I’ve personally never liked the idea of metered Internet service or even small usage caps, but I came to terms with it because different usage tiers means lower broadband prices and higher broadband adoption.  AT&T’s adoption of two usage tiers for Apple iPad/iPhone 3G service meant that 70% of its customer base could cut their service fees in half without changing their usage patterns, but it was greeted with scorn from the blogosphere elite.  But I’ve always been baffled why the same crowd who scorned metered Internet are so eager to profess their love for metered TV content.

The argument many pundits make for a la carte TV (e.g., the Apple iTunes model of paying $3 for a TV episode of Desperate Housewives) is that it allows consumers to “cut the cord”  and eliminate their cable, U-verse, FiOS, or Satellite TV service.  This they argue is cheaper for the consumer because they only pay for the content they watch and not the hundreds of channels they don’t.  It’s funny that they don’t see that the same argument applies to broadband service because people only pay for the data they must have rather than the data they might want or being able to leave an Internet video stream running in the background while they’re off in another room.

While it’s possible people might actually pay less for a la carte TV because they would only sparingly watch what they absolutely can’t miss, it doesn’t work for the vast majority of the population who average over 5 hours of TV viewing a day.  At $3 per one hour episode, the average consumer would spend over $450 at the going a la carte rate which makes traditional TV services look cheap by comparison.  Even if a person watched a single hour of TV a day, they would spend $90 a month on iTunes.  Perhaps this explains why people are sticking with their traditional TV service instead of switching to an a la carte model.

I have often been asked why content owners couldn’t just sell a la carte content at a lower price, but it’s a simple question of economics.  The a la carte price is essentially the sale of a single unit of a good which is the lowest quantity a person can buy.  The monthly package of over a hundred TV channels is on the other end of the quantity spectrum where consumers are buying everything within those 120 channels with a substantial bulk discount.  Lowest quantity goods always cost the most per unit and high quantity goods always cost the least per unit, but that’s the only way to get consumers to commit to a high level of consumption.