Why Cable ‘A La Carte’ Won’t Roll

Americans love channel surfing, and many spend their evenings flipping through the vast ocean of inexpensive programming available through cable television packages. But if the Federal Communications Commission has its way, that value-priced ocean could be reduced to an expensive puddle. <?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />


Last month FCC Chairman Kevin Martin announced renewed interest in so-called “a la carte” regulations. These would mandate cable companies offer television on a per-channel or themed-tier basis. Promoted as a way to expand consumer choice while giving parents a tool to fight indecency, the idea is a flight of regulatory fancy that creates significant problems for consumers while ignoring the real progress that has already come from market developments.


Mr. Martin's main selling point is that “a la carte” regulations would give parents the ability to fight indecency. He assumes there's a significant demand for government regulation to combat perceived indecency on television. But the evidence shows just the opposite. According to a November 2005 survey by Russell Research, just 9 percent of American TV viewers think the government should increase control of television programming; the other 91 percent think parental involvement is the best way to guide a child's viewing habits.


Most of the indecency complaints the FCC receives are generated by a small but vocal group of persistent complainers led by the Parents Television Council (PTC). Of the 23,547 indecency complaints the FCC received in July last year, all but five were filed by the PTC. Outside this mob of easily-outraged cavilers, cries to fight indecency barely rise above a whisper.


At a press conference, Mr. Martin defended the idea saying, “You can always turn the television off, and, of course, block the channels you don't want, but why should you have to?”


The answer, though, is simple: you don't have to. Cable television is neither a mandated service nor a basic necessity like running water — no one is forcing allegedly offensive programming into homes to begin with.


Others have suggested “a la carte” mandates would be a boon for consumer choice. But, as is usual with mandated business models, just the opposite is likelier


A 2004 study by technology consulting firm Booz Allen Hamilton has shown such forced pricing schemes would actually raise the cost of cable for the vast majority of consumers, as individual channels would be far more expensive to provide outside their current packages.


Their research suggested even those choosing traditional cable bundles could face up to a 15 percent price increase due to an overall rise in industry costs. “A la carte” might as well translate into “higher prices for fewer channels.”


Part of the issue depends on how one defines consumer choice. Defenders of “a la carte” mandates see choice only as the ability to stop unwanted programming from entering their homes or to pick and choose only the channels they want. But cable industry pricing is heavily determined by infrastructure costs which, once built, make it roughly the same price to provide a few channels as an entire package.


For this reason, it makes sense to provide cable customers with bundles rather than isolated channels. Additionally, most cable companies will already block individual networks upon request–and when all else fails, there's always the off button.


But there is another component necessary to choice as well, and that is the availability of a wide variety of networks. In that respect, these laws could prove crippling. Recent years have seen an explosion in channels available to cable subscribers, many catering to niche interests; and an “a la carte” rule threatens to undermine the development of such networks.


Many new cable channels attract investors based on their ability to get picked up by cable providers; that inclusion in cable company lineups fuels development of many new channels. “A la carte” pricing would destroy the primary market mechanism that has encouraged investment in specialty networks, impeding the expansion of cable channel offerings.


These rules, it seems, would provide the kind of consumer choice that doesn't actually produce more programming choices for the consumer.


What's more, the market is providing a host of new opportunities to selectively pay for unbundled television programming. Sales of TV shows in DVD box sets have soared, even to the point of inspiring new investment in cancelled shows. Based primarily on DVD sales, new episodes of the animated show “Family Guy” were ordered by Fox, and the network's cancelled science-fiction western series “Firefly” was turned into a $40 million motion picture


Video rental services like Netflix carry many of these TV box sets, allowing them to be viewed at an even lower price. Apple recently unveiled a service offering downloads of individual ABC shows for video iPod owners to watch on the go, while AOL has announced a joint venture with Warner Brothers to offer Webcasts of classic television shows.


Unlike the regulations that the FCC wants to foist on the public, these products and services would neither stifle network development nor force unnecessary price increases.


Bundled offerings have long been a mainstay of content providers, yet regulatory bodies have never tried to force publishers to strip sections from newspapers or record companies to sell individual songs off of albums. Consumer demand, however, convinced the music industry to support Apple's iTunes service, and digital singles sales skyrocketed.


The FCC would do well to heed this example and let consumer demand, not government rules, drive cable offerings.