Report: Consumers Would Be Better Off With Choice

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WASHINGTON (AdAge.com) -- In a remarkable reversal, the Federal Communications Commission yesterday said giving consumers the right to select individual cable channels -- so called a la carte pricing -- would be up to 13% cheaper for consumers, opening the door to renewed debate on revamping the current cable model.
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Sen. John McCain, R-Arizona, said, "Choice is far preferable to being forced to buy a host of channels consumers don't even watch."
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Senators who have been upset with rising cable prices and lack of consumer control over cable content immediately suggested Congress should step in to give consumers a lot more control on what channels they receive.

"If a la carte is not more expensive for consumers, I will support an effort to take such an approach, subject to discussions with providers on the downside of such a process," said Commerce Committee Chairman Sen. Ted Stevens, R-Alaska.

Sen. John McCain, R-Arizona, said the report confirms his beliefs. "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."

Media companies don't lose
While the empowerment debate could dramatically alter the cable industry's framework regarding what people see and how much they pay for it, media companies rarely lose fights in Congress.

"I don't think this report materially increases the chance of legislation," said Blair Levin, an industry analyst for Stifel, Nicolaus & Co. "While a la carte remains a broadly popular concept, it would not have much chance of getting through this Congress."

If enacted by Congress, some lightly watched channels would likely die under the a la carte tier, but the changes might make it easier to launch channels. Meanwhile, some established children's networks and sports channels -- notably ESPN, which is one of the most expensive channel on basic cable -- could face the biggest challenges.

Currently, cable subscribers pick a basic package, a premium package and then various movie channels, but can't choose individual networks.

Spreading costs keeps rates down
The cable industry argues that spreading costs across all their subscribers leads to more variety and cheaper rates than it would have to charge for individual channels. ESPN and regional sports channels would have to charge much more if only sports fans paid for them, and children's channels would run into the same problem if only families with children ordered them. The cable industry in a 2004 analysis said ESPN's charges would have to jump from $3.78 a month to $15.82 a month to draw similar revenues. Smaller cable channels would have to charge high fees to get support.

The industry's view was bolstered by an FCC report issued under former chairman Michael Powell.

Consumer groups and their allies in Congress counter that bundling removes the incentive to lower or keep cable rates down, and consumers who never watch certain channels are stuck paying for those channels. Walt Disney Co., for instance, can pay high sports rights fees and demand cable companies carry ESPN in addition to smaller channels while negotiating higher rates in basic-cable packages in return for allowing cable companies to carry local ABC stations, all with little risk of seeing audience drops.

Conservative groups
Those critics have lately been joined by conservative groups upset that consumers who want only family-friendly channels have to pay for the channels they don't watch or want to support.

Kenneth Martin was critical of the earlier FCC report as an FCC commissioner and now as FCC chairman issued the revised report. "A move to a la carte can benefit consumers," says the report, which blames "problematic assumptions" for the earlier study's conclusion. It said a la carte pricing would make it easier to launch networks; easier to launch networks looking to tap unique audiences; and easier to encourage networks to be more responsive to their viewers. The report said that allowing consumers to pick themed tiers would limit cost increases.

"Under a la carte, consumers could cancel their subscriptions to networks whose offerings do not provide them with sufficient value, which would create an environment in which networks are more responsive to consumer preferences in terms of the content, quality and consistency of their programming," the report said. "Improvements in quality can lead quickly to an increase in the number of paying subscribers and fees they are willing to pay for the network.

The report also said advertisers would be drawn to networks if they saw there was strong consumer commitment.

Hours after the FCC announced its “Further Report,” cable channels and operators struck back, issuing statements of their own.

Cable's response
Paul FitzPatrick, Hallmark Channel’s exec VP-chief operating officer, said, “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. 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.”

Cox Communications, meanwhile, posted an opinion on Digital Straight Talk, a corporate Web site that gives Cox's point of view on hot topics surrounding the media industry. It noted that the interest in a la carte cable was really born two years ago out of the “wardrobe malfunction” at the Super Bowl 2004 halftime show. The rhetoric has fueled mostly by special-interest groups concerned about indecency on TV.

“Over the past few weeks, at the urging of the FCC, several cable and satellite providers (including Cox Communications) have announced family friendly packages of G-rated networks ideal for those customers most concerned about what they consider indecent programming,” Cox wrote. “Those packages aren’t even commercially available yet, so the timing of today’s FCC announcement would seem to raise several questions. Are family tiers being declared dead before consumers have had a chance to try them? Or will they ultimately be deemed sufficient?”

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