Below are excerpts from studies conducted by the GAO, Congressional Research Service, FCC, Bear Stearns and Booz Allen Hamilton, which conclude that per-channel or “a la carte” pricing will raise consumers’ cable television costs, reduce the number of choices, and decrease the diversity found today in cable programming.

FEDERAL COMMUNICATIONS COMMISSION, “Report on the Packaging and Sale of Video Programming Services to the Public” (Nov. 18, 2004).
 

• “The bundling of channels into tiers of service is, generally, an economically efficient way of providing MVPD subscribers with video programming. Although the current MVPD business model may result in some consumer dissatisfaction, government intervention through a la carte regulation likely will harm MVPDs, program networks, and especially MVPD subscribers.” Id. at 62.

• “Further, although increases in MVPD rates continue to concern Congress, the Commission, and consumers, competition, as a remedy, is preferred to government intervention and all of its unintended negative consequences. A la carte, as a means to control rates, should be viewed through this same prism: competition, not regulation, is the answer.” Id. at 62.

• “There is agreement that more consumer choices will appear as technology progresses and video competition flourishes. Considering all trends, the government should implement policies that unleash competition and motivate MVPDs to innovate, rather than to force providers to offer programming on a per channel or themed-tier basis. The government should not displace the current economic model, which is working to the benefit of MVPDs and their customers, with regulations which will likely distort the marketplace and slow down advances in technology that will eventually be the answer to the questions posed in this proceeding.” Id.at 65.

• “Existing networks sold on an a la carte basis spend a significant amount of their revenue marketing themselves to consumers. Under an a la carte mandate, networks formerly sold in tiers would need to significantly increase their marketing expenses to induce consumers to affirmatively select the network. Moreover, any type of a la carte requirement would have a significant negative effect on a program network's advertising revenues and license fee structure. The loss of cost savings, combined with the loss in advertising revenue and the likely rise in license fees to compensate such losses, may cause many program networks to fail, thus adversely affecting diversity. The most likely to feel the brunt of such a mandate would be networks serving small niche interests, such as religious programming, programming aimed at minority interests, arts programming and independently owned networks. The impact on program networks seems likely under either a mandatory or voluntary a la carte regime.” Id. at 6.

• “It is unlikely the same universe of channels can be offered both on an expanded basic basis and an a la carte or themed tier basis.  The financial impact of a la carte sales or themed tiers on many program networks, especially smaller networks, likely would lead to the demise of a substantial number of these entities, which will reduce the overall universe of channels.” Id.at 118.

• “The Report's economic analysis estimates that the impact on retail rates of pure or mandatory a la carte sales indicates that only those consumers who would purchase fewer than 9 program networks may see a reduction in their monthly cable bill. Consumers that purchase at least 9 networks would likely face an increase in their monthly bills. The average cable household watches approximately 17 channels, including broadcast stations. If the average household purchased each of these channels under an a la carte regime, it would likely face an increase in their monthly bill under a la carte sales of between 14% and 30%.” Id. at 6.

GENERAL ACCOUNTING OFFICE (GAO), “Issues Related to Competition and Subscriber Rates in the Cable Television Industry” (October 2003), (“GAO Report”).

• An a la carte requirement could “result in higher per channel rates” and “cable rates could actually increase for some consumers.” Id. at 34.

• “Because increased license fees . . . are likely to be passed on to subscribers, it appears that subscribers’ monthly cable bills would not necessarily decline under an a la carte system.”  Id. at 36.

• Consumers also will pay for the equipment needed to provide an a la carte option to ensure that they receive only the channels they order: “the average monthly rental price for a box is approximately $4.39. For homes that have multiple television sets, the expense for these boxes could add up—the extra cost for a home that needs to add three addressable converter boxes would be about $13.17 a month at current prices.”  Id. at 32 (citing FCC survey data).

• Fewer networks would be available to consumers because “any movement of networks from the most widely distributed tiers to an a la carte format could result in a reduced amount that advertisers are willing to pay for advertising time.” Id. at 35.

• “[S]ome cable networks, especially small and independent networks, would not be able to gain enough subscribers to support the network.”  Id. at36.

BEAR STEARNS,  Raymond Lee Katz, et al., “A La Smart?” (March 29, 2004).

• Bear Stearns compared the subscriber cost of the basic cable package and five popular networks under an a la carte model with the cost of receiving these networks as part of a larger package that included more networks.  It concludes that a la carte regulation “is probably more expensive than today’s basic + expanded basic package . . . .”  Id.at 4.

• “Our numbers, however, imply that there may be little money saved by any household opting for 10-15 channels, especially if they are the more popular ones.” Id. at 3.

• “With less distribution, cable networks will have to differentiate and market more effectively. This will require money, giving those richer networks an advantage over newer, smaller, and start-up properties, in our view. Should this transpire, it could lead to a reduction in the number of networks.” Id. at 6.

• “A la carte means that what were once basic networks may look more like premium networks, eventually impacting programming content. . . . The net result may be to therefore encourage more programming someone may consider indecent, running counter to some senators’ desire to use a la carte to rein in indecency.” Id. at 6.

BOOZ ALLEN HAMILTON, “The a la Carte Paradox: Higher Consumer Costs and Reduced Programming Diversity” (July 2004).

• “As many as half to three-quarters of emerging networks could fail under each of the scenarios [both a la carte and themed tiers], including a growing number of targeted niche and ethnic program networks, and new network launches would become extremely unlikely.” Id. at 2.

• “[E]ven the most established networks would likely have to reduce expenditures on programming, leading to lower viewing and lost advertising. This would likely lead to further industry consolidation into fewer network groups.” Id. at 2.

• “Operators would price channels at $4 to $5 each. As a result, most consumers would be able to subscribe to only six cable networks before facing a higher monthly cable bill.” Id. at 33.

• “Operators would recognize the importance of quality programming to maintain the attractiveness of their offerings to consumers, and would need to accept higher total affiliate fees from program networks. As a result, we would expect the average bill for those taking a la carte to increase by about 22%.” Id. at 33.

• “Consumers currently lacking digital set-top boxes, more than two-thirds of households today, would be particularly constrained in the number of cable networks they could select before facing an increase in their monthly cable bill. After paying for broadcast basic and rental fees for digital set-top boxes, most consumers would have just $28 left to spend on cable networks before their monthly bills went up.” Id. at 33-24.

CONGRESSIONAL RESEARCH SERVICE, “The FCC’s ‘a la carte’ Reports” (Mar. 30, 2006).

The CRS report finds little support for the Further Report’s conclusions: “[I]t appears that most of the criticisms of the Initial Report that are presented in the Further Report either are not supported by available market data or cannot be proven one way or the other.”

• “Two-television households that would have to pay an additional $9.00 monthly for set-top boxes are unlikely to see savings from multiple-tier or a la carte pricing.  More than half of all cable subscribers continue to receive analog cable service and these customers would require set-top boxes in a multiple-tier or a la carte environment.” 

• “…The Booz Allen study and the Initial report made reasonable assumptions about the increase in marketing expenses if a la carte pricing were mandatory.”

• “[O]verall, due to the scale economies associated with program networks, niche networks tend to be placed at a disadvantage in an a la carte market.  …Diversity of voices is a fundamental goal of U.S. media policy and the Further Report does not refute the fact that niche networks could be significantly harmed by a la carte pricing.”

• “[R]equiring households to commit to $2.50 per month or more for a new network, sight unseen, is likely to impede demand for new networks and make it especially difficult for independent networks that do not have opportunity to “introduce” some of their programming on an existing sibling network.”

• “Technological change and the mandatory transition to digital television in 2009 are likely to precipitate new market dynamics and ultimately the current tiered business model may well give way to a video on demand approach that is akin to a la carte pricing.”

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