Cable a la Carte

Update: R. Alex Whitlock has a different perspective on the issue of a la carte cable. His feeling that this approach will likely not drop prices has some merit, although I think this is more than just an issue of pricing...it's also about the ability to better control the media content that comes into your home.

It's not surprising that the cable TV industry is pushing back against the FCC report proposing that consumers will be better served if they have the ability to purchase programming by the channel, rather than via the big multi-channel packages now offered.

The arguments I've seen against the proposal all center around concerns of "breaking the current economic model," as if that was a bad thing. Those arguments are simply another indication of the intense desire of yet another mainstream media outlet to tell consumers what's good for them, rather than the other way around. And like the newsprint, music, movie and broadcast TV industries, fighting against these changes will only delay the inevitable.

It's ironic, really, in that cable TV broke the stranglehold that its broadcast cousins had on the viewing public by offering more choices. Yet, now that a proposal to enhance the usefulness of those choices is being put forth, cable is screaming bloody murder.

Obviously, the cable operators sense an impending drop in revenues, both from lower subscription rates as well as from falling advertising income as advertisers pull back from the less popular channels. An informal poll in today's Wall Street Journal shows that 51% of responders would subscribe to 10-24 channels, 22% to fewer than 10 and only 5% would pay for more than 50 channels.

Another argument against the a la carte approach is that smaller networks won't survive. Apparently, many of those niche programmers are in business only because they're riding the coattails of channels that people actually want to watch. Here again, this argument seems to be a rejection of the basic notion that people ought to be able to vote with their pocketbooks. If no one wants to pay to watch a particular cable channel, that's a pretty good indication that its business or programming model is flawed and it should have never been launched in the first place.

The only problem I have with the a la carte proposal is that it's being pushed as a mandate by the federal government, which generally means that it will end up being badly implemented. What we really need is for one cable operator to step up and embrace what will ultimately be the wave of the future and thereby put pressure on the rest of the industry to follow. I'm not holding my breath.

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Comments

Another thing to keep in mind is that there are certain fixed cost associated with keeping and maintaining accounts. Customer service, billing, and whatnot don't change much from one account to the next. Add to that the cost of having to send or hold back a signal for each channel rather than package of channels, in all honesty I don't think the prices would go down much.

I compare it to a coke fountain at a fast food restaurant. People who refill their cup once pay the same as people that refill it ten times. That's not particularly fair, but if a law were passed requiring amount of drink consumed to be incorporated in the price, I have my doubts that the price for the one-cup people would go down considerably, if at all.

Posted by: R. Alex at November 30, 2005 11:24 AM

You know, I figured the cable companies would be making that argument, but they're not...at least not thus far. They already have to track subscription packages for individual customers, as well as tracking individual subscriptions to so-called premium channels (HBO, etc.) and pay-per-view programmming, so the capability is present in their systems. I've no doubt that there would be some upfront conversion costs to extend the system capabilities, but it should be only a few cents per customer and not a recurring fee.

But, I'm basing all of that on a logical approach. In reality, you're probably right in that the cable providers will attempt to hang onto their previous revenue base. To the extent they do so without justification, that's where the FCC should step in and call their hand.

Posted by: Eric at November 30, 2005 01:49 PM

Or you could just stop watching TV.

Posted by: Jim at November 30, 2005 03:02 PM

Who would I make fun of then?

Posted by: Eric at November 30, 2005 03:07 PM

There's a pretty big difference in my mind between handling select packages and handling each channel individually. A few weeks spent answering phones for DirecTV drilled this in to my head (prior to that I was in favor of a la carte). If they really could make money incrementally, DirecTV could probably charge a couple additional dollars for each of the Total Choice Plus package and make more money than they do bundling them (which is $3-4 more for 30 or so additional channels), but they choose not to because it's so much easier and cheaper to handle them as packages for various reasons.

It's not just having 30 lines on every bill instead of 5, it's call center handling and network negotiations and billing complaints. The PPV's and HBO make money because they're so expensive. People willing to pay that much for channels will find themselves paying as much for 10 or 15 a la carte channels as they currently pay for the 65 or so they get.

I go back to the coke example because what's important to these places isn't how much coke you drink, but that you're buying their coke. That's why they're willing to give you so much for such a standard price. The cable companies and satellite are giving people so many channels right now because that's how to get their business when you really can't lower prices too much.

I can't help but think people are going in to this thinking that if they can get 65 channels for $40 they will get 30 channels for $20. Instead, the model is more along the lines of "buy 15 channels, get 50 free" (for satellite, less for cable).

Posted by: R. Alex at November 30, 2005 06:15 PM

Looking above, some of my comments and views on the matter may be colored by my experience with satellite over cable. Such an a la carte plan may be more feasible with cable. Can't say for sure.

One alternative that I think I might be more supportive of: Allowing customers to pick *which* channels they get rather than how many. That way families can forego FX in favor of the Biography Channel or vice-versa. While I think that there would be more cost involved, I think it might be a fair compromise.

Mulling over a post...

Posted by: R. Alex at November 30, 2005 09:45 PM

You make some good arguments and you obviously have more experience than me to support them. I'll be interested in reading your post (if you don't mind pinging me to let me know when it's up...plus others may want to follow the link).

Posted by: Eric at November 30, 2005 09:51 PM

It's posted.

Posted by: R. Alex at December 1, 2005 09:21 AM

The ability to control inflow may be an area where my satellite experience colors my perspective. DirecTV offers many ways to keep the bad stuff out. You can block channels and even individual shows through their "locks and limits" features. I read every now and again that cable claims to be able to do the same, but I have no first-hand experience of that and the cable industry is not exactly renowned for its honesty and transparency.

Posted by: R. Alex at December 1, 2005 12:11 PM

Alex, there's a couple of issues at work here. First, there's the thought that the customer should not have to do something to prevent objectionable content from being accessible in his or her home. Even if that "something" is really simple (which it rarely is) that's an "opt out" approach that has been mostly deemed unacceptable everywhere else.

The second related issue is a bit fuzzier, but it's the thought that I don't want to support networks that create programs that are offensive to me. If, for example, MTV comes as a part of my cable package and I don't like MTV so I block it...a part of my subscription fee will still go to MTV. In theory, the a la carte approach eliminates that indirect support.

Posted by: Eric at December 1, 2005 12:20 PM

I actually understand the second concept moreso than the first. Another reason that I may not be opposed to picking which channels rather than how many. I think that ultimately all the money will go into the same pot regardless, but I can definitely sympathize with the principals at stake.

As far as the first goes, the way to keep out objectionable material in cable is not to get cable. From my perspective, once you buy something you are inherently responsible for customizing it to your liking. I'm okay with the sat boxes starting out with Lock & Limit set to a G-rated playground, but that's not exactly what I'm seeing discussed.

Beyond that, with satellite, if you ask the installer what to do, they can guide you through that until you leave.

I'm quite in favor giving parents more control when it comes to supervising household entertainment. That's why I'm much more conservative about what should be on broadcast television than I am about what I personally watch. I also strongly support the right of companies to clean-up-and-resell movies (several companies that do so are based a couple hours away in Utah).

But at some point, ownership has to be taken. Lock & Limits takes a five minute call to DirecTV and they'll be glad to walk you through it. I just don't agree that that's insufficient and that parents should have an even easier go of it.

Posted by: R. Alex at December 1, 2005 02:00 PM

From my perspective, once you buy something you are inherently responsible for customizing it to your liking.

But, Alex, that's precisely my argument, however inexpertly I'm presenting it. The cable companies are forcing some (many?) customers to buy something they don't want -- bundled cable channels that carry offensive material. Why, then, should those customers have to be responsible for ensuring that no one in their household is exposed to that content, when they didn't have a choice to reject it in the first place?

It would be different if the customers chose the makeup of their bundle, and then decided they didn't like some of the material contained therein. At that point, I agree it's the customer's problem to solve.

Interesting discussion...

Posted by: Eric at December 1, 2005 02:08 PM

This is where I am on uneven ground because I don't know how it can be done on cable. My experience with satellite, however, is that it's quite easy and possible to block stuff without having to reallign how services are delivered. I'm very much in favor of parents having those kinds of tools at their disposal.

Telling cable companies that they need to come up with ways to do that (or better ways, if they have some now - my local cable company makes no mention of it) strikes me as quite sensible. I like allowing for things that give parents supervisory tools, I'm just not on board with the notion of changing everything from the bottom up when there are more direct ways of doing it.

The fact that they're focusing on a la carte instead of other tools suggests to me that either parents have all the tools they need (ie cable already has a mechanism in place like satellite does) or, more likely, it's mostly about the economics of it that I addressed in my post.

Anyway, politics of the situation aside, parents that are really concerned about it ought to look in to satellite.

Posted by: R. Alex at December 1, 2005 04:49 PM
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