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Chris Llana, Editor


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FCC Reverses Stance on a la Carte Channel Pricing

February 11, 2006

In a February 9 report titled "Further Report On the Packaging and Sale of Video Programming Services To the Public", the FCC refuted the findings of a report it had issued on the same subject in 2004.

The earlier report, which had accepted the arguments and conclusions of a cable industry sponsored study, suggested that a la carte cable channel pricing would be bad for consumers and the cable industry.

A la carte channel pricing is the offering of cable channels to consumers on a per channel basis, rather than the usual practice of packaging large numbers of channels together ("tiers") for a single (large) price. So, for example, if you only watch five cable channels, you would only have to pay for those channels.

In the new report, the FCC re-examines the issues independently, and applying a bit of scholarly economic theory, comes to the conclusion that a la carte channel pricing would be a good thing for the American public, and practical to implement by the cable industry assuming that it is implemented using digital TV technology in conjunction with the transition to digital/ATSC TV.

This is big news for consumers, but the report did not propose any legislative or regulatory changes that would implement its findings. A move to a la carte channel pricing is strongly opposed by the cable industry, and as you read this, a small army of industry lobbyists are waging battle against the implied proposal. We'll see what happens.

Here are a couple of quotes from the 61-page report:

"A more balanced analysis suggests that a la carte could produce many consumer benefits that the First Report fails to consider. A la carte may reduce consumers' prices, thereby potentially increasing demand for MVPD services. Moreover, under a la carte, production of programming may be both more economically efficient and more responsive to consumer demand."

And...

"Section II of the Economic Appendix to the First Report summarizes a study prepared by the management consulting firm Booz Allen Hamilton that models the likely outcomes if a la carte were introduced in some form. The First Report relies upon the study significantly to support the contention that a shift to a la carte would raise prices and reduce programming diversity. As discussed below, the study contains mistakes and relies too heavily on untested assumptions, some of which appear unlikely to occur. Correcting solely for the mathematical mistakes in the Booz-Allen-Hamilton Study, even with their questionable assumptions, we find that consumers could be better off. Moreover, using a different set of assumptions, the results could be significantly different."

Click on this link to see the FCC press release.