No Savings Here
June 4th, 2008 by Peter SudermanCable a la carte is an older issue, but, thanks to folks like Kevin Martin and the PTC, it keeps popping up. And guess what: A la carte advocates, who seem to think that there are cost savings to unbundling cable packages, still don’t seem to know what they’re talking about. Not only is the idea a silly one — why can’t people just change the channel if they don’t like what’s going on? — it rests on a fundamental misunderstanding of the economics of cable TV delivery.
Over at TechDirt, Timothy Lee explains:
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.
As I’ve noted before, some studies actually indicate that over costs could go as much as 20% up under an a la carte regime. It’s not only that there’d be little in the way of savings. It’s that it’s actually less efficient to deal with personalizing service that way. It’s much more efficient to simply allow consumers what they want to watch on the delivery end rather than try to sort it out on the provider side.
June 5th, 2008 at 2:44 pm
In June of last year, Forrester Research released a report entitled “Cable À La Carte Pricing Creates More Problems Than It Solves.” The report included this observation:
Many proponents of a la carte seem to have unrealistic notions of the cost and value of programming.
June 6th, 2008 at 6:23 pm
Interesting…
Why, Peter, are you taking what is a de facto anti-free-market position?
June 7th, 2008 at 8:04 pm
“why can’t people just change the channel if they don’t like what’s going on?”
It’s not about people that are not enjoying the content that they are getting. It’s about the ever rising cost of cable TV! What are your solutions to this problem??
I say…more, actual competition would help…what we have right now are basically a whole bunch of monopolies. Switching to satellite TV isn’t really an option either…cable & satellite are basically apples & oranges IMO. The technology exists *right now* to do a la carte, but I think that the cable companies don’t want to lose advertising revenue if people end up watching less channels.
June 9th, 2008 at 8:39 am
My solution to the cost of cable TV is: If you don’t want to pay more, don’t! There’s no right to cable TV, and if the price is so high that the service is untenable, the services will either 1) fail or 2) develop a way to reduce costs to make the service work.
Also: I’m not sure how it might be anti-free-market to oppose government mandates on how a company ought to price and/or bundle its services.
June 10th, 2008 at 10:51 am
What are you talking about? You didn’t mention government regulation once in that post. Indeed, the key graph states:
If you actually read the arguments the other side makes–particularly about how the cable companies prop up programming nobody watches (by bundling it with stuff people actually watch)–you’d see easily how the cable companies are trying to overcome the free market. If cable religious programming, for example, were unbundled from cable packages and sold a la carte, those operations would go under within weeks because they’d have no revenue (because nobody watches them).
Indeed, religious programming is the real issue here. They know what I just wrote is true, and they’re some of the most fervent opponents of a la carte regimes, either by government or by cable companies themselves. I know why you never mention this, especially since at least three of your state directors are either members of, founders of, or leaders of right-wing religious groups dedicated to ending abortion and gay marriage. (More on FreedomWorks numerous connections to ultra-right-wing religious organizations in a future post.) You wouldn’t want your libertarian readers to know about it.
That said, governments aren’t the only danger to free markets, Peter. I know that’s what you want us to think, but it’s simply not true.
June 10th, 2008 at 11:22 am
I don’t oppose a la carte as a business model. I oppose the FCC forcing cable companies to offer it. If companies want to voluntarily offer a la carte pricing, they should go right ahead.
Religious programming is one issue, and I’ve mentioned the threat to niche programming in previous articles. But it’s not the only issue. The Parent’s Television Council — a very sternly moralist, religious group — has been one of, maybe the single most, vocal advocates of a la carte regulation. So there are social conservatives on both sides of the issue.
June 11th, 2008 at 7:58 pm
“If you don’t want to pay more, don’t!”
How?? I just give up my cable TV then? Shouldn’t YOU be the guys that are for MORE competition in the marketplace, not the status quo whereby cable companies have basically their own monopolies over entire states are large portions of states?