Why Time Warner Cable Is Testing a Cheap TV Package

It makes sense: if people are dropping the lowest-tier cable service because it's too expensive, give them a cheaper option. That's what Time Warner Cable  is experimenting with now: it'll test a less expensive TV package called "TV Essentials" targeting lower income consumers.

For $40 per month in New York and $30 per month subscribers to this new ultra-low tier will get the local broadcast channels, and 12 of the most popular 20 channels. It effectively includes one channel in each category — you get ESPN News, CNN, and TBS, but you'll miss out on some big channels, includingESPN, Fox, MSNBC and CNBC.

This lower-tier offering seems a direct response to news that cable operators have been bleeding subscribers at their lowest tier. SNL Kagan reported this week that the number of households subscribing to a cable or satellite service had dropped for the second consecutive quarter. Last quarter Time Warner Cable reported a drop of 155,000 video subscribers in the third quarter. Larger rival Comcast  lost 275,000 cable subscribers in the quarters, more than expected. Comcast was very specific, saying that this was not a result of people looking for content online, but a product of cash-strapped consumers simply ditching a non-essential. (*Note: Comcast is attempting to merge with NBC Universal — a $30 billion deal — in order to increase its footprint in the content arena. General Electric is the parent company of both, NBC Universal and CNBC.)

There's a lot of attention on differentiating between "cord cutting" in favor of web content and losing a subscription because of purely financial concerns. On CNBC today Craig Moffett noted that the price of cable has gone up 28 percent over the past five years, saying that this is a key way for TWC to stay relevant to those at the lower tier.

Why bother distinguishing between the two reasons people are dumping subscriptions? Lost subscribers are lost subscribers, right? Yes, but cable companies will have to take two very different tactics to address the two groups. To keep the consumers cutting their subscriptions because they're strapped for cash, it makes sense to lower prices. Still, BTIG analyst Richard Greenfield predicts that few if any customers will subscribe to the new offering, noting that 68 percent of Time Warner's subscribers take a bundle to achieve a discount and 'TV Essentials' targets customers just buying video services. Plus, he doesn't think the discount is deep enough.

If consumers are 'cutting the cord' because they're watching Hulu.com and streaming   'TV Essentials' won't have any appeal. To hold onto them cable giants are looking to 'TV Everywhere' services to give additional incentive to keep subscriptions. These are consumers who can afford to pay, they just need to be convinced that they can get enough web and mobile on-demand access to premium content, that it's worth it.

Is this a start to a la carte pricing? Probably not. Or at least not yet. Consumers love the idea of buying cable channels a la carte — why pay for Fox if you're really an MSNBC fan? But as a cable executive told me recently, a la carte would be terrible for content companies. And it would also be bad for cable and Satellite TV carriers who bundle channels to get customers to pay more.