18 February 2006

À la carte TV myths

The controversy over à la carte cable and satellite programming keeps resurfacing. The basic problem is that cable prices keep rising, to the point where the basic level of digital cable is over $50 a month in many places. Prices have risen 40% in the last decade.

(As an aside, I’m amazed at the whiners in the UK who complain about paying £126.50 a year for a TV license that gets them the best premium programming from the US, as well as UK TV. I pay $588 a year to get a similar selection.)

Viewers find it galling to pay for a hundred channels when there are only a handful they watch on a regular basis. Hence there has been a campaign to get the FCC to rule that cable and satellite providers must offer the option of à la carte programming, where you can choose to subscribe to only the channels you actually want.

The cable and satellite companies don’t want to see that happen, as it would eat into their fat profits. Since the same companies own a lot of the mainstream media outlets, I’m constantly seeing astroturf coverage explaining why à la carte programming is impossible, would make your cable bills skyrocket, is tantamount to Communism, and so on.

This is my attempt to cut through a lot of the common bullshit spouted on the subject.

Myth #1: À la carte programming is technically difficult and/or expensive

Before the current digital satellite systems became popular, satellite TV required a big dish. If you check the web, you’ll find that big dish C-band satellite TV is still available. And even though C-band is based on old analog technology, you can still get channels like Bravo, Discovery, EPSN and TNT on an à la carte basis.

The same story is true for cable. While package selection used to be performed using analog signal filters to remove blocks of frequencies, those days are long gone. Modern digital cable boxes can enable and disable individual channels. That’s how they do their expensive on demand video, after all.

On demand video is also the obvious retort to the idea that à la carte would have too high an administrative overhead. If DirecTV or Time Warner can unblock my access to a movie channel for 24 hours and have low enough processing overheads to make a profit charging me $3 for the movie, they can afford to handle à la carte subscriptions.

If you’re one of the people who doesn’t watch sports on TV, or who watches local sports on local channels, don’t forget to take a look at the C-band price of those cable sports channels you’re paying for. $79 for ESPN and ESPN news, $98.25 for ESPN and ESPN2, another $56 for the golf channel…compared to $7 for a regular channel like Comedy Central or Bravo. Care to guess how much of your cable bill is going to sports you never watch?

Myth #2: À la carte programming would be offered if the market demanded it

A lot of people think that the mythical invisible hand would make companies offer à la carte programming if customers demanded it. In fact, right now the “pure service” companies (i.e. those who don’t own their own slab of channels) have no choice. They’d like to offer individual channels, but they can’t.

The problem is that media consolidation, started by Reagan era deregulation, has left us with a world where almost all the TV networks are owned by half a dozen big companies. Those companies are the ones who force bundling, by dictating that your satellite provider can’t offer you the channels you want, unless they also make you take and pay for the channels you don’t want.

For example, Disney won’t let anyone sell you a feed of ABC, unless you are also made to pay to subscribe to the expensive ESPN. That’s why ESPN is part of every basic package. Similarly, Viacom demands that if you get CBS, you must also get MTV; and if you want Comedy Central, you also have to be made to pay for Nickelodeon, VH1, and a bunch of other junk. When Dish Network tried to fight Viacom’s bundling and their demands for 40% price hikes, Comedy Central disappeared from Dish—and John Stewart and team shilled shamelessly for Viacom on the Daily Show, pretending it was Dish’s fault.

Don’t want your money going to Fox News? Well, if you want to get any other Fox channels, you’re out of luck. Without regulation, the media cartel is never going to let you stop paying for all those news and sports channels that they bundle with the stuff you actually want.

A survey by Jupiter Research discovered that 46% of people would switch cable providers, if the competitor offered à la carte programming.

Myth #3: The TV companies would charge so much for individual channels that nobody would be able to save money

Let’s take a real-world example: me. The channels I watch are BBC America, Discovery, PBS, Cartoon Network, Comedy Central. Let’s examine the real world C-band prices again. Discovery is $14.94 a year, let’s assume BBC America (another Discovery channel) is the same. Comedy Central is $7.90 a year, Cartoon Network $7.56, and PBS is free (I can get it over the air via a wire loop). That’s a grand total of $45.34 per year. That’s less than a tenth of what I’m currently paying to watch those channels.

The FCC reckon that the average household watches 17 channels, and that if you watch 20 or fewer channels on a regular basis you would save money buying them individually. If you don’t believe the FCC, try pricing up your personal channel list based on C-band prices.

And remember, those C-band rates are unregulated prices, already jacked up to encourage you to buy bundles instead. With proper regulation, prices could be even lower. Hell, with the money I saved I’d splash out and get Discovery HD Theater!

What do I mean by proper regulation? Well, I’m definitely not proposing that the FCC should set the prices charged; rather, I propose that as well as requiring that channels be available à la carte, the FCC should set a cap on the premium companies are allowed to charge for à la carte channels. Or to look at it the other way, they should limit the discount companies are allowed to offer on bundles. This is a normal thing to do in cases of monopoly or cartel: governments do it to prevent dumping and unfair bundling.

How would it work? Here’s a simple hypothetical: The FCC could rule that the price of a package of channels could not be discounted more than 25%, based on the prices of the individual channels in the package.

In other words: if your Viacom bundle is made up of MTV, VH-1 and CBS, and those channels cost $7, $6 and $9 (respectively) to purchase individually, the bundle would have to be priced at at least 75% of $7+6+9 = $16.50. So if you only wanted one or two of the channels, you’d probably save by buying them individually.

And if it turns out that individual channels aren’t cheaper, then guess what? You can still buy the cheaper bundle. Nobody’s trying to eliminate bundles; we just want to make sure they’re not the only way to get channels, and they’re not priced unfairly so as to get control over the market through unfair pricing.

How would my straw man regulation above prevent unfair pricing? Suppose Disney decided to jack up the à la carte price of ABC to $200 a year to try and force people to buy the bundle that included ESPN. Because of the regulation, the bundle would have to be at least $150 a year. Cable and satellite providers would probably drop Disney from their basic lineup rather than have to raise their base package prices that much, so suddenly the Disney package would get broken out into a separate option. It would be relatively clear to the consumers who was doing the price gouging then, and most likely commercial competition would force Disney to think again. Either that, or Radio Shack would sell a ton of cheap over-the-air antennas to people who wanted ABC.

Still, in spite of real world data and the possibilities of regulation, some people seem to be buying the myth that bundles of TV channels offer us bargains we couldn’t get any other way. To those people, I say: Suppose you went to the supermarket and saw that Coke was only available in 6-packs which contained 2 Cokes, a Sprite, an A&W Root Beer, a TaB and a Fanta. Would you think “Wow, what a bargain to get all that soda in one package so cheaply”? I don’t think so.

Myth #4: À la carte programming would kill niche channels

This is a subtle myth, aimed to tug at the heartstrings of liberals who would otherwise like to see government regulation of TV fat cats. The argument goes that if nobody has to buy (say) Bravo, not enough people will do so to let the channel continue to make a profit.

To understand why reality doesn’t work like that, it’s instructive to take a look at the first decade or two of Channel 4 in the UK.

When Channel 4 was launched in 1982, it was envisioned as a channel that would offer niche programming. It was also intended to be a commercial channel, funded by advertising rather than by UK TV license funds. However, conventional wisdom was that a channel that offered alternative comedy from unknown performers, documentaries about American quilt making, and art house movies, could never survive on advertising revenue. Therefore a system was worked out whereby the populist ITV and Channel 4 were grouped together, and whichever made the most profits would give money to the other. In other words, it was financially almost exactly like the way US corporations shore up unpopular channels by bundling them with popular ones.

The theory was that ITV would keep Channel 4 afloat. After a while, however, something rather interesting happened. It turned out that people with exotic tastes in TV also tended to have exotic amounts of disposable income. Ten times more people watched ITV soap operas than watched anything on Channel 4, but if you were (say) BMW, you were much more likely to want to target the small Channel 4 audience with your ads.

Before long, the niche channel was raking in advertising money at the expense of the populist channel. In fact, before long Channel 4’s profits were being diverted to help fund ITV.

So while the belief was that niche channels couldn’t survive without bundling, the exact opposite turned out to be the case: the popular channel was supported by the niche channel.

Of course, it’s possible that you wouldn’t get the same situation in America; but then again, look at PBS. While PBS does get some federal funding, it amounts to less than 15% of the network’s annual budget. The rest comes from viewers, and from “sponsorship”—basically, tasteful advertising that doesn’t push specific products.

Not only does PBS manage to survive under those restrictions, it thrives. If you get a digital TV, you’ll soon discover that surprisingly, PBS has the best digital TV coverage. Whereas most of the commercial channels are still filming in 4:3 standard definition except for a few headline shows, most PBS programming is 16:9 enhanced resolution—even the shows that consist of someone taking a walk around a local flower show.

And if bundling is supporting niche TV, where’s my niche TV? Viacom’s “gay” TV network Logo isn’t in DirecTV’s core package; nor is The Science Channel. In fact, the Science Channel used to be an à la carte add-on.

Take away the cable TV trappings, and this is basically the age-old argument in favor of subsidy of the arts: subsidize niche stuff or it will cease to exist. Even if that’s true, I’m inclined to say: So what? Why is it that people who talk about the wonders of the free market one moment, will then turn around and say that certain kinds of art should be protected by subsidy?

My personal view is that protecting art through subsidy leads to crappy art. I’ve been to Montreal, I’ve wandered through art galleries filled with junk that was paid for by taxes and included in exhibitions to fill quotas. If bundling is what’s keeping G4 TV alive, I say let it die.

Myth #5: À la carte is part of a plot to get rid of profanity on TV

No, really, I’ve seen that one argued.

So, take a look at the channels that have the most profanity. Well, there’s Showtime and HBO—both premium à la carte channels. The next biggest ‘offender’ is probably Comedy Central, where South Park featured the word “shit” 162 times in one 30 minute episode, and where movies are shown late at night with the swearing uncut. Yet Comedy Central is so popular that demand for it forced Dish into a humiliating and expensive climbdown with Viacom.

What about vulgarity in general? Well, Fox has Family Guy and American Dad, which have done a pretty good job of pushing the boundaries of good taste. In fact, the Parents Television Council (sic) give Fox the top 4 spots on their list of the ten worst shows on TV, with Fox providing 6 of the 10 most offensive shows in all. Yet they’re also some of Fox’s most popular shows, so much so that Family Guy and American Dad get licensed by Warner Brothers for syndication on Cartoon Network as well; and of course, Fox is available over the air, for free, à la carte, and on Sunday no less. Doesn’t seem to have killed the obscenity, does it? You’d think the right wing Christians would at least be able to get Fox to clean up The Lord’s Day; after all, all they’d have to do would be to boycott Fox News, right?

(Hmm, maybe I should check out The War At Home.)

Need more persuading? Look at hotel room TV. All the biggest and most successful hotel chains carry porn on their TV systems, because no matter what self-proclaimed average Americans may say, porn is very popular, very mainstream, and very profitable.

So, I think that kills the “it’ll put us at the mercy of prudish Christians” argument.

Sure, some Christians would love to be able to buy CBS, Lifetime and PAX, and not have to have lewd and profane content available on their TV sets. In this case, what suits them happens to coincide with what suits most of the rest of us. They’re far from the only people who would benefit from unbundling, though; for instance, I’d love to be able to eliminate Fox News and the Christian channels from my lineup.

In fact, that possibility scares many Christian TV networks. They want to keep laws in place that require that their channels be carried.

Myth #6: Without bundles of channels, people won’t learn about things that interest them

Some people argue that if you aren’t forced to subscribe to channels, you won’t ever discover new things you like. There are several reasons why this is a poor argument against offering à la carte programming.

First off, since when is it the job of corporations to force people to learn to like new things? If people want to watch the same TV every day for the next 50 years, isn’t that their decision to make?

Secondly, how often do you discover something you like by idly watching channels you don’t want? Sure, if you have TiVo, sometimes it’ll pick something up that it thinks you’ll like, and occasionally it’ll be right; but I don’t know of anyone who spends time watching channels they dislike in case there’s something interesting on them, do you?

I strongly suspect that most people learn about new things they might like by word of mouth. The Internet is the most amazing engine for word-of-mouth discovery ever invented. Put the occasional free episode up for download without DRM, and if the show’s appealing to anyone at all you’ll get word of mouth like you wouldn’t believe.

Then there’s the fact that nobody is suggesting that cable providers be prohibited from selling bundles of channels, or that viewers be prevented from subscribing to them. If you think bundling is an important way to discover new stuff, go ahead and buy a package of channels.

Finally, has anyone ever encountered a cable or satellite provider that didn’t have free preview channels? I’ve often been enticed by free Showtime/HBO programming over a weekend. I’d probably subscribe to Showtime or HBO, if I wasn’t having $25 a month drained by sports and news channels I never watch.

Myth #7: À la carte TV is censorship!

Another argument that I can scarcely believe anyone would make, but they do. The TV industry is even trying to paint the whole battle as a first amendment issue!

Well, here’s my take. I literally never watch any TV news. I’m never going to watch any TV news. If I get to stop paying for something I never watch and never will watch, that’s not censorship. Freedom of speech does not include the freedom to get other people to pay for the distribution costs of your speech. (Spammers also take note of that point.)

Todd Chanko of Jupiter Research uses a magazine analogy. Well, right now on TV my cartoons and science channels come with bundled sports, news, game show networks, religious TV channels, and softcore porn. Would he think it was sensible or desirable if every copy of Newsweek was sold as a bundle with Playboy, Sports Illustrated, Batman, Christianity Today, Scientific American, and three lottery scratch cards?

Come to think of it, if that kind of bundling was economically sensible and desired by consumers, wouldn’t we see magazines like on the newsstand?

Myth #8: Unbundling would be a disaster for sports

We’ve already seen the sky-high prices charged for ESPN and the other sports channels, compared to regular TV channels. Now, imagine if those channels are compulsorily unbundled and lose half their “audience” overnight.

Well, so what? Maybe it would take some of the money out of sport. Isn’t the pervasive and corrosive influence of big bucks one of the things sports fans are always complaining about?

And why should I be required to subsidize the NFL, NHL and MLB anyway? If the whole edifice collapsed overnight people would still play sports, you’d still see sports on TV. You just wouldn’t see as many sportsmen raking in over $1 million a year.

The way I see it, unbundling would be great for sports. It would just be bad for the corporate sports industry.


Think you’ve got a great argument against à la carte TV that I haven’t dealt with above? Feel free to e-mail me.

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