Cable Sounds the Rate Bell Over à la Carte
July 16, 2004
The cable lobby is gunning away at a threat to its business model by saying cable rates will rise if à la carte pricing is imposed.
The National Cable Telecommunications Association sounded the price alarm at a press conference Thursday, the day after the House telecom subcommittee tossed around the idea of strong-arming cable into à la carte pricing, and the last day of the FCC's comment period for a report coming out this fall.
The witnesses at the House hearing included ever-present consumer advocate Gene Kimmelman, whom NCTA chief Robert Sachs quoted telling the lawmakers that à la carte would be "an interesting idea."
In his very best indignant voice, Sachs said, "We don't think an entire industry should be restructured because a consumer advocate thinks this is an interesting idea."
Sachs and Co. hired heavyweight-marketing firm Booz Allen Hamilton to drive home the point in the NCTA's filing.
"We felt it important to have the most thorough record possible in front of the FCC," Sachs said.
Matt Egol, principal in the Booz Allen New York office, said his firm evaluated three pricing scenarios - pure à la carte, tiers combined with à la carte and themed tiers.
"Consumers would be worse off under each scenario," Egol said, indicating that cable operators had no intention of absorbing any of the pain.
Even subscribers who kept their current cable packages would see rate increases of seven to 15 percent, depending on how many people opted for à la carte, Egol said. He went on to say that such pricing schemes would inhibit program diversity and kill shaky niche nets that couldn't get a foothold. (Although no one in the room could name a truly independent channel, with no ties to a media conglomerate, that's been able to get a foothold in the last three years.)
Egol estimated that à la carte channel choice would chew up around 40 MHz of bandwidth, and thus reduce VOD and broadband service, which is congested in some systems as it is. The last major cable build-out brought systems up to a capacity range of 550 to 750 MHz.
As for technology costs, Egol's group did not include an estimate of the necessary capital investment for plant modifications, which may indicate that such costs would be minimal. Egol did say that providing the set-tops necessary for a la carte would run about $185 each, but a filing from Blonder-Tongue Labs disputed the need for such boxes.
Egol also said the resulting complications in billing and customer service would add costs, because MSOs would have to hire more reps to explain channel-choice options, unlike they've done with cable cards and FireWire outlets.
NCTA legal chief, Dan Brenner, said the NCTA's filing with the FCC consisted of the Booz Allen analysis as well as an assertion by two University of Chicago law professors that à la carte violates the First Amendment.
À la carte pricing will appear next at the FCC at a Media Bureau symposium Thursday, July 29 starting at 9 a.m.