• by Wayne Friedman , December 4, 2013

Unbundling of cable networks -- the move for a la carte programming for TV consumers -- would drastically alter the entertainment/TV advertising markets.

Needham & Company’s media analyst Laura Martin estimates in a new report that $45 billion in TV advertising revenue -- or 60% of all TV advertising -- would be at risk of disappearing. Industry estimates suggest the entire U.S. TV advertising market is around $75 billion per year.

Martin, who is managing director, entertainment and Internet analyst for Needham, estimates that on average 90% of pay TV homes receive up to 180 channels. Should unbundling of TV networks occur, 56 channels would survive and 124 channels would disappear. Some 1.4 million industry jobs could be lost.

She adds $80 billion to $113 billion in “consumer value” is at risk from a potential major change caused by unbundling. That would be a 65% drop. Martin estimates that based on average wage and TV viewing data, consumers are paying about 3% of what their TV viewing time is actually worth to them.

Right now, advertisers pay more for TV content than consumers in the U.S. -- for every $1.00 paid by consumers to fund content creation, advertisers pay $1.24. But this would radically change if a la carte programming packages ruled pay TV, with consumers paying much more.

About 20% of TV ecosystem companies’ market capitalization -- $117 billion -- would be lost.

Martin doesn’t believe that much will change as a result of all this. “Because consumers lose so much value through unbundling, we expect no policy change in the U.S,” she writes. “All content companies benefit from TV bundling, as well as from new digital platforms that are driving record free cash flows from content creation globally.”

Martin’s top stock market media current recommendation is CBS -- the only one of the big four networks not attached to Hulu, and thus able to experiment more freely in getting better returns on its programming investment. (The three major TV networks holding companies, 21st Century Fox, Comcast Corp., and Walt Disney Co. co-own Hulu. )