Will New Technology Help People Escape the “Sports Tax”?

Today’s exercise in everyday economics: Brian Stelter and Amy Chozick making the case that cable and satellite TV subscribers are paying a “sports tax”  (ht: Jennifer R.). Writing in the New York Times, they say:

Although “sports” never shows up as a line item on a cable or satellite bill, American television subscribers pay, on average, about $100 a year for sports programming — no matter how many games they watch. …

Publicly expressing the private sentiments of others, Greg Maffei, the chief executive of Liberty Media, recently called the monthly cost of the media empire ESPN a “tax on every American household.”

Patrick Flynn personifies the consumer challenge. He and his wife, who pay Comcast $170 a month for television, Internet and a home phone in Beaverton, Ore., are keenly aware that part of their bill benefits the sports leagues that charge networks ever-increasing amounts for the TV rights to games. Save for one regional sports channel, he said, none of them are worth it. …

But there are also millions of viewers like Russell Tibbits, of Dallas, who says, “If you eliminate sports channels from cable packages, I literally would not own a TV.”

Sports channels apparently make up a sizeable chunk of subscription costs. The authors report, for example, that ESPN earns about $4.69 monthly for each subscriber, while the next closest channel is TNT at a mere $1.16.

Given the limited number of channel bundles that cable and satellite services typically provide, the relatively high cost of sports channels creates the possibility of significant cross-subsidies. The sports-agnostic end up covering some of the costs of the sports-obsessed.

Of course, the reverse can also be true. Russell Tibbits may watch only sports channels, but he’s helping pay for AMC, Lifetime, and TNT, too.

For that reason, both sports fans and non-fans may prefer more choice about which channels they pay for. This “a la carte” discussion has been around for years, but Stelter and Chozick highlight a new factor. Changing technology make it make it easier for subscribers to get around current subscription models:

Soon, though, there may be an Internet alternative — something that was heresy until recently. Distributors like Dish Network are talking to channel owners about creating virtual cable providers that would stream channels over the Internet instead of traditional cables. That would break up the bundle of channels that subscribers have grudgingly accepted for years and allow subscribers who don’t like sports to avoid paying for them.

“They’re aggressively looking for ways to offer a lower-cost package of channels without sports,” said the chief executive of one such channel owner, who insisted on anonymity because the talks were confidential. “There may be a market in America, whether it’s 10 or 20 million people, that would be very happy to have 50 or 60 channels but not ESPN.”

By streaming the channels online, old distributors like Dish or new ones like Google could do an end run around the contractual commitments and market dynamics that effectively force them to carry sports channels now.

Why Are Restaurant Dinners Pricier Than Lunch?

Over at Quora, restaurateur Jonas M. Luster explains why he charges more for items at dinner than at lunch:

  • Lunch isn’t prepared and served by my A-team. Many times waiters and cooks have to prove themselves during lunch before being allowed on the dinner line. This means I pay less in payroll.
  • Lunch doesn’t usually serve a full menu. The menu is optimized for faster production and oftentimes smaller portioned. Smaller menu means less storage, smaller dishes mean less storage, and faster turnaround means less secondary storage costs (hot/warm holding, etc.)
  • Lunch diners spend an average of 45 minutes from entry to exit, dinner guests take over twice as long. This means faster turnaround during lunch hours, which either means more covers or less staff needed. Both saves me money.
  • Lunch guests don’t want/need candles and expensive bottles of water. They want food. We cater to this by dropping down to the bare bone of fine dining hospitality, removing fluff.

Last, but not least, lunch is a competitive market. We compete with in-house cafeterias, the dirty water hot dog cart, chain restaurants, and delivery businesses.

More answers here.

A Great Introduction to Economic Inequality

Over at the Browser, Sophie Roell interviews MIT economist Daron Acemoglu on the economics of inequality. In the course of discussing five books on the topic (one of which is actually a research paper), Acemoglu hits many of the high points — technology, skills, and education; the increase in income at the tippy-top of the wage distribution in the United States (and elsewhere); and the importance of politics, power, and rent-seeking.

Well worth your time.

Even More Expiring Provisions

Two follow ups on the nice Pew chart of many federal laws that expire at year-end.

First, commenter rjs reminds us that “the whole [darn] [continuing resolution] expires Friday.” In short, almost all discretionary agencies of the federal government run out of money at the end of the week. The one exception? Agriculture, whose 2012 appropriations managed to get enacted as part of the last continuing resolution. (Track the status of appropriations bill here.) Another CR will, I presume, pass later this week.

Second, reader JP points us to a new report by the Committee for a Responsible Federal Budget about the expiring provisions. They found a few more (e.g., some additional Medicare ones) and then toted up the costs for one-year extensions and ten-year extensions (except for the payroll tax cut and extended unemployment benefits):

Time’s Almost Up for $152 Billion in Expiring Provisions

America is increasingly governed by temporary policies. The 2001/2003/2010 tax cuts get most of the attention, but they are hardly the only ones. There are also a host of other semi-permanent provisions like patching the alternative minimum tax (AMT), avoiding big cuts to what Medicare pays doctors (the “doc fix”), and a plethora of miscellaneous tax cuts that get extended every year or two (the “extenders”).

And then there are the policies that really are supposed to be temporary, but likely won’t be retired until the economy strengthens. They include the 2% payroll tax holiday and extended unemployment insurance, both of which Congress is debating this week.

Over at the Pew Fiscal Analysis Initiative, Carla Uriona, Evan Potler, and Ernie Tedeschi have put together a nice infographic of all the provisions scheduled to expire at the end of the month. The 2001/2003/2010 tax cuts aren’t included, since they expire at the end of 2012, but there is still plenty of action:

In the near-term, the big money is in the payroll tax cut and unemployment insurance. Extending those provisions for one year would add about $164 billion to the deficit, not including interest costs. Over the next decade, however, the really big money among these provisions comes from patching the AMT ($690 billion) and the extenders ($356 billion). (Extending the 2001/2003/2010 tax cuts, in comparison, comes in around $4 trillion.)

Cuddle in Coach, But Don’t Get Too Comfortable

Yesterday’s Wall Street Journal had a fun article about Air New Zealand’s latest innovation: Cuddle Class. As “the Middle Seat” columnist Scott McCartney describes it:

Steve Metz of Houston cuddled up with his wife Jackie and slept as they flew to New Zealand on a small futon. This flying couch wasn’t in a private jet or even a high-priced business-class cabin. They snuggled in coach.

“I don’t sleep well on planes, but I actually slept a good five hours,” said Mr. Metz, aboard a 13-hour Air New Zealand flight from Los Angeles to Auckland recently. “It’s no king-sized bed, but we made do.”

“Cuddle class” is an innovative seat design that has given coach passengers the first real opportunity to lie flat for sleep on long flights. To create the extra space, three seats in a row have fold-away armrests and a padded foot-rest panel that flips up and locks into place. Two passengers take up three seats and pay an average of half the cost of the third seat, typically an extra $500 to $800 for an overnight flight.

This sounds a fun innovation, but don’t get too excited:

The sky couch has limitations. To make it fit, Air New Zealand narrowed the aisles in the coach cabin. And since the couch is only about 4½-feet long, most people have to scrunch up to keep their feet from hanging into the aisle. In the middle of the night on a recent flight, it was impossible to walk through the coach cabin without bumping feet and legs hanging out of sky couches. And since it’s still the cheap-ticket cabin, two people have to cuddle closely in only 32 to 33 inches of width for each row, including the seat.

Now what does this have to do with economics, you might ask? Well, Air New Zealand faces a classic problem for any supplier who offers different levels of service. On the one hand, it wants to offer better service to attract more customers. On the other, it wants to make sure that some travelers still opt for higher-priced service. As McCartney puts its:

Air New Zealand doesn’t want to make the couch longer or wider—if it were better, it might start cannibalizing passengers from business-class or premium-economy seats.

So there you have it. Coach air travel isn’t unpleasant just because the airlines want to reduce costs. It’s unpleasant so that some flyers will pony up for better service.

P.S. For more economics of the air, see this post on the Tragedy of the Overhead Bin.