a while. Sony (NYSE:SNE) is launching its own Internet-television service, which many expected to be a la carte, but it looks like it, too, has succumbed to the bundle. Unless the only channel you watch is HBO, you're not unbundling your cable anytime soon.
That doesn't mean Verizon doesn't hold certain advantages in the Internet-delivered television market.
Transitioning to a la carte
The problem with offering a la carte channels is the owners of the channels -- the content companies -- are in the business of increasing their revenue. One of the best tools they have is the bundle. Very few cable channels survive without the bundle. They're called premium cable (HBO, Showtime, etc.).
But more and more providers are starting to offer smaller bundles (usually excluding sports) that are less expensive than the standard 200-channel package. On DirecTV, subscribers can pay $27 less for a basic bundle and forgo the eight or so sports networks that drive the price up so much. (There are 12 other non-sports channels included in the higher-priced bundle for good measure.) Still, the smallest bundle is 130 channels.
If Verizon does start the transition to a la carte, it might look like "pick 20 of your favorite channels." With the average person watching just 17.5 channels, that would make perfect sense. The problem with that model is that it will probably cost the same as 150 channels. Content companies hold all of the pricing power in these contract negotiations and they want to protect the bundle, so a la carte will cost about as much as a whole bundle if not more. There are other ways to declutter cable TV without restricting access.
Even the Internet is not immune
Sony recently signed a deal with Viacom to stream 22 of its networks over the Internet as part of an Internet-television service. DirecTV has been negotiating with content companies for a personal streaming service, but it hasn't been able to persuade them to unbundle content.
It doesn't make sense for content owners to offer any pay-TV operator a deal that it doesn't offer its biggest customers. Especially for such a small market in Internet-television. That will end up hurting content owners in the long run when it comes time to negotiate new deals with cable operators.
What to expect for Internet-television in 2015
Internet-television is coming. Some might say it's inevitable. But it probably won't look very different from traditional cable in the near future.
Verizon, Sony, and DirecTV will likely all offer very similar services. They may be able to keep prices lower by restricting the number of simultaneous streams per user. This could allow them to provide a service for around $25 to $35 per month. But they'll still be subject to bundling.
Verizon has the advantage of established technology from its acquisitions of content delivery network Edgecast and Intel's failed Internet-television service OnCue. Not to mention it has a huge wireless network and customer base at its disposal as well. These assets will allow Verizon to deliver an excellent service once it launches, and it could help keep the price lower.
Verizon could market the service to its 104 million-plus wireless customer base. Additionally, it could offer streaming over the network that doesn't count against customers' data caps, which could persuade some consumers to switch carriers. That could give it a sales advantage over most of its competition -- the ones without wireless networks.
As for a la carte cable, that's still a while away.
Adam Levy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.