Monday, November 26, 2007

A La Carte Cable TV .... The Debate Is On

This may be a rather heated topic for a lot of people....and by the looks of the banter on the internet it certainly is.

For those who aren't aware .... recently our intrepid FCC Chairman Kevin Martin initiated a concerted effort to force cable companies to switch to an “a la carte” model of offering cable channels. However, this is being vehemently opposed by a crowd including Republican members of Congress (interestingly Martin is a member of the same party). An article by Joe Nocera in the New York Times 24 November breaks down the reasons why “a la carte” cable is a bad idea for consumers. Joe basically labels it a ‘be careful what you wish for’ situation, and warns that a number of channels would end up going out of business. His premonition is that this would result in offering consumers less programming options. Additionally, Joe shows how prices on the majority of consumers cable bills would actually rise rather than decrease.

I tend to see both sides .... with neither a perfect fit.

For example.....people think you can take your typical monthly bill's total, divide it by the number of channels you get, and argue they should be able to get channels for "x" dollars per channel. That will never happen. A channel accepts "y" dollars per subscriber. When they're on "Tier A", they're guaranteed a certain amount of money per month regardless if people watch or not. If things moved to 'a la carte', the "channel" (sic content provider) no longer will get that same guaranteed amount each month. Therefore they won't accept "y" anymore, they'll want substantially more. Think of really specialized channels that have a small core number of viewers. They will NOT be on a lot of people's 'a la carte' list.

On the other hand....they should only get substantially more if people are willing to pay substantially more.

The market, not the cable companies (or content providers for that matter), would get to decide what these channels are worth.

At least that's the premise.......

Well, if the market sets the price, then there would be no reason for NBC to not charge a fortune to people who absolutely have to watch the wrestling that USA carries. What would stop a channel that has a huge program from charging more money because they know people will have no other choice? Not only that, but would A La Carte kill syndication? Why would NBC allow a hit SciFi channel show to syndicate an older season on some broadcast network?

The current system works. Money is saved when you buy in bulk. You might not watch all the channels that are being carried, too bad. If you don't watch more than one or two channels, then get rid of your cable all together and buy the DVD box sets as they come out. This way you'd have 100% choice of what you watch and don't watch.

Then again, do we really need specialized channels like "BabyFirstTV", "Golf Channel", "SOAPnet", "Jewelry TV", "The Good Samaritan Network", etc?

I think most people probably wouldn't actually buy al a carte packages because they enjoy the programming diversity.

TV is one thing I am NOT in favor of a majority vote on though. And that is exactly what we would end up in if we went to a la carte. The channels the majority of people want would stay affordable, while the channels that actually carry decent programming couldn't afford to stay on the air.

Therein lies an issue that appears to rankle many.

My opinion?

So what. If these small channels go under who cares? Hardly anyone watches them anyways. Since when should I support small channels with my bill? That sounds like communism.

Would ala carte be more expensive per channel than it is now? Sure, but people who do not watch 80% of the channels anyways would in fact pay less. There's no way your cable company would charge you $60 a month for the 12-15 channels you currently watch in an ala carte system. No one would subscribe to that. So even if your bill would be say $30 a month .... yes that's more per channel. But since you're paying for many fewer channels you're still lowering your bill.

Once again people see this as an either/or situation instead of incorporating BOTH. I have yet to see ANY ala carte proposal where it is FORCED on subscribers and the old system is done away with.

If you watch 50 channels and those 50 would cost you the same as the 75 channels without ala carte then common sense would tell you people would stay under the current system. People who don't like ala carte get their way .... people that want it get their way. Everyone is happy. I really don't see an issue with that.

Besides we already have partial ala carte. Most cable companies offer sports tiers etc. Also things like HBO are separate. I'm sure something like HBO would come out to $3 a month or less if offered to everyone. I'm also sure the majority who don't want HBO wouldn't be happy paying the extra $3 a month so HBO lovers can save $9 a month. But that's the kind of system anti-ala carte people support.

But that's the current problem with "a la carte." It's not really up to the cable providers, unless they want to lose money.

If a cable provider decides they're going to go ahead with "a la carte" and let whoever wants ESPN to buy it, and not charge their other customers for it, then they STILL have to pay Disney for ESPN for every subscriber on the basic extended tier. As well as pay for ESPN2, ESPN classic, and whatever else Disney forces them to pay for to just offer ESPN.

Until the content providers want to offer "a la carte," it's not going to happen. Why would they give up all that money for people that don't even watch their channels?

And sure, everyone is going to say, "But the cable companies can refuse to carry the channels that do that." Sure, they could do that. And as soon as that happens, DirecTV and Dish can say, "We've still got the channels, switch to us!". Just as they are doing right now with NFL Network and TWC.

It's kind of hard to deal with the content providers when they are going to get their money anyway. DirecTV and Dish pay per subscriber as well for content. Unless every cable and satellite provider is willing to really play hardball with content providers, "a la carte" has no future.

IMHO the FCC should not be coming down on cable providers over "a la carte". They should be coming down on who controls the pay content.

Now here's another thought......

Whenever a competitor comes to town, or a muni deployment starts, the cable industry and/or telcos sue to stop it or gets laws passed prohibiting competition. True distribution competition will never happen in the quantity required to affect pricing. It would require an IPTV model for something like that.

But we do see that those types of "channel monopolies" crumble with consumer choice and distributors who stand up for customers. Look at iTunes. The music industry is fighting iTunes tooth and nail ..... but constantly lose because Steve Jobs refuses to raise prices and rather lets record labels walk. Cable rarely if ever let a channel or group of channels walk ..... and customers pay the price for it with titanic price increases every year. Can you imagine if iTunes worked like the cable industry? You wouldn't be able to buy DRM free songs a la carte for $1. You would have to buy entire albums just to get 1 good song. So instead of albums dropping in price to the typical $9.99 they would now be $25-$30. What a joke the cable and DBS model is.

Here's a novel idea .... if the NCTA membership joined together they would have the same power over video services as Apple does in music. Or a better example Wal*Mart. Anyone who doesn't think a unified cable industry wouldn't be as powerful in determining video price as Wal*Mart is in retail is a fool. The NCTA membership would be in such a powerful position that they could easily DICTATE prices to the programmers like ABC who are notorious for channel extortion. ABC would fold in 10 seconds when they lose 100 million viewers overnight. Advertisers would instantly flee and demand refunds on unaired ads. ABC's Board of Directors would have to explain that revenue loss to share holders. Which would be a much harder sell than cable explaining to their customers .... in an endless stream of commercials on their systems .... that ESPN wanted $3.50 more per subscriber for the channel. And that this was after similar increases over the last several years AND would continue forever if not stopped. "Call ABC and tell them you want fair prices for their channels.".

The fact is that the ABC needs cable more than cable needs ABC.

What would ultimately happen is MLB and the NFL wouldn't get the insanely high prices they're getting from ABC. But currently customers are just an endless supply of revenue (thru constant price increases) so of course the money is flowing upstream at an ever increasing clip.

Cable fixing this problem on their own requires cable really being interested in controlling these prices. Which they aren't as evidenced by their total lack of will in dealing with them. So .... maybe it will take government intervention to get it done.

Looking deeper ..... content providers (ABC, Disney, etc.) traditionally make most of their income from advertisement sales. If they raise the prices of their individual channels (if forced to sell them on a per subscriber basis as the FCC is suggesting) then they will lose subscribers and be unable to command the same advertising premium. You do realize the the MAJOR NETWORKS are FREE over the air in almost every local market, and most in HD. So charging thru cable companies is just like hidden taxation.

Personally I believe that all channels that have advertising should be FORCED to be offered on the cable networks for free. In fact they should be paying the cable networks to carry them. So all the channels like CBS, ABC, NBC, TBS .... and any others with ad breaks ..... would be offered to you free of charge.

Channels like HBO, SHOWTIME, and any others that are broadcast without commercials would have a cost associated with them. Those that can generate a large enough audience would survive, those that can't will die.

This would spawn a huge amount of competition for viewers and would hopefully spawn better programming.

We should NEVER have to pay to see ABC, CBS, and NBC, unless they stop all the commercials...


Yeah I know ....wishful thinking huh?

Anyway, it should be obvious to anyone with a lick of common sense that an a la carte system will cost most people more money. The only ones who benefit would be those few millions in the US that almost never watch any TV except for a few channels. The Hollywood content providers will just up the prices for the channels that don't fall by the wayside. The rest of us will pay the same or more for fewer overall channels.

However, if the "everything will go thru the internet soon" crowd is right, it doesn't really matter. All content will be paid for "show by show" and there will be no such thing as broadcast channels anymore. Of course, that business model, is probably at least a decade away. So, just leaving this to normal business change processes will take care of it eventually.

In the meantime, the FCC & the Congress should leave well enough alone. The Congress seems to agree - because last year they shot down an a la carte law decisively. It is only Martin at the FCC who disagrees - and that is because he is using the a la carte push as a negotiating tactic with cable companies to try and remove impure/violent content from cable systems in order to get ready for his run for political office in a few years.

In all honesty ..... I wonder if something in the middle might make more sense. For example, what if you hate sports. How come the channels you really want .... like all the cool History and Discovery and Science channels .... are all spread out over different packages that all include sports channels? If you want all your favorite programming, it means you have to get all the crap programming you don't want. It just doesn't make sense .... for the consumer at least.

Now what if the bundles were more logical? For example, lump all the sports together. Lump all the History & Discovery channels together. Lump the music & fashion together. Food & lifestyle. And so on. I wouldn't mind paying for a few related but uninteresting channels to get the stuff I want. But I HATE paying for stuff like I've no interest in at all.

When it comes down to it ..... I think the best option probably lies somewhere in the middle between huge bundles of unrelated shlock and a-la-carte.

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