At Sony's (NYSE:SNE) E3 presentation last week, the company announced that it would offer some channels a la carte for its PlayStation Vue television streaming service. "We will begin offering a la carte channels nationwide," head of Sony Computer Entertainment International Andrew House told Deadline, "and will be the first paid TV service to allow users to subscribe to individual channels without the purchase of a multi-channel bundle."
But the first three channels Sony is offering a la carte show the big problems with offering individual channels: They're either too expensive, too niche, or both.
$15 a month for soccer
Among the three networks Sony is offering, Fox Soccer Channel from 21st Century Fox is the most expensive, at $14.99 per month. Sony will also offer CBS' (NYSE:CBS) Showtime for $10.99 per month -- the same price as Showtime's recently announced stand-alone service -- and Machinima, a multi-channel YouTube network focused on gaming, for $3.99 per month.
If those prices seem high, it's because they are. You could pay $30 per month for some soccer, Homeland, and gamer news, or you could pay $50 a month for 50 channels, including nearly all of the most sought-after networks. Sure, you'll get some channels you don't want like Esquire Network (which isn't about lawyers at all), but nobody's making you watch them.
Ultimately, people want to have their cake and eat it, too. The average consumer is willing to pay $38 per month for his or her ideal lineup of channels, according to a recent survey by Digitalsmiths. That lineup includes, on average, just 17 channels.
In other words, the average American wants to spend just a little bit more than $2 per month per channel. When no-name networks like Machinima are asking $3.99 a month, there's no way the average consumer will get what he or she is asking for.
Only the small channels are interested in a la carte
For networks considering going a la carte, niche channels often have the most to gain. This is especially true if it's a network that's not tied to a large media company, and is often forced out of the most popular bundles. Channels like Fuse or The Sportsman Channel are prime candidates -- and no, I didn't just make those up. Unfortunately, barely anyone wants to watch those channels, even though millions of households already receive (and pay) for them.
Still, those are the kind of channels that could benefit from going a la carte because they don't have larger sister-channels to leverage in order to increase carriage fees and acquire more subscribers. At $2 per month charged directly to the consumer, Fuse would only need about 3.5 million subscribers to replace its revenue from traditional carriage fees. The Digitalsmiths survey indicates that it could draw those kinds of numbers in an a la carte model.
That's why we're seeing Machinima join the pay-TV fold with an a la carte offering through Sony. Even though you can get tons of Machinima content for free through YouTube, people will pay for convenience.
But Machinima's $3.99 per month price shows how the price can become inflated rather quickly. Machinima doesn't get to keep that entire $3.99 because Sony needs to cover its marketing and operating expenses. Those expenses may be spread over more customers eventually, but there will always be a minimum amount Sony -- or any potential a la carte TV provider -- needs to take off the top, increasing the minimum price per channel.
Why a la carte is meant for premium channels only
Premium networks like Showtime and HBO are two of the few networks that can survive going a la carte. That's because they already are offered a la carte -- you just have to purchase a cable subscription first. But going a la carte doesn't change either network's business model; it just increases the number of homes that can subscribe.
Those channels are also popular enough to support delivering content directly to subscribers, or working out favorable distribution relationships with key partners. Most channels aren't popular enough to handle the business on their own, considering the fixed costs involved in streaming content.
Sony's announcement that it will offer some channels a la carte shows all of the flaws involved in trying to offer niche channels a la carte.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.