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Watching Channel Zero

The cable TV industry is overstating the cost of offering consumers individual channel selection. Still, dont expect a la carte in 2004.
August 5, 2004

What would happen if you were allowed to pick and choose the individual cable channels you want instead of selecting a bundle? What would happen, that is, if you could order just CNN, ESPN, and the Travel Channel, without getting a few dozen offerings that you don’t want and never watch? Depending on whom you talk to, who signs their paychecks, and what country theyre from, the answer youll get ranges from a stern warning of the resultant destruction of the cable industry to an impassioned plea for consumer rights.

Last week, the Federal Communications Commission heard plenty of both sides when it convened a meeting to discuss an issue that Congress, led by Senator John McCain and the Senate Commerce Committee, mandated the commission investigate: is it possible to offer a la carte cable channel selection to the U.S. public? The FCCs report and recommendations on the subject are due back to Congress in November. While most observers I spoke with doubted that the issue of  a la carte cable pricing would pass in this heated election year, it appears that the economic impact of such a change wouldnt be as dire as most of the opponents claim, nor as utopian as proponents project.

One things for sure: its an issue that wont go away anytime soon. It sparked to life earlier this year when Senator McCain began calling attention to the issue of cable price increases and media consolidation. The issue got an unexpected boost when Janet Jacksons wardrobe malfunctioned, and the nation renewed its on-again, off-again interest in decency on television. With so many unwanted channels bundled in todays cable pricing structures, families are forced to take MTV and other risqu channels owned by media conglomerates when all they want is Nickelodeon. A la carte models, say proponents, would allow consumers the ability to individually select the channels they want and avoid untoward fare.

At the heart of the opponents stance lies the argument that changing the current technological infrastructure found in the nations cable systems to allow for a la carte channel selection would be cost prohibitive. Furthermore, the cable networks business models consist of two revenue sources: subscriptions and advertising. Splintering the bundles would dramatically alter the advertising model, reducing the ways in which networks can sell ads. We think its a terrible idea, says Tim Fitzpatrick, a spokesperson for Comcast. It undermines our basic business model.

Much of the FCCs hearing last week focused on the technological hurdles involved with offering a la carte. The cable and media companies cited tens of billions of dollars in estimated costs to equip their digital cable boxes with the necessary traps to block individual channels. But that figure may be questionable. I spoke with Jean-Paul Galerneau, communications manager for Videotron, a Canadian cable company that has offered a la carte cable selection for over two years. He claims that his company didnt have to change anything at the infrastructure level to offer a la carte. Videotron customers can change their channel selection every month by calling a customer service representative or simply by visiting the Videotron website. He professes puzzlement as to why the U.S. cable industry insists that a la carte selection would entail an expensive transformation. It can be done very easily, he says.

A quick call to Scientific Atlantathe manufacturer of the cable boxes used by Videotron and a leading supplier in the United Statesconfirmed that offering a la carte channel selection wouldnt require any changes to the box. From a tech point of view, there wouldnt be a problem, says Peggy Ballard, vice president of strategic communications at Scientific Atlanta.

Granted, switching to an a la carte model would incur some costs, such as training, upgrading the billing infrastructure, and marketing. But the $17 billion to $34 billion figures cited in a cable-funded study seem wildly off the mark. Whats more, not all cable companies are opposed to offering a la carte. The demarcation occurs around the issue of media ownership. Some smaller cable companies with no media interests are willing to offer a la carte, while large conglomerates oppose it. Were in favor of consumer choice, says Jim Downing, spokesperson for RCN, a cable company with 1 million subscribers. A la carte is consistent with consumer choice, so thats the side were on. Logic would suggest that if costs were truly prohibitive, the smaller cable companiesthe ones advocating for a la cartecould afford it the least.

Despite the renewed interest from Congress on the topic, its unlikely that a la carte models will be mandated during the current legislative session. The last thing President Bushor any sitting administrationwants to do in the months before an election is anger the networks that will carry his message to the electorate. And with such heavyweights as Comcast and Time Warner Cable staunchly on the side of bundling channels, dont expect Congress to enact legislation that at the very least would cause the industry to reconfigure its business models, most likely sending cable stocks into a tailspin. Still, its clear that thanks to steadily increasing subscription costs and the renewed indecency debate, the cable industry is in the crosshairs. Its also clear that the technology costs they cite as to their defense is a red herring.

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