Issue Briefs
A la carte (Pay per channel)
Cable's method of delivering programming packages, with channels bundled into basic and digital tiers, has proven to provide both choice and quality to consumers. This model has enabled all programming networks, including niche networks that serve underserved audiences, to find and build an audience.
In recent years a number of organizations have examined the idea of receiving channels "a la carte" - priced and ordered individually rather than from a selected bundle - and have found serious flaws in that suggestion.
Under an a la carte system, consumers who now pay around $60 per month for expanded digital video service that provides more than 150 channels may need to pay the same $60 for a fraction of the channels they currently receive. Such a scenario would literally turn back the clock on one of the nation's most technologically-advanced industries and programming diversity that deregulation has fostered.
Various independent studies have found that a "pay per channel" mechanism could "result in higher per channel rates," and that consumers "would likely face an increase... of between 14 percent and 30 percent." Independent financial analysts at Bear Stearns echoed the conclusion, finding that prices would rise for consumers electing more than six channels. Booz Allen Hamilton, in a study conducted for the industry, also declared consumers the loser in a per-channel charge world.
Some claim per-channel charge regulations would be a good antidote to the "skyrocketing" cable prices since the Telecommunications Act of 1996. This argument is off the mark. In fact, consumers are getting a significantly expanded, richer product since then, as cable has added hundreds of new channels. Also, when inflation is accounted for, the price per channel - a more honest measure of cable pricing - decreased over a recent five-year period, according to an industry study.
A la carte proponents claim that the pay-per-channel proposal is gaining steam among a chorus of civic organizations. Just the opposite is true. More than a hundred organizations on the political left and political right - including the NAACP, Americans for Tax Reform, Cato Institute, National Urban League, League of United Latin American Citizens, and National Asian Pacific American Legal Consortium, have announced their opposition to the proposal.
Opponents of a la carte bring convincing, fact-based arguments to the debate:
- Because a la carte would reduce advertising revenues (which are based on the number of prospective viewers) and increase marketing costs for many program networks, cable networks would have no choice but to significantly increase subscriber fees and/or reduce the quality and quantity of their programming. Some program networks, especially those targeting niche audiences, would not survive.
- For these reasons, the FCC's First Report on a la carte (2004) found that mandatory a la carte would likely make most consumers worse off. The FCC's subsequent report (2006) determined that customers who already had digital boxes would pay the same for 20 channels as they do today for up to 150 channels. In other words, under a la carte, it would be like purchasing one or two eggs for the price of a dozen - not a great bargain for consumers.
- By undermining the economic viability of new networks, niche programming, and existing networks that appeal to minority audiences, a la carte would reduce programming diversity
- A la carte also would result in new equipment costs for many consumers, because purchasing channels in this way requires customers to have an addressable set-top box or a digital television set. Consumers who continue to subscribe to an analog-only tier - currently 22 percent of all U.S. cable customers - would no longer be able to plug their cable directly into a TV set and view their programming: they would have to buy or rent new equipment to view a la carte channels
- A la carte would fundamentally limit the way that people enjoy television. The benefit of cable is to provide consumers with a broad array of viewing options in a readily accessible fashion. These options accommodate a variety of tastes by different members of a household as well as changes in people's tastes. A la carte would destroy that model, forcing viewers to lock in their programming choices in advance, and depriving them of the ability to easily explore new shows and networks.
The marketplace is working. We don't need a U.S. Department of Television. The marketplace in which cable, satellite, broadcasters and others vigorously compete for customers and viewers should decide video offerings, not mandates.
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