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Against à la Carte

Cable industry fights House bill allowing per-channel pricing 5/09/2004 08:00:00 PM Eastern

Lobbyists for big cable companies will be out in full force this week. Their aim is to kill "à la carte" pricing, a controversial plan that allows pay-TV customers the right to buy only the channels they want.

Even though the measure has a slim chance of passing the House Commerce Committee, most of the cable industry has launched a full-court press to stop it. The plan is an amendment by Rep. Nathan Deal (R-Ga.) to legislation renewing satellite companies' right to carry broadcast channels that the committee is expected to pass along this week. Congress must reauthorize DBS providers' rights to carry local stations before they expire at year's end.

Cable lobbyists' efforts on behalf of an archrival underscores their concern that their industry will inevitably be governed by the same rule. Deal's measure gives satellite companies EchoStar and DirecTV permission to sell individual basic pay-TV channels, a practice no programmer allows today, instead requiring carriage of a full complement of basic networks.

According to a report commissioned by the National Cable & Telecommunications Association, analysts at Bear Stearns calculated that cable programmers would simply charge more under à la carte pricing. Viacom, for instance, generally conditions rights to MTV on carriage of its channels VH1 and Nickelodeon. If programmers lose the power to bundle, the price of the most popular networks could quadruple, the report said. Assuming a 25% "take rate" by consumers, the Disney Channel's monthly per-subscriber price would climb from $1.48 to $5.90, MTV from 43¢ to $2.42, and ESPN from $3.78 to $15.82.

Deal wants to give subscribers more control over the content that comes into their homes, particularly the indecent fare. "It is inextricably linked to the question of indecency," he said in unveiling his plan April 28. "It is the question of freedom of choice." He suggests that efforts to impose broadcast-style indecency restrictions would go away if subscribers could bypass channels that offend them. Even though the latest version of his plan doesn't apply to cable, he predicts that cable customers will force MSOs to follow along if satellite carriers offer à la carte.

EchoStar has endorsed the measure, insisting the strategy would give it a competitive edge. DirecTV, whose parent News Corp. owns cable networks, is opposed.

Senate Commerce Committee Chairman John McCain (R-Ariz.), a supporter of the Deal measure, wants to make à la carte mandatory for cable and satellite providers, but he acknowledges that there may not be time to tackle the controversial proposals in a full satellite reauthorization bill. He suggests instead the old law may simply be renewed and a new measure introduced as part of a sweeping telecommunications-reform bill.

Further dimming the prospects of the à la carte measure, House Commerce Committee Chairman Joe Barton (R-Texas) and Telecom Subcommittee Chairman Fred Upton (R-Mich.) are expected to lobby against it. They fear that its controversial nature will draw opposition and bog down the larger satellite bill.

Still, à la carte's proponents are pushing ahead. Besides EchoStar, Deal's backers include family-values groups, such as Concerned Women for America and the Parents Television Council. Consumers Union argues that giving subscribers the right to buy only the channels they want will reduce cable rates. The American Cable Association, which represents smaller cable systems and operators that don't have programming interests, also likes à la carte. Its members say they don't have the muscle to negotiate good rates on programming bundles the way big MSOs can.

The NCTA and smaller cable programmers argue that à la carte could spell the end for new networks. They say bundling channels into a big package is necessary if less popular channels are to survive. Aspiring cable channels—which already face a superhuman task in getting launched—might never get off the ground in an à la carte world. "The next BET won't be successful. The next Discovery won't be successful, the next Court TV," said Showtime Networks CEO Matt Blank at NCTA's National Show last week. "All of the new networks you see trying to peddle their wares [at the convention] won't stand a chance."

Proponents say à la carte could stifle original cable programming, too. Why ante up for originals if you can't recoup the investment with higher ad rates, they ask. Oxygen Media CEO Geraldine Laybourne points to the biggest show on NBC's Bravo as an example: "Queer Eye for the Straight Guy
would not be seen today." She was among a group of female cable executives who sent a letter to Congress last week opposing the à la carte bill.

The warnings of cable catastrophe are nothing but scare tactics, argues Consumers Union Washington chief Gene Kimmelman. "It's always been about what cable companies want, what programmers want. It's never been about what consumers want." He said the average consumer watches only 17 channels out of the 40-50 that come with expanded-basic packages.

Consumer advocates point to ESPN, which parent company Disney prefers to bundle with its Disney/ABC channels, as an example of how à la carte is needed. ESPN jacks up cable bills for millions of subscribers who don't care about sports.

To drive the point home, Concerned Women for America released a survey saying that 80% of respondents think cable customers should not "be required to pay for a basic package of programming that might include channels that they don't want to view." Radio advertising for their cause has run on ABC/ESPN radio stations. Stay tuned.

Additional reporting by Allison Romano

 

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