“The FCC report [see links below] to Congress makes clear that government-mandated per-channel pricing would not offer any benefits to the vast majority of consumers and would in fact result in higher prices, fewer choices and less diversity in programming. The FCC's report confirms the October 2003 conclusions of the government's General Accountability Office (GAO), and a July 2004 NCTA commissioned study by Booz Allen Hamilton. The FCC report shows that, in order for cable and satellite customers to pay less than their current monthly service, customers who choose a la carte would only be able to purchase and view a handful of channels. Under this scenario, all other customers would end up paying more – even those who chose to continue purchasing the same expanded basic tiers that they buy today.
“The report also confirms that mandatory per-channel pricing would put significant and harmful economic pressures on program networks, requiring some networks to reduce the quality of their programming, while others – particularly newer networks and those targeted to minority and underserved niche audiences – would be forced to shut down.
“Thanks to hundreds of networks that offer the most diverse programming found anywhere in the world, the bundling of programming in basic and enhanced basic tiers gives today's cable and satellite customers a better value – with more channels, more diversity, higher quality and lower prices – than a government mandated a la carte regime could ever provide.”
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Highlights: FCC Report on the Packaging and Sale of Video Programming Services to the Public
November 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. 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.” (p. 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.” (p. 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.” (p. 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.” (p. 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%.” (p. 6)