But FCC Action Could Upend Yet Another Mass Medium

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NEW YORK ( -- The cable industry is charging back against the Federal Communication Commission’s endorsement of a la carte cable pricing, which would let consumers buy only the channels they choose to receive, rather than bundled packages. But advertisers, who would see yet another mass-reach vehicle upended if a la carte becomes the norm, have been strangely silent so far.
The Walt Disney Co. has come out strongly against the a la carte cable distribution proposals the FCC has endorsed.

A presentation from Walt Disney Co. and the cable industry’s lobbying arm, National Cable and Telecommunications Association, this week said a la carte was a bad idea because it would almost surely result in reduced TV viewing and fewer ad dollars.

But if a la carte has the potential to undermine advertising, then where’s the outcry from advertisers -- a group that’s been surprisingly quiet on an issue that could turn the economics of cable TV upside down?

“I don’t know,” said an NCTA spokesman.

Bigger fish to fry
“I think they have bigger fish to fry,” said Jean Pool, chief operating officer of Universal McCann and chair of the American Association of Advertising Agencies’ Media Policy committee. “It’s a tough economy and procurement’s in charge of everything.”

Indecency in the media has been the Trojan horse for advocates of a la carte cable distribution. The current system of bundling together channels means that subscribers subsidize a wide variety of networks, keeping the subscriber costs low. Of course, it also means viewers pay for tens or even hundreds of channels they rarely tune into.

For consumers, a la carte cuts the fat -- they only get the channels they watch most. Their cable bill could be more or less, depending on how many channels they choose to receive, there may be fewer niche channel choices and there will be less surfing opportunities.

Networks, meanwhile, will need bigger marketing budgets since people will no longer land on them via surfing. Independent channels like Oxygen or Hallmark, which don’t have the built-in marketing support of larger network groups, could be in particular trouble.

Photo: Gerardo Mora
Jean Pool, chief operating officer of Universal McCann and chair of the American Association of Advertising Agencies’ Media Policy committee, backed the idea of cable al la carte distribution at the Four A's Media Conference in Orlando.

More engaged viewers
And for advertisers, a la carte would likely mean fewer ratings points since incidental viewing would drop. That reduced supply would likely drive prices higher. On the flip side, advertisers would know that the viewers watching a particular channel were attached enough to purposefully pay for it -- a sign they’re more engaged with it.

The real sticking point for the FCC is whether a la carte would lead to lower cable bills.

A Booz Allen Hamilton study commissioned under former FCC Chairman Michael Powell said that “consumers that purchase at least nine networks would likely face an increase in their monthly bills.” But in a rare FCC reversal, Chairman Kevin Martin issued a contrarian “Further Report” that said consumers could receive up to 20 channels without a bill increase and that cable bills would range from a 13% increase to a 4% decrease in three out of four cases.

But the Disney-NCTA presentation attacked the FCC’s Further Report, saying a la carte would cut TV viewing by 25%, reduce ad revenue and increase marketing expenditures for networks as they’d have to advertise harder to persuade consumers to subscribe.

“There was very little factual foundation. ... There’s a lot of coulds, woulds, maybes,” said Dan Brenner, senior VP-law and regulatory policy at NCTA, of the Further Report.

Diminished ad revenue?
The NCTA’s rebuttal counted Jon Mandel, chief global buying officer for MediaCom, in its corner. He testified in front of the FCC’s Media Bureau and said advertisers rely primarily on potential audience and reducing such would seriously diminish ad revenue. He said he didn’t believe advertisers would actually pay more if they knew that a network’s audience consisted only of heavy viewers who chose to purchase it.

Ms. Pool, however, went public at the recent Four A’s Media Conference in Orlando that she thought a la carte cable might be a good thing. In her opening remarks at that gathering, she suggested that if consumers could choose to purchase individual channels, “a lot of those niche channels disappear and what you have left is higher-rated programming that commands higher dollar rates. Not a bad trade." Two weeks later, she stands by her rationale.

Brian Weiser, VP-director of industry analysis at Magna Global, agrees that de-fragmentation or re-concentrating audiences across a smaller number of channels could make it easier for advertisers to reach larger audiences, but he warns it “assumes losing random channels doesn’t lead to spending time online or reading magazines.” And if viewers are paying more to receive each channel -- might that lead to more advertising resentment?

More valuable viewing
And while a la carte would almost certainly cut TV viewing because it would reduce the number of “incidental viewers” -- those who land on a channel while surfing -- the question is, Is that a bad thing? A recent study from MediaVest and the Weather Channel suggest purposeful viewing is more valuable because people tend to pay closer attention to the ads.

Tim Hanlon, senior VP at Publicis Groupe, suggests a la carte will deliver higher quality audiences and the return on ad messaging will improve.

“Advertisers are struggling right now with this move from mass viewing and Nielsen ratings to something more targeted and niche and I would suggest a la carte is a more pure delivery of niche,” he said. “Ad messaging has to get more sophisticated in the face of a mass of niches.”

Like it or not, TV networks are going to have to get used to a different economic model, he said. “Technology would take us to this point anyway, even if regulation wasn’t being discussed.”

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