The End of the Cable Bundle?

Each spring HBO’s “Game of Thrones” smashes records for illegal downloads as fans unwilling to pay for a subscription or cable bundle turn to other means to get their fix for the popular show. This year, however, HBO is looking to increase revenue from online viewers by offering an online subscription service, which marks the first major movement away from the cable bundle.

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Cable is still a successful industry, but this past year it lost 166,000 subscribers, the first time it has had an annual net decrease. Online television providers like Netflix and Hulu have steadily increased their market share and enticed viewers away from cable companies, and this move by HBO is the first such attempt for a cable company to play the online providers in their own game. Early reports indicate HBO is offering its service for $15 per month, making it pricier than the $9 Netflix monthly fee, and illustrates that HBO still views this package as premium service while it tests the online television market.

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A day after HBO made its decision, CBS announced it would be offering its programs in an online streaming service for $6 per month, which means the end of the cable bundle may be on its way. However, noticeably absent from the CBS bundle are its sports broadcasts, which is one of the major incentives for consumers to continue purchasing cable. As free (and illegal) streaming services on the web continue to pop up, though, sports could be the next item removed from the cable bundle.

3 thoughts on “The End of the Cable Bundle?

  1. Netflix is raising their subscription by one dollar a month, which they could absolutely do without losing many subscribers. This response is going to raise revenue by over 10%. Investors believe that Netflix at a current share price of $360 is undervalued. If the firm can successfully raise its price without decreasing number of subscriptions undervalued is an understatement.

  2. Also this is an actual question– this should increase producer surplus, but will this HBO streaming service destroy some DWL or consumer surplus because consumers will stop illegally streaming so often?

  3. 1. I think Netflix found that its sales fell after the price increase (as we economists would presume) and by enough to hurt their profitability. In other words, if initially they had their pricing model well-tweaked, making a small change from the optimum must lower profits….

    2. How in theory would bundling change if the marginal cost of one piece of the bundle (movies) fell drastically?

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