Consumers Should be Able to Choose Their TV Channels

Joe Nocera had a provocative column in the NYT on Saturday, headlined "Bland

Menu if Cable Goes à la Carte". We shouldn’t be allowed to pick

and choose the TV channels we want to watch, he says: that would be no less

than "a consumer disaster".

Now I’m no expert on the economics of cable TV. But I’m not in the slightest

bit convinced by Nocera’s argument, and I don’t even understand what he means

when he says that "when we pay for the cable bundle we are, in effect,

subsidizing those channels for everybody — including ourselves."

To his credit, Nocera does a reasonably good job at laying out the case for

the prosecution: that it’s unreasonable to ask people to pay for cable channels

they don’t want. (Or, in the case of many on the religious right, actively want

not to receive.) And he quotes a number of grandees coming out in defense

of a la carte pricing, including Gene Kimmelman, of the Consumers Union,

and Kevin Martin, the chairman of the FCC.

Nocera’s weaker when it comes to defending the status quo. His main argument

is that the cost per channel would go up, sometimes by a very great deal:

Unmoored from the cable bundle, individual networks would have to charge

vastly more money per subscriber…

Take, for instance, ESPN, which charges the highest amount of any cable network:

$3 per subscriber per month. (I’m borrowing this example from a recent

research note by Craig Moffett, the Sanford C. Bernstein cable analyst.) Suppose

in an à la carte world, 25 percent of the nation’s cable subscribers

take ESPN. If that were the case, the network would have to charge each subscriber

not $3, but $12 a month to keep its revenue the same. (And don’t forget:

with its $1.1 billion annual bill to the National Football League alone, ESPN

is hardly in a position to tolerate declining revenues.)

And that’s one of the most popular channels on cable. What percentage

of cable subscribers would take Discovery, or the Food Network, or Oxygen,

or Hallmark — or the many, many more obscure networks that you can now

find up and down your cable box? Five percent? Ten percent? According to Mr.

Moffett’s analysis, if every African- American family in the country

subscribed to the Black Entertainment Network, it would still have to raise

its fees by 588 percent. He adds, “If just half opted in — still

a wildly optimistic scenario — the price would rise by 1,200 percent.”

Now I haven’t seen the Moffett research note, but those percentage figures

seem silly to me. If BET currently receives, say, 15 cents per subscriber per

month, then a 1200% rise would still come to less than $2 a month per subscriber.

Which is not very much. Scary four-figure percentage increases are a way of

hiding charges which are still low on an absolute level.

And why on earth should cable TV’s subscription structure be set up so as to

ensure that ESPN’s subscription revenue is unchanged? There’s no ironclad rule

of television saying that ESPN has to receive billions of dollars in subscriptions

only to turn around and pay them straight out again to the NFL for television

rights. If ESPN’s subscription revenues fell, NFL games would still appear on

the television – either on ESPN (for less than $1.1 billion, if it could

no longer afford that much money) or elsewhere. Either way, the consumer would

still be able to see the same game on the same television set connected to the

same cable box. Is it possible that the NFL would lose some revenue? Yes. Is

anybody going to lose sleep over that? No.

Nocera also says that the present system encourages channel-flipping:

One of the nice things about the current system is that once a station gets

on extended basic, it can be discovered by viewers — and that wouldn’t

happen in an à la carte world.

It wouldn’t? I don’t see why not. In the a la carte world, all you’d

need to do is mandate that cable providers give free access to any channel willing

to waive subscription revenues. If there were a problem with that model, it

would be that there would be too many channels wanting to go free,

not too few. When Fox News launched, it paid cable providers $10 per subscriber

in order to get into as many homes as it could as quickly as possible. At 15

cents per subscriber per month, it would take well over 5 years just to recoup

that initial investment. Much better for all concerned that the channel just

be free from the get-go. Any individual subscriber, of course, should also be

allowed to ban channels he doesn’t want in his home – technologically,

that can’t be too hard.

Indeed, it should be pretty easy, technologically speaking, to implement a

fully-fledged pay-as-you-go system, where consumers pay only for those cable

channels they actually watch. Cable providers could provide all the channels

they like, from the networks through to HBO and other premium channels, omitting

only those that the consumer specifically elects to bar. Consumers could then

channel-flip to their heart’s content, and if they watched more than say half

an hour of any given channel in a month, they would be charged the subscription

rate for that channel – or the pay-as-you-go rate for the individual programmes

they watched, if that turned out to be cheaper. Any consumer who didn’t want

to risk running up a big cable bill by watching expensive channels could just

bar those channels from being provided in the first place.

Would that system cost consumers more than the present system? It would cost

me more, that’s for sure: I’d actually sign up for television service

if I didn’t need to pay through the nose for channels I don’t want and never

watch. And I’d be happy to do so. The big question isn’t whether an a la

carte system would be cheaper: it’s whether an a la carte system

would make consumers happier. And the answer to that, I think, is an unqualified


This entry was posted in Media. Bookmark the permalink.