FCC Report Supports A La Carte - Broadcasting & Cable

FCC Report Supports A La Carte

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As expected, the FCC Thursday released a new report on a la carte cable service, saying that consumers might be "better off" under that regime. Commerce Committee Chairman Ted Stevens responded that he would support a la carte if it is not more expensive, "subject to discussions with providers on the downsides."

The report also details what it says are numerous errors in an earlier Booz Allen study--Booz Allen is standing by its study's conclusions--used by the FCC and submitted to Congress to support the conclusion that a la carte was uneconomical.

The report "finds that the 2004 report also relied upon unrealistic assumptions and presented biased analysis in concluding that a la carte “would not produce the desired result of lower MVPD rates for most pay-television households.”

"According to today's report," said FCC Chairman Kevin Martin in a statement, "a careful analysis reveals that a la carte and increased tiering could offer consumers greater choice and the opportunity to lower their bills. Indeed, in recent months more consumer choice has proven to be technically possible and many companies have begun offering the kinds of tiers the previous report found to be infeasible."

The National Cable & Telecommunications Association was ready with a list of more than 150 people and groups it says has sent letters to the FCC and Congress opposing mandatory pay-per-channel pricing, including everybody from the NAACP to the NCAA.
The cable industry argues that such a regime upsets the bundled business model that allows it to carry a range of services, and that the result of a la carte would actually be more expensive programming and make it harder for some of the diverse niche channels that are now part of bundled tiers to survive.

"Most studies conclude that a mandated a la carte regime would be more expensive for consumers and result in less diversity in programming," said NCTA President Kyle McSlarrow. "The marketplace in which cable, satellite, broadcasters and others vigorously compete for customers should decide video offerings, not mandates and price controls imposed by Washington. The notion that the government knows better how to improve on a competitive marketplace is not supported by the evidence."
The new report suggests it might actually be easier for some smaller networks to get carriage since systems "might find it easier to judge the value of smaller networks if consumers were able to express their interest through subscriptions." Of course, that may be what some smaller networks are afraid of.
A representative of one cable network, Oxygen Chairman Geraldine Laybourne, was more worried about reducing sampling than the overarching economic issues:

“Arguments over economic assumptions still don’t address one of the biggest problems I have with a la carte," she said. "And that is, TV viewers often don’t know what they want to watch until it’s there for them as an option.   Who would have known to subscribe to Bravo – to watch Queer Eye for the Straight Guy – prior to it airing?   Hits come from new channels all the time.  Would consumers really want to switch networks every few weeks so they can watch the newest shows on cable?    And how would shows become hits if they don’t have the viewers to watch them?  The a la carte model would make it extremely difficult for any new network to launch successful new shows and therefore extremely difficult for any new network – especially those appealing to under-served audiences – to make it.”

Cable bill critic John McCain hailed the study, saying: "I am pleased that the Commission has concluded that ‘a la carte’ offering could reduce consumers’ cable bills by as much as 13 percent.  The report confirms what I have believed for years – if consumers are allowed to choose the channels their families view then their monthly cable bill will be less.  Choice is far preferable to being forced to buy a host of channels they don’t even watch.”
Not surprisingly, a la carte fans, the Parent's Television Council was pleased with the new report, saying: "Cable Choice will help, not hurt, consumers. Consumers – and especially families – must be afforded the ability to pick and choose and pay for only those networks they want in their homes,” said  PTC President Brent Bozell.
PTC has been pushing for per-channel pricing as a way for parents to screen out channels with content they deem family unfriendly.
Industry response to the report came thick and fast. Here are some more of the thickest and fastest:
Hallmark Channel President Paul FitzPatrick: “The FCC’s self-described ‘Further Report’ on a la carte does little to further the well being of consumer choice and of those hundreds of networks that bring that choice, diversity and value into America’s television homes.
"Moreover, it appears that this vital discussion is morphing into a new television series, ‘The Battle of Economists,’ a point-counterpoint production built around the abstract rather than the beliefs and real life experiences of programmers, distributors and advertisers.
"Perhaps this is best underscored by the apparent absence of any references in this Report to comments to the Commission and Capitol Hill by Crown Media/Hallmark Channel, other programmers and organizations about this subject. It appears these real world observations, showing that a la carte is not the solution, were either lost or forgotten. There’s an old saying that those closest to the work, know it best. Let the dynamic video marketplace be allowed to work.”

Jonathan Rintels, The Center for Creative Voices in Media: "[The Center] praises the FCC and Chairman Kevin J. Martin for its revised report on a la carte cable and satellite programming. We are pleased that the FCC recognized the benefits an a la carte cable and satellite video programming delivery option would provide to consumers and independent, diverse, smaller, and niche cable networks.

"Today’s bundling system gives Big Media -- the broadcast networks and Big Cable -- a chokehold over America’s television programming, restricting consumer choice largely to networks owned by broadcast network owners or large cable operators. As the FCC recognizes, an a la carte option would enable consumers to access a wider diversity of programming from additional sources, full of diverse and competing voices and viewpoints – and at a lower cost. It will also give consumers the ability to choose to not subscribe to networks on cable and satellite that offend them, eliminating any need for extending broadcast indecency regulations to cable."

Colby May, Faith and Family Broadcasting Coalition :“The FCC’s 'Further Report' on 'a la carte' or '“pay –per-channel' regulations released today does nothing to change the strong consensus among economists, programmers, the cable industry, and religious broadcasters that pay-per-channel regulations hurt consumers by driving up costs and limiting choice.” 

The following additional bullet points are straight from the FCC's summary of its report:

•       The Booz Allen Study failed to net out the cost of broadcast stations when calculating the average cost per cable channel under a la carte.  As a result, the Booz Allen Study overstated the average price per cable channel by more than 50 percent, and erroneously concluded that, under a la carte, consumers that receive at least nine cable networks would likely face an increase in their monthly bills. 

  The corrected calculations show that a subscriber could receive as many as 20 channels, including six broadcast signals, without seeing an increase in his or her monthly bill.  This is more than the 17 channels that the average television household watches.  The corrected calculations also show that, in three of the four scenarios considered in the Booz Allen Study, consumers’ bills decrease by anywhere from 3 to 13 percent.

•  The Booz Allen Study assumes, without any support, that a shift to a la carte pricing would cause consumers to watch nearly 25 percent less television, or over two fewer hours of television per day.  There is no reason to believe that viewers would watch less video programming than they do today if provided an a la carte option.

•  The 2004 report fails to mention that the Booz Allen Study shows that, even with the math error noted above, if a la carte were only implemented on digital cable systems with appropriate set top boxes in place, then a la carte could result in a 1.97 percent decrease in consumers’ bills.

•  Similarly, the examples presented in the Economic Appendix of the 2004 report focus on cases in which a la carte would be harmful to consumers and do not discuss equally plausible examples in which a la carte would be beneficial to consumers.

•  The Booz Allen Study does not consistently recognize differences among networks and network segments.  Booz Allen assumed that under a la carte, consumers would be three times as likely to purchase programming in segments such as “general entertainment and sports” than in segments such as “emerging niche” and “emerging mass.”  However, when Booz Allen determined how many channels a consumer could purchase, it assumed that all channels cost the same amount.

•  The current industry practice of bundling programming services may drive up retail prices, making video programming less affordable and keeping some consumers from subscribing to multichannel video programming distributor services. 

•  For many popular networks, advertising and subscription fees might rise as viewers shift to those programming options, even as consumers who opt to watch only those channels enjoy significant savings on their MVPD bills. 

•  Some type of a la carte option could prove better than today’s bundling practices in fostering diverse programming responsive to consumer demand. 

•   A la carte could make it easier for programming networks valued by a minority of viewers to enter the marketplace. 

•   If consumers were able to express their interests through subscriptions, advertisers and MVPDs might find it easier to judge the value of smaller networks.

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