The Realities of Cable A La Carte

Forrester Research has released a new report entitled, "Cable A La Carte Pricing Creates More Problems Than It Solves." The entire report may be purchased here --on an a la carte basis--for a price of $279.

An excerpt from the report posted on NCTA's website, consistent with all the trade press reports I have read, is to the following effect:

In our research, we simply asked cable viewers to consider how much they would pay, if anything, to subscribe to any of 46 top cable channels, up to $10 a channel per month. Viewers chose a simulated bundle with an average of 26 channels, but were only willing to spend $24.08 a month, less than $1 a channel, half of what they pay now. Given the 8 hours of TV that US households watch daily, that’s about $0.10 per hour, compared with the $2.00 per hour we pay to rent a new release on DVD. In contrast, an hour of prime time costs advertisers $0.60 per head. At $0.10 per hour, à la carte pricing would never work: Producers and cable companies wouldn’t get paid enough to survive, and consumers would lose desired content.

I have not reviewed the entire Forrester report. But the research does seem to confirm what to me has seemed intuitive: Under an a la carte regime, subscriber's expectations about what they think they "ought" to pay or would "like" to pay for only their individual selections would not cover the costs of the programs and cable service. Thus, the significance of the last sentence above.

I do not know whether the producers and cable companies would, in fact, "survive" in the sense of not shuttering the windows ands closing the doors. Many surely would survive in one form or another. But there is little doubt that those cable companies that do survive under government-mandated a la carte will eliminate some networks or alter other programming within networks. This is the key to the argument I made in my recent piece, "The Constitution, A La Carte". Absent a compelling justification that cannot be met with less restrictive speech restrictions, a government mandate that causes a cable operator to eliminate or alter the programming almost certainly constitutes an infringement of the operators' free speech rights under the First Amendment.

Indeed, the likely constitutional infirmity of a la carte became even clearer only yesterday when a federal appeals court issued a decision vacating FCC orders imposing fines on Fox for allegedly indecent broadcast programming. Although the court did not base its decision on First Amendment grounds, it did say in a pointed aside: “Nevertheless, we would be remiss not to observe that it is increasingly difficult to describe the broadcast media as uniquely pervasive and uniquely accessible to children.” Of course, it is even more difficult to describe cable service as "uniquely pervasive" and "uniquely accessible to children." Not only do parents have to make an affirmative decision to subscribe to the service, they have to decide they don't want to use the readily available tools that allow blocking of any individual channel. It is not very likely that an a la carte mandate would find much in the way of support from the "uniquely pervasive rationale" in the 1970s Pacifica case involving an over-the-air radio broadcast.

The Executive Summary of the Forrester report concludes: "To satisfy the FCC and avoid legislation that would disorient consumers, cable operators should offer the benefits of a la carte pricing through smarter bundling of family, sports, or news programming in addition to the traditional tiered packages." I am not smart enough to know what, if any, degree of smarter bundling would satisfy the FCC and avoid legislation. But I do know that the video marketplace is sufficiently competitive that cable executives, who get paid big bucks to do their jobs, will do better at figuring out which business models meet consumers' needs than the folks at the FCC or on the Hill. And speaking of disorientation, I get disoriented just thinking about why the government would want to tread on such constitutionally suspect ground.