For Once and For All, Cable "a la Carte" is a Bad Idea
Written by Video Savant
Wednesday, 04 June 2008
There are more than enough bad ideas enough to go around, But then, there are bad ideas that originate within our federal government, and while that means they tend to be fewer in number, they also tend not to die until some determined bureaucrat, legislator or judge figures out a way to foist them onto the American public.
So far, the FCC campaign for "a la carte" cable pricing, spearheaded by current FCC head Kevin Martin, is one of those bad ideas that has not yet morphed into the law of the land. But that doesn't keep Martin from coming back again and again with new twists on how to make it happen.
Martin's latest run against the ticking clock that is his term as FCC chairman would add a new wrinkle to a la carte pricing, in which cable companies would be allowed to drop from their expanded basic packages any channel where the programming provider required payment of more than 75 cents per month per subscriber. It appears that the thinking is that would result in lower prices for the most popular channels, and bring overall subscription prices down, which would presumably make it easier for cable companies to offer "a la carte" pricing.
While it's near enough impossible to argue against the desirability of lower cable TV prices, government intervention is anything but a sure-fire way of getting there. After all, the FCC has been responsible for regulating the cable industry for more than 20 years, and prices have consistently and impressively outpaced the Consumer Price Index during that reign. For example, the Bureau of Labor Statistics reports that cable TV prices have risen 77 percent since 1996, roughly twice the consumer inflation rate.
The problem with government and regulation is that it often starts with a flawed understanding of how markets and competition function, which leads to unintended consequences that typically make things worse, not better. There's plenty of evidence that this is true for the FCC and cable pricing.
People imagine that an a la carte mandate would mean that if they're currently paying $50 per month for 50 channels, then they should be able to pay $1 per month for one channel. But that doesn't make any sense. Switching a given customer from 50 channels to 1 channel doesn't reduce costs (the other 49 channels would presumably still be produced for other viewers), so why should the customer expect a lower bill? If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels. In reality, what would happen is that the cost of each channel would go up a lot. Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average. The result would be that most people would pay about the same for a lot fewer channels.
It's a mistake to think of bundling as being "forced" to pay for channels we don't want. After all, non-sports fans don't get outraged about the fact that they're "forced" to take the sports section with their morning paper. The right way to think about it is that you're paying for the parts of the bundle that interest you, and the rest of the paper is a freebie that doesn't cost you anything extra. It would be silly to demand that newspapers price each section of their paper separately and let you do without the sections you don't want. It's equally silly to demand that cable companies not show you channels you're not interested in watching, since those aren't costing you anything either.