How Cable TV Invented Crowd Funding

We assume that crowd funding first appeared when Kickstarter launched five years ago.

We may be wrong.

You see, the cable television business invented crowd funding a long time ago, when they created the basic cable bundle.

The basic cable bundle is really a work of genius. 

Charge every cable subscriber for each channel that comes with the basic cable bundle even if they never watch it.

So the crowd funds all the channels in basic cable.  We all get to participate.  Think of it as democracy—without the right to vote.

And the genius of the bundle does not stop there.  The subscriber has no idea what they pay for each channel because they are sold on the notion that they get such a great deal with the basic package it does not matter. 

The implied logic is as follows: if each channel was not in the bundle—some channel you really love would be much too expensive and beyond your reach. At least that is the sales pitch.

So the crowd funds the basic cable bundle but has no idea how its money is spent. 

Think of it as “blind” crowd funding.

This plays out in a fascinating way with sports on cable.

It is widely assumed by cable analysts that 50% of your basic cable bill goes to sports related programming, ranging from ESPN to live games from the NBA, NFL, MLB, etc.

Assume your basic cable bill is $60 per month.  Therefore $30 per month goes to support sports programming—whether you watch sports or not.  So that is $360 per year that you spend on sports.

There are approximately 100 million basic cable subscribers in the United States. A pretty large crowd, when you think about it. 

$360 per year x 100 million subscribers equals 36 billion dollars.  Clearly crowd funding can yield large numbers.

So the basic cable TV “crowd” funnels 36 billion dollars per year into the sports industry. This gets passed through a variety of intermediaries, including (but not limited to) ESPN, the broadcast networks and regional sports networks. This flows through these intermediaries to the sports leagues, individual teams and the players.

This is a beautiful thing for everyone involved.

Except, perhaps for the individual cable subscriber who does not watch any sports.

And they turn out to be a very large part of the crowd.

It is estimated that only 20% of those people who subscribe to basic cable actually watch sports on a regular basis. 

This means that 80% of the cable subscribers in the United States pay $360 per year for programs they do not view. 

Put it another way– US consumers currently spend  $28.8 billion per year on a product they do not use.

No wonder the cable and sports industries love this style of crowd funding.  That is a lot of extra cash.

The logic of the basic cable bundle means that ESPN makes money off the people who are not its customers.  This is also true for each sports league as well as each player. 

I would love to have this crowd funding mechanism for my business.  

Where do I sign up?

It is a recipe for getting rich—which is what sports television, the sports leagues and sports stars have done as a result.  The crowd gives its money through the basic cable subscription and it races up through the funnel to all of them. 

When you read that ESPN is making billions, that Donald Sterling’s Clippers are worth a billion dollars and hear about the latest NBA star signing a multimillion dollar contract—remember this—your $360 per year makes all of this possible—whether or not you watch a single game.  

I would like to thank you on behalf of everyone involved. Know that you an essential partner in this effort and that your contribution is deeply appreciated.

Cable TV perfected crowd funding long before Kickstarter was an idea and sports won big.  And we, the crowd, did not even see it happen.

We should give them some credit for being so sneaky, smart and ahead of the curve, don’t you think?

About Chris Dorr

I consult with companies on digital media strategy and business development. Clients include Samsung, MTV Networks, Tribeca Film Festival, Shaw Media and Canadian Film Center. I created the Future of Film blog for Tribeca. I have worked in the movie business for Disney Studios, Universal Pictures, Scott Free and in the digital media business for Intertainer, Sony and Nokia. Contact me at chris@digitaldorr.com or follow me at @chrisdorr
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  • http://pragmatarianism.blogspot.com/ Xerographica

    Aren’t there bigger fish to fry? Say like…the government? How much money do taxpayers spend each year on public goods that they neither use nor value?

    • chrisdorr

      Thanks for your comment, I would argue that the government is a separate but very important discussion. Their role is very different than the role of free enterprise as they have to fund the public good, which extends across a lot of categories. Cable TV provides entertainment for a price– a price that is often obscured and bloated in a basic cable bundle.

  • Lex McFarley

    Great article. Plus, cable makes the bundles so complex, you can’t really understand what the hell you are getting. So for many years, TWC has a monopoly in NYC. Finally, my building got FIOS from Verizon as an option. With tax, I have been paying TWC $180 for Internet (15mb down and 2 mbs up) and TV (HBO and some sports), plus 2 dvrs for 2 tvs. This was supposed to be a reduced bundle for my building. FIOS is offering me a $300 credit to switch and for $155 including tax I would get internet of 75 mbs down and 35 mbs up, and tv including sports HBO and Showtime and DVR service that 2 tvs can access. I sent hours on the phone trying to get TWC to match FIOS prices. The best they could come up with was lowering my bill by $20 but still providing me with the crummy 15 mb down and 2 mbs up for the internet, and all I get is HBO and no showtime. Just listening to the TWC describe the bundles that was incomprehensible. Early on in the process, before lowering the monthly payment to by $20, TWC tried to convince me to stay at the same price and only offered to throw in other channels that I will never use.

    • chrisdorr

      Lex, thanks, you describe the problems well. I think as consumers we want simplicity instead of complexity, transparency instead of opaqueness and choice instead of no choice. If we had this we would also have reasonable prices. Really it is not that much to ask when you think about it. All great companies provide all of these–just not in the cable business.