October 24, 2013
Whenever the economy is in a slog - as ours is - politicians seem to fall all over themselves to be consumer advocates. The problem is they often don't "kick the tires" on the policies they advocate.
And so it is with the recent proposal by U.S. Sen. John McCain, R-Ariz., to require that cable and satellite TV consumers buy programming "a la carte" - or more accurately, on a pay-per-channel basis.
McCain asks, rhetorically: Why force consumers to buy a bundle of several hundred channels when they watch only a handful of them on any given week?
The reason: When you buy a tier, or bundle, of TV programming from your satellite, cable or telecom provider, you are taking advantage of huge economies of scale.
Tiered programming combines smaller, independent networks (like my network, Ovation) with larger well-established ones (like ESPN) and thereby allows all programmers - big and small - to build a larger audience from the bigger universe of viewers of the entire tier.
This huge exposure that a network gets from being grouped on a tier helps offset the growing costs of producing programming. Networks generate much higher advertising revenues and have far lower marketing costs simply because they are on a bundled tier - economics that cannot be duplicated in a pay-per-channel world.
Take away the tier and these costs are inexorably shifted to the consumer. Booz Allen Hamilton found that, in a pay-per-channel world, operators would "price channels at $4 to $5 each" in order to make up for the inefficiencies of the model.
That's bad news for the average household. A Credit Suisse report (citing Nielsen data) estimates that each adult viewer watches an average of 32 different channels per month. With multiple adults living under one roof, cable and satellite bills under an a-la-carte regime could reach the $250 a month range, if not more.
Nearly every analyst agrees. The Government Accountability Office warned of "higher per-channel rates" and aggregate rate increases under pay-per-channel, and Bear Stearns estimated "there may be little money saved by any household opting for 10-15 channels."
And most households, especially those with children, would likely seek more programming than that. While the cost goes up for those channels that manage to hang on to their audiences, many smaller independents would struggle to survive.
The nonpartisan Congressional Research Service and nearly every civil rights organization and conservative activist organization - groups that never agree on anything - are on record repeatedly saying that pay-per-channel would be the death knell for small and emerging programmers.
According to the NAACP's Hilary Shelton, the a-la-carte bill would "kill diversity."
Other reforms could better lower costs for consumers today. For instance, we could reduce the power of the big media companies like Disney to leverage control over must-have networks like ESPN by forcing operators to carry other channels the market doesn't want.
We must also seek a fix for the true driver of consumer costs - the massive increase in sports programming fees. Due to antitrust exemptions that allow billionaire competing team owners to negotiate rights as a cartel, the cost of sports is completely disproportionate to other programming services.
Good intentions should not be confused with bad ideas like the price-per-channel proposal of Sen. McCain.
When McCain tried to pass a similar proposal in 2006, his own Senate Commerce Committee slapped it down by a vote of 22-2 amid opposition from nearly 200 advocacy organizations and leaders from nearly every political perspective who understand that the idea is a lose-lose scenario for consumers. - Chad E. Gutstein; Special to the Star-Telegram
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