Time Warner Cable (TWC) is testing a new low-cost level of programming called "TV Essentials." The pricing will be $49.95 per month, which is $10 per month lower than the formerly lowest cost-tier. In order to induce participation, TWC is providing a 12-month promotional rate of $39.95 in New York and $29.95 in Ohio. TWC claims that this programming will assist those who are economically challenged to continue using PayTV. I doubt that this is their primary motivation.
The Essentials package will include 39 cable networks, which have much lower programming costs. The narrowed lineup appears to reduce entertainment costs and almost eliminate expensive sports programming, dropping costs from the approximately $22.50 per month of costs to about $7.50 per month. This $15 per month programming cost reduction means that the $10 per month lower subscriber charge is actually more profitable for TWC.
The movement towards an "a la carte" selection process has been resisted by both content and distribution companies. However, the push by programming companies to increase their revenues is creating incentive for the distribution companies to explore new options. If specific programming costs rise high enough to disrupt subscriptions, distribution companies would be better off to allow subscribers to exclude those higher cost programs with a different package. This is what I believe "TV Essentials" is exploring.
The contract between programming companies and distribution companies forces distribution of programming at the 85-90% participation level. This provision has protected programming companies from being "cherry-picked." However, depending on the performance of the new Essentials package, which relies on the participation flexibility, future contracts may be shaped very differently as they come up for renewal.
