ESPN will cost $36.30 per sub in a la carte world priced by 'reach', analyst says

In a video programming business that will be increasingly dominated by over-the-top distribution and skinnier bundles, "reach"--the actual percentage of viewers that watch a channel over a set time period--will have a much greater role in defining consumer pricing.

And using some complex mathematical formulas, MoffettNathanson analyst Michael Nathanson arrived at some interesting per-subscriber price projections for major cable networks operating in a world where channels get paid based more purely on the amount of people who actually watch them.

As it is with previous speculative models for a la carte pricing, Disney's ESPN is a prime example in Nathanson's study, currently distributed in the vast majority of pay-TV homes and commanding a per-subscriber fee averaging out to around $6.10.

In an a la carte scenario, Nathanson postulates that ESPN's distribution dwindles to about 16.81 percent of TV homes, matching its reach. With the smaller distribution footprint, advertising revenue also goes down.

Disney would have to charge a per-sub fee of $36.30 to maintain its current margins, Nathanson postulates. TNT would cost around $8.95 a sub in this scenario. Disney Channel ($8.25), USA Network ($5.45) and Nickelodeon ($4.99) would also be pricey.

"If we use the reach and monthly affiliate fees for each individual cable network to figure out what the implied a la carte pricing would have to be for the network to capture 100 percent reach, we can easily see that most of these top networks would be prohibitively expensive," Nathanson writes.

A la carte pricing MoffettNathanson

(Source: MoffettNathanson)

For more:
- read this MoffettNathanson report (sub. req.)
- read this report from TheStreet

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