A la carte TV

Cable TV prices are on the rise, but consumers complain there still isn't enough flexibility in the programming packages offered by cable providers.

That could change if the Federal Communications Commission and TV distributors Cablevision and AT&T have their way. Last week, FCC chairman Kevin Martin told a forum sponsored by the U.S. Senate Commerce Committee, which has been examining indecency on radio and television, that consumers could have more choice in what they view for cheaper prices if operators would sell content a la carte.

According to a new report from the FCC that has yet to be made public, a la carte pricing could actually reduce monthly cable bills for many consumers while also providing more control over what channels they watch at home.

News of the FCC report comes just as many large cable operators across the country announced that they are raising rates again for their service. Starting in January 2006, Comcast will bump up the price of its most popular cable package by 6 percent. Time Warner, the nation's second-largest cable operator, plans to raise its rates an average of 3 percent for its expanded package and 2 percent for its limited basic. And Cablevision will raise rates an average of 2 percent.

What's more, consumers--especially those with children--are becoming increasingly agitated by the amount of violence and sexual content that comes into their homes on channels they'd rather not receive as part of their subscription package.

"At the FCC, we used to receive indecency complaints by the hundreds," said Martin in front of the Senate committee. "Now they come in by the hundreds of thousands. Clearly, consumers--and particularly parents--are concerned and increasingly frustrated."

But content providers and most of the cable industry say that offering programming piecemeal will result in even higher prices and less choice for consumers. They argue that such a pricing structure would infuse enormous technical, marketing and transaction costs into the business. They claim that an a la carte model would require consumers to lease a separate set-top box for each TV.

They also claim that an a la carte pricing model would increase overall subscription rates and reduce diversity of programming, because many of the niche or special-interest channels today are bundled with more popular channels. If these less-popular channels are sold independently, they will become too expensive to offer. And if these channels go away, advertisers have fewer places to show their commercials. The losses in advertising would have to be offset by consumers paying more for their favorite channels.

"We can't comment on any new FCC a la carte report until it's released and we've had a chance to review it," said Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association (NCTA). "But previous and recent analyses were consistent in their findings that government pay-per-channel regulation would be likely to hurt consumers by increasing prices, decreasing choice and reducing diversity in programming, and it would do so in a way that violates the First Amendment."

The bundle quandary
The way the cable packages are set up today, families who may want basic cable for channels such as Nickelodeon and the Cartoon Network are also forced to subscribe to channels such as MTV or Fox's FX, which often show programs that may be inappropriate for children.

Martin, as well as several consumer groups, say it's time that consumers have more choice in which channels they subscribe to. They believe this will not only help control costs, but it also would allow consumers to subscribe only to content they want to watch.

"People are not satisfied with what cable companies are offering them today," Kenneth DeGraff, a policy advocate at Consumers Union, the publisher of Consumer Reports. "Families are being told they have to subsidize content they find offensive. And the cable companies keep raising rates. They may throw in a few more channels, but no one ever asks consumers which channels they want."

The idea of allowing consumers to pick and choose which channels they want to subscribe to is nothing new. Cablevision, a cable operator in the Northeast, has been advocating the change for years. And just this week, the firm reiterated its support of the a la carte option for customers.

"We do not believe in the long term that selling programming a la carte will be detrimental to either programmers or cable operators," Charles F. Dolan, chairman of Cablevision's board of directors, said in a statement. "On the contrary, our experience indicates a la carte will result in a more affordable service for all with more programming options."

AT&T, formerly SBC Communications, has also thrown its support behind the a la carte option. The company is currently upgrading its broadband network and deploying more fiber optics to be able to offer a paid TV service.

AT&T's network, which will deliver video service via Internet protocol (IPTV), will be well suited to offer a la carte service because its IPTV system is inherently more flexible than the traditional broadcast networks used by cable and satellite TV providers. Traditional broadcast networks transmit programming for all channels at the same time. Viewers watch a particular channel by tuning into that channel.

IPTV networks operate differently. Instead of broadcasting TV shows across the entire network all the time, an IP network can deliver a requested program, or package of programs, to a specific Internet address. These shows could be delivered on demand or as part of a set schedule, but they would be pushed out only to the subscribers requesting them rather than to all subscribers.

AT&T has said it plans to begin offering its TV service in 2005 or early 2006. So far, it hasn't announced details of the service, nor has it announced any deals with programmers. But Dave Pacholczyk, a spokesman for AT&T, said the company is in talks with content providers to offer customers an a la carte option to its TV service.

"As we enter the video market, it is our goal to deliver more choices to our customers when they want it, in the way they want it," he said. "If consumers want a la carte programming, we will be happy to offer it so long as we are able to obtain access to the programming in that manner."

If a channel deserves to exist, people will pay for it, and if it's too expensive, they won't.

--Kenneth DeGraff, policy advocate, Consumers Union

Verizon Communications, which is now offering TV service in two cities, said that it would also offer a la carte programming. But in order for that to happen, the industry must change how it sells and licenses content.

"If the industry wants to go in this direction, we can do it from a technology perspective," said Eric Rabe, a spokesman for Verizon. "But the way the industry is structured today, it requires us to make certain programming available in tiers. That's the way the content is sold to us."

And here is where the problem seems to lie. Content providers like ESPN, which is owned by the Walt Disney Company, say that a la carte pricing ultimately costs consumers more because it reduces the reach of certain channels, which decreases advertising revenue. It also increases marketing costs, which result in higher prices that have to be passed on to consumers. Even though the FCC's report supposedly refutes these concerns, ESPN and the NCTA stand behind their claims.

"We haven't seen the report to comment specifically," said an ESPN spokesman. "But we don't support the premise."

ESPN is a good example of how bundled programming works. Its main channel is one of the most popular in most basic cable packages, and one of the most expensive. To help justify the price it often throws a few less-popular channels, such as ESPN2, into the bundle. If Disney sold each of its channels separately, it would likely sell more subscriptions to the flagship ESPN channel and fewer subscriptions to the lesser known channels. With fewer viewers, advertising revenue on those less-popular channels would likely go down as well. As a result, ESPN would have to charge more for the more-popular channel to offset losses on the less-popular channels.

But consumer advocates say that a free market will eventually work in consumers' favor. Not only will prices be forced to fall to attract viewers, but programming will likely get better because content providers will compete more aggressively for viewers.

"When cable providers add more channels, it doesn't change how much TV people watch," said Consumers Union advocate DeGraff. "No one watches a lot of those extra channels. They just go into the ether. If a channel deserves to exist, people will pay for it, and if it's too expensive, they won't."

DeGraff added that he isn't advocating that cable companies and content providers get rid of bundles entirely.

"Bundles aren't bad," he said. "But they only work when people can opt out of the bundle. We just think consumers should have more choices."