The downside to a la carte cable


Costs that no one is talking about.
James Gattuson explains.

The debate over cable TV comes in response to the understandable concerns of many American parents who are increasingly worried about what their children see on television. FCC chairman Kevin Martin has said that cable TV firms should offer customers more choice, such as the ability to buy channels on a one-at-a-time or "a la carte" basis, a position echoed in last week's hearing by anti-indecency advocate Brent Bozell.

Both stopped short of calling for government to mandate this change, instead calling for the cable industry voluntarily to change its pricing structure (although there was an implied threat of regulation if voluntary changes were not made). The cable industry, for its part, has offered to provide family-friendly tiers of programs. The limited nature of these tiers, however, has left critics unimpressed.

Clearly, increasing control by parents and other viewers over what appears on their TV sets is the right approach -- certainly far better than simply expanding the FCC's broadcast TV speech restrictions to cable TV. And, to a large extent, viewers already do have control over their TVs, more than most probably realize. Cable subscribers with set-top boxes, for instance, can easily block particular channels with a few remote control clicks. Those with digital set-top boxes (soon nearly universal) can block individual programs by date and time, or even by rating. Further advances in technology will empower subscribers even more, perhaps allowing screening by specific language or visual content.

Critics argue that's not enough, since consumers still pay for channels they block out. Better, they say, to let consumers pick and choose their channels individually from the outset, paying only for those they want, rather than bundled together into tiers.

But under the current business model, it's not clear that the a la carte idea is economically feasible -- desirable as it might be for other reasons. Cable firms -- backed by studies by the Government Accountability Office and the FCC itself -- say the result could be higher costs and less program variety for consumers. Cable providers and programmers, they point out, earn revenue not just from subscriber fees, but also from advertising. And advertisers demand some assurance that someone may be watching their ads. Bundling channels together guarantees that a large number of people will at least have access to each channel.

Under a la carte pricing, though, the number of people with access to any particular channel would decrease, The result would be lower advertising revenue and higher rates for consumers. Moreover, because the potential audiences for new and niche channels would probably fall the most, the number of program choices available to consumers would likely also be reduced.

Is this dark scenario correct? FCC chairman Martin and other a la carte proponents say no. (Martin has promised a new FCC study to prove it.) A better question, however, is: who can best determine the answer? One thing is clear: politicians and government regulators are poorly placed to pick winners and losers from among business models, especially in quickly changing high-tech markets. Whether a la carte pricing would work is a question that can be answered only in the marketplace -- with rival firms testing alternative ways to serve consumers.

Emphasis added.

Government does a lousy job of making economic decisions because it's imperatives are political and not economic. You can't change that, it's in the nature of the beast. The more government regulates, the less economic activity and the few choices. It's as close to a universal economic law as humanity has yet discovered.

— NeoWayland

Posted: Thu - February 2, 2006 at 04:59 AM  Tag


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