On The Internet, Time Is Money and Money Is Time
You and I are at the edge. We buy our Internet service from a phone or cable company. We have few choices. Their costs remain high, because they roll trucks to improve or maintain services, while core services like Netflix, Google and Amazon keep getting better because clouds and fiber lines keep getting cheaper.
But there's another cost to your Internet beyond the movement of bits. That is the cost of content.
Most Web sites, even this one, have a paid content strategy, because ads don't generate enough money for growth. Even if some content on a site is free, there's usually an "up-sell" exclusive content, access to writers, newsletters, special chats on which the business model is based.
Collecting that money costs money. Each site must do this for itself.
As the Internet has become a visual medium, the cost of creating content has gone up. It costs more to produce a TV show than it does to write a story. Paid models have become a necessity.
Cable has run a paid video model for decades. It's based on "tiers" of service. You get one set of channels "bundled" for a certain price, another set for a higher price and yet-another set for a third price, with a few à la carte offerings like HBO and Showtime thrown into the bundle for customers like hotels. When phone carriers offer video they use the same model.
The Cable Bundling Model
Bundles give cable operators power over content providers. For niche content, like Animal Planet, they may pay just 10 cents per subscriber per month. For broad content like ESPN, they may pay $5.54 per subscriber per month. You will sometimes read about fights between carriers and niche services like The Weather Channel as operators use this power to its fullest advantage.
Note, however, that all this money is going in one direction, from the cable operator to the content provider.
But not as much money moves as you think. As GigaOm pointed out recently cable operators pay only half as much for the content they bundle as they collect from customers. Because the content is bundled because customers have no choice on what to take most don't notice.
What's à la carte on the Internet, with connection costs kept as low as possible, is done through bundles on cable, keeping prices high. So-called "basic" cable charges have been rising an average of 6.1% per year, every year, for the last 16 years, according to the FCC.