Paying for Sports Programming

It is pretty widely understood that sports programming drives live television these days.   The Nielsen ratings for broadcast networks during the week of December 24 provide some recent data.  Nielsen's table, reproduced below, shows that NFL broadcasts were the four most watched telecasts that week  ("The OT" is Fox's NFL post-game show).

Prime Broadcast Network TV - United States
Week of December 24, 2012

RankProgramNetworkRatingViewers (000)
3OT, THEFOX10.217,813
660 MINUTESCBS6.510,265
7NCIS 12/25-SP(S)CBS6.19,836
9NCIS: LOS ANGELES 12/25(S)CBS5.48,622

Source: Nielsen. Primetime Broadcast Programs (source page, which is updated to current weekly ratings with a lag).

On cable and satellite the story is the same.  The top ten list for cable during the week of Dec. 24 is dominated by the much maligned college football bowl games.  Virginia Tech - Rutgers (ugh!) and and Duke - Cincinnati are among six bowl games on that week's top ten list for cable.

Amidst this general background, consider the recent LA Times piece on the rising cost of sports programming, a trend which is expected to continue.  The main point of the piece is that when tv programming is served in a bundle, consumers who don't like specific components of the bundle end up paying for a service they don't consume.  Continued increases in the costs of sports programming threaten the sustainability of a pricing system that is allegedly already burdened with inequities, since consumers who don't watch sports will presumably drop their subscriptions by the thousands.

The problem is that the main point of the piece is probably wrong.  At Marginal Revolution, Alex Tabarrok presents the simple arithmetic for a hypothetical bundle offered to consumers with differing tastes for sports and non-sports programming.  This is a neat example and exposition.  The bottom line:  each consumer gets what she pays for.

There are many hypothetical bundles however, so it is possible that a lack of perfect competition allows some combination of the leagues, networks, and carriers to set prices which subsidize those who watch (and provide) sports entertainment by selling bundles which extract consumer surplus from viewers who don't watch sports.  My own personal experience is somewhat different.  I view with amazement the occasional offer of a low cost bundle of networks in the $40 range (ESPN included), alongside my monthly bill which is north of $100.  On close inspection, the difference is revealed:  a la carte consumption of various sports channels!  I wonder if my base package is subsiding viewers of Masterpiece Theater.

The simplistic alternative offered to bundling is a la carte pricing, across the board:  choose whatever combination of tv networks, individually priced, that you want!  This is a durable proposal, often recycled but rarely implemented.  There is probably a reason for this.  As Tom Hazlett has pointedly argued, it is telling that we don't see very much a la carte in cellphone pricing, internet service, satellite radio, or on the ski slopes.  Market power is not pervasive, and across many markets we find consumers opting for, rather than out of bundles when given the choice.  There are efficient reasons for this.  Hazlett's 2006 article in the J. of Telecommunication and High Technology Law, "Shedding Tiers for A La Carte" explains why.

It is possible that continued increases in the value of sports programming among aficionados would shift some sports packages out of the basic tier bundle, for the same reason that caviar is never offered as a free topping on a hamburger.  Non-sports viewers would then have no complaint.   At that point the howling would come from fans unwilling to pay the market price for sports.