The cable industry is raking it in: With NBC Universal and Viacom set to each score profit margins of around 50% this year, it's "arguably America's single-most-profitable big business," writes Adam Davidson in the New York Times—for now. The co-founder of NPR's "Planet Money" shares the math behind those insane profits: Channels like AMC charge cable providers like Comcast some 40 cents per subscriber per month, a fee it can justify thanks to high-quality shows that draw "obsessive" viewers, like Breaking Bad and Mad Men. That allows AMC to rake in $30 million a month from a total of 80 million cable subscribers—though fewer than 3 million people tuned into the last episode of Breaking Bad.
With big bucks to be made over viewer devotion, "networks have effectively entered into a quality war," with shows getting better and better, Davidson writes. That's good for the industry, and good for viewers. But it won't last: Young people are downloading their shows rather than paying for cable, leading to a "slowly dwindling" subscriber base that dropped by 0.75% in each of the last four quarters. That pushes cable companies to charge their withering audience more to make up the difference. By 2016, says an analyst, prices could get so high that subscribers cancel their service en masse, causing the cable business model to collapse—and with it much of the incentive to develop great shows. Click for Davidson's full column. (More Mad Men stories.)
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