Re-bundling
Yesterday I read a thoughtful piece about the future of events, of which a main claim is that events are about to be un-bundled, just like digital video has un-bundled cable programming.
Events have always bundled value, but not all bundles are bad. I remember sitting through a surprising case study at Harvard Business School’s Future Assembly conference a few years back. We were looking at Comcast, and what stuck with me is the idea that bundling is actually good for the consumer and the business.
Several years later, I look at the mess of my digital subscriptions: Sling TV, YouTube Premium, HBO Max, Disney+, Discovery+, and probably one or two others I’ve forgotten I even own… and it has a more practical ring of truth.
But the business logic goes like this.
Let’s say we have only two channels: Sports Channel, and Kids Channel. How do we price these channels? People have a certain amount of money they’re willing to spend on TV overall, and a certain amount they’re willing to spend for each channel specifically, and in fact it will be a different amount for each channel. To make the model work, let’s use only two consumers: Kelly, and Toby, who both have $10 to spend on entertainment.
Kelly is willing to pay $2 for Kids Channel, but $8 for Sports Channel. Toby is willing to spend $6 for Kids channel, and $4 for Sports Channel.
If each channel costs $5, then Kelly and Toby would each subscribe to their preferred channel, and each channel would have one subscriber. In fact, the channels could charge up to $6 and they’d each get one subscriber.
If they charged $2 per channel, they’d each get two subscribers… but only $4 each. So they’re better off charging $6 and getting one subscriber.
But, if we create a bundle: both channels for $10, then each channel gets $5 and two subscribers. This is the best deal of all. And each customer gets to pay what they want for each channel, because the pricing is obscured by the bundle. Everyone is made better off.
So I think we are heading for a re-bundling of TV, and I don’t think events are going to unbundle.
Regular people are not interested in managing a bunch of different subscriptions, and regular people are not interested in splitting out what they get from an event: they like the bundle. It obscures the relative pricing and allows them to enjoy something they wouldn’t be willing to pay for because it’s bundled with something they are willing to pay for.
On the whole, this is a good thing.