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Pricing the ABC’s shows

The suggestion that the ABC should levy pay-for-view charges on the TV shows that it records wouldn’t win top grades from the viewpoint of standard economics.  To the extent that the marginal cost of supplying an extra copy of a show to a customer is zero the ideal charge for gaining an extra customer is also zero – it should be provided for free with costs being met from the public purse via taxes.  It is a standard public goods argument.  If it was sought to implement a “viewer pays” policy then the more sensible way of recovering costs would be to levy a fixed charge per year from gaining access to the recorded shows – then the shows are being treated as a club good rather than a pure public good.   I do favour a fixed licence charge for gaining access to the ABC but never a per use charge.

The idea of charging per view is an instance of right-wing ideology and culture wars fanaticism dominating good economic sense.  The same type of nonsense gets recycled periodically over proposals to use the private sector to provide weather/meteorological information. For general weather information the proposal is just as silly as the proposal to charge for individual TV shows.

Is the publicity given to this per view pricing policy yet another expression of the self-interest of The Australian newspaper?  Its a major obsession to penalise the ABC presumably because the ABC provides a much better quality news and entertainment service than the trash Murdoch media does.  Along with The Australian’s trash promotion of campaigns too limit plain packaging and to deny the reality of climate change the attacks on the ABC have become a repeated theme.  The Australian might argue that the ABC gets unfair public funding which disadvantages those private media suppliers who must make a buck.  There is some truth to this but The Australian anyway services a different market to the ABC. The Australian services primarily  – the right-wing loony market of cretinous IPA/libertarian types.  The ABC has a more balanced view of the world.

I’ll wait to see if the wonky economics of Henry Ergas and Judith Sloan can latch onto this one.

http://www.theaustralian.com.au/media/broadcast/allow-abc-to-charge-for-content-review/story-fna045gd-1226965706900

5 comments to Pricing the ABC’s shows

  • Casey

    Harry,
    You are looking at the wrong margin.

    If, by your apparent recommendation, all goods were priced at their short-run cost to the marginal consumer there would need to be government subsidy to most industries. The short-run marginal cost of supplying the last consumer is below average cost for most goods.

    If the margin is instead the television program itself, e.g. and episode of Q&A, then the pay-per view requirement would be that the viewers of this program be willing to pay enough in revenue to the ABC in order to cover the cost of producing and airing that program.

    If the marginal decision is to have an ABC or not have an ABC, then the question is whether people’s willingness to pay through the combination of pay-per-view and fixed license charge is sufficient to cover the cost of operating the ABC.

    Vitriol, such as “the trash Murdoch media”, and “the right-wing loony market of cretinous IPA/libertarian types” does not improve the quality of your argument.

  • hc

    No you levy a fixed charge to cover access and the zero marginal cost of accessing particular shows. Standard 2-part tariff argument.
    I agree that the vitriol is not improving the argument but really couldn’t give a stuff.

  • 2 tanners

    Actually there might be an interesting perverse effect. Assume that the underlying opinion (expressed to me by three separate LNP federal ministers) is true and that the ABC has a left wing bias. Assume further that the ABC is forced to address its market through a pay-per-view mechanism. It would make sense for the ABC to pander to the biases of its viewers by creating a sensationalist trash-journalism with a left wing slant.

    The LNP would have created and funded an attack dog to bite the LNP, and would not then be able to cut off its funding. 🙂

  • Michael

    The reality is that the commercial media mostly turns out trash and without the ABC and the BBC there would be little reason for a thinking person to have a TV. You don’t need an economic based argument. Commercial media weekly demonstrates all the failures of markets.

  • Casey

    No Harry, your two-part tariff argument is at cross-purposes to those proposing pay per view.

    The argument being advanced for pay per view is that it would cause the ABC to produce and screen programs that enough customers want to see, and for which they are prepared to pay the marginal cost of getting those programs to air. Cable TV pricing approximates an economically efficient model. You pay a fixed monthly rental plus a fee for premium programs.

    Now, just in case there are any young economics students reading this blog, I should explain a case in which the two-part tariff would be the correct argument. Suppose that the programming mix of the ABC is to be decided by a “mechanism” that is entirely independent of consumer preferences. In this scenario when you buy your ABC license you are buying the predefined bundle of programming. You the consumer have no direct say over the bundle, not over the composition, not over the quality of individual programs, not over the political orientation, not over the program scheduling. In this situation all program production costs become “fixed” costs by the predefinition of the bundle. Now marginal costs are indeed zero. And a two-part tariff is the correct model. You charge a license fee for the bundle of “fixed” costs, and zero price per view.

    The economic efficiency argument for pay per view is that the customers can tell you what programs you should produce (drama, news, current affairs, children’s shows, comedy, football, cricket, etc.) and when you should schedule those programs. Just the way the green grocer decides what fruit and vegetables to put on his shelf by figuring out what you are prepared to buy at a price.

    The marginal cost of new television programs is NOT zero. Every new current affairs program, every new drama program, every new sports program etc. involves a marginal cost. For many types of production those marginal costs are substantial. Economic efficiency is also best achieved by scheduling programs at times when customers are prepared to pay most. Just the way standing on St Kilda pier at dusk in mid-July selling ice cream is not efficient.

    For those paying close attention there is one trivial situation where license fee + pay-per view collapses to a two-part tariff. This occurs if all production costs are sunk costs and there is no issue of program scheduling. This case would arise if the ABC only screens programs that it already owns (its program vault), and it only ever screened one type of program directed at one well defined audience. An example would be 24/7 screening of Play School reruns.

    The political issue with the ABC is that while some people, like Harry, find the ABC’ current bundle of programing convivial to their world view, there are others who feel the programming of the ABC is unsatisfactory and that it has become perhaps captured by a particular leftist political perspective. This latter group are raising the issue of how to make ABC programming more responsive of overall community preferences. Harry’s two part tariff does not address their fundamental concern which is the present bundling of the ABC’s programming.