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FCC Head Supports Ala Carte Cable
MikeyTheK writes "PC Magazine Reports that Kevin Martin, chairman of the FCC, supports ala carte cable.
In a letter to several minority groups on Wednesday, Martin said "While I believe all consumers would benefit from channels being sold in a more a la carte manner, minority consumers, especially those living in Spanish speaking homes, might benefit most of all,". He goes on to argue "Cable companies act as gatekeepers into the programming allowed by the expanded basic cable package, preventing independent content producers from reaching viewers,", citing the example of Black Family Television, which was forced to go online-only because cable operators refused to carry it, even after it reached 16 million homes."
We think we can make a ton more cash by charging for each channel extra. Basically, what we're gonna do is reduce the nominal fee by a good 20 percent, cut channels in half and if you want anything but the propaganda, you'll pay extra.
We think that the average household will want about 80% of the channels they got today, generating about 120-130% of the revenue of today.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Why do I need to pay for others to have 50 sport channels? The SciFi (et al) channel works just fine for me, I don't want to have ESPN; which by talking to the cable companies is one of the most expenive "free" channels out there.
The problem with a-la-carte pricing is that it makes it impossible for new networks to get enough subscribers to start up. Think about it - how many of us would personally watch LOGO, the Gay/Lesbian Network? Some, but not enough for it to survive without charging an insane amount per subscriber. How about a network like the old TechTV, or even G4? Most of us would, but most consumers wouldn't. Even networks that would appeal to everyone would have a tough time gaining ground once it went into effect. Would you call in to purchase a new network? Not unless it had a show you really, really wanted. You can make an argument that it should be based on who wants each network, and that you shouldn't pay for networks you won't watch, but I'd argue that package programming keeps the price down for all networks.
Except that's not how it would work. Right now you basically pay for the marquee channels in each package and get the rest of the channels free as a bonus. If channels were un-packaged you wouldn't get HBO for 1/20th the price of a premium package. Instead you'd get HBO for 1/2 the price of the premium package and all of the other channels for something more than 1/20th. The total cost of putting it back together would be higher than what you pay now.
Why? Simple economics.
Let's say there's a cable package that has 20 channels including G3, HBO, and ESPN. Slashdot readers are willing to pay $20 for G3 but only $1 for ESPN and $0 for any other channel. Sports nuts are willing to pay $20 for ESPN, but only $1 for G3 and $0 for any other channel. And families are willing to pay $20 for HBO, but $0 for any other channel.
Right now the cable company could charge $20 for that package and all 3 groups would buy it. Everybody pays $20 and gets 20 channels.
If forced to offer it a la carte the cable company wouldn't sell HBO for $1. They'd sell it for $20 in order to capture the family market, who is willing to pay that much for it. Same for ESPN -- they can sell it for $20 and capture the jock market. Same for G3 - they can sell it for $20 and capture the techie market. Now everyone is worse off. The families, techies, and jocks are still paying $20 for cable, but getting fewer channels for their troubles.
You can question the empirical assumptions -- maybe the pricing breakdown isn't that extreme -- but bundling of goods has long been a means to allow people who value different parts of a package differently to enjoy the package for one price.
I work in the billing department at a smaller cable company, so maybe this post is biased. At least it's biased in the direction of truth, rather than ranting consumer speculation. I also used to work as a field technician for the same company, so I am in a position to know this issue.
First, most cable and satellite companies would be contractually prohibited from complying with any such mandate from the FCC, if it were to be announced tomorrow. Viacom, HBO, Universal, Disney and the over-the-air corporations demand carriage of their lesser-known networks in exchange for a reduced rate on their main programming. For example, our customers demand - and we willingly pay - for ESPN and ESPN HD. The cost per subscriber per month is about $14. We also carry ESPN2, at a discount. If we dropped ESPN 2 from our expanded basic tier, the SD and HD ESPN channels would cost us $9/mo per sub. We are currently in month 4 of a 36 month contract at this rate. Thus, we cannot break this portion of the bundling in our lineup for the better part of 3 years.
Additionally, it is a simple fact that forced a la carte offerings would lead to higher customer cost, and reduced quality. Most cable companies continue to carry their basic tier in analog. A la carte analog results in a daisy chain of traps at the pole or pedestal, degrading the signal across the spectrum. A la carte digital requires equipment in customer's homes with remotely accessible security. You can achieve this with CableCards or Switched Digital. The two are not currently compatible, so it's an either-or situation. In all honesty, MY employer wants CableCards to work correctly. When they don't, it generates higher costs in the form of truck rolls, and lower customer satisfaction.
This is to say nothing of the increased cost due to the creation of rate codes in the billing software for each channel, and the corresponding training of 1700 CSSR's on how to use them. It also ignores the time/cost of converting 79,000 video subscribers to an a la carte plan, so on and so forth.
Kevin Martin has a lot of dreams, most of which seem to be based in fantasyland regarding cable companies. I would be happy to have him shadow me for a week to see how these companies actually operate, so he can realize the true costs of what he dreams up.
khasim (12/9/06): In a blind taste test, more people preferred Coke over the Pepsi that I had previously pissed in.