HARRY C. MARTIN /
01.01.2005 12:00 PM
a la carte gets negative response

In late November the Media Bureau released its report detailing the (few) pros and (numerous) cons of an à la carte pricing model for cable and satellite (multichannel video program distribution, or MVPD) programming. Last May, members of the House and the Senate requested that the FCC weigh in on the potential for la carte pricing in MVPD markets to reduce rates and increase viewer control over channel and content selection. In response, the bureau conducted a symposium and solicited public comments on the positives and negatives. As a result of its research, the bureau gave the model a less-than-warm reception.

According to the bureau, an à la carte model would not lower subscription costs or promote viewer choice. It concluded that the outcome of such a model would be an increase in the subscribers' monthly bills, in addition to a dwindling supply of channels from which to choose.

The bureau's thinking goes like this: Under an à la carte system, MVPD providers would would have to implement a complicated new system for tracking and billing for millions of individualized, household-by-household program selections. This would cost more than continuing to offer the tiered programming bundles currently available, and the additional costs would be passed on to subscribers. Only those customers purchasing fewer than nine networks would actually see their cable or satellite bills reduced. The average MVPD subscriber, who regularly watches 17 channels, would get hit with a rate increase somewhere between 14 percent and 30 percent.

The bureau also concluded that the model would have a detrimental impact on the diversity of programming options. Under the system, networks would no longer be assured of inclusion in a basic programming tier, and many niche market providers would have to bump up marketing efforts in order to attract viewers. And, while these same special interest networks would thus be incurring (presumably) greater promotion costs, they would also likely be taking a corresponding hit in their advertising revenue. The loss of ad revenue, combined with increased marketing and operational costs, could drive many niche market networks out of business. This would reduce the options available to viewers. Some observers say that this is what has happened in Canada, which has an à la carte pricing model.

The bureau's negative assessment of à la carte pricing extended to both a mandatory approach and a partial, voluntary one. The same cost increases would apply whether the model were mandated or introduced as an option alongside tiered programming. Either way, these cost increases would be passed on to subscribers.

Rather than focus on à la carte as the solution to high prices, the bureau recommended that Congress provide incentives for increased market competition. The bureau noted the emergence of USDTV as an alternative to cable and satellite and the entry of phone companies into the video marketplace (e.g., SBC/Microsoft) as positive developments in this direction. With regard to viewer control over channel and content selection, it suggested that VOD technology and digital video recorders (e.g., TiVo), as well as the V-chip, ultimately offer better means to improving viewer control.

The bureau also addressed the practice of tying the acquisition of rights to a popular program network to the purchase and carriage of less popular program networks, say, for example, in the context of retransmission consent negotiations. Interestingly, it concluded that tying arrangements may well be counter to the public interest because they can lead to less-than-optimal use of channel capacity. However, the bureau ultimately punted, recognizing that Congress established the retransmission consent process, and that it might be imprudent for the bureau to conclude that the process is not working as intended.

With these considerations obviously in mind, the bureau also suggested that if there is a problem, it ought to be addressed in the context of antitrust laws.




Harry C. Martin is president of the Federal Communications Bar Association and a member of Fletcher, Heald & Hildreth PLC, Arlington, VA.

Dateline

Feb. 1 is the deadline for TV, LPTV and TV translator stations in Arkansas, Louisiana and Mississippi to file their license renewal applications. Also on Feb. 1, TV stations in those states must file biennial ownership reports and EEO program reports and begin broadcasting their renewal post-filing announcements.

On Feb. 1, TV stations in Indiana, Kentucky and Tennessee must begin broadcasting their pre-filing renewal announcements. According to the Bureau, an à la carte model would not lower subscription costs or promote viewer choice.

Send questions and comments to: harry_martin@primediabusiness.com



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