The concept of a la carte pricing for cable television programming is turning into a food fight, with the cable lobby firing the latest round of pate.
The National Cable and Telecommunications Association called a press conference March 15 at the National Press Club to refute the latest a la carte findings of the FCC. In February, the FCC issued a Further Report on a la carte that said allowing consumers to pick and choose individual channels could be cheaper than the current tier-pricing scheme. The report was a revision of the commission's original November 2004 findings that a la carte would cost more.
"The FCC Further Report is not a conclusive study on the value of a la carte," said Dan Brenner, NCTA senior vice president of law and regulatory policy. He said the report correctly identified a math error, but that the error itself wasn't corrected properly. The FCC Further Report noted that free broadcast channels were not excluded in calculating the cost of cable channels under a la carte. Consequently, the report noted, that cost was overstated by as much as 50 percent.
The NCTA brought out a couple of economists who explained why this wasn't the case in terms that only other economists could understand. The bottom line for cable is that a la carte would eviscerate the industry's business model from both ends. Allowing 68 million or so cable customers to choose individual channels would wreak havoc in billing departments everywhere. It would also unravel years of labyrinthine deals with around 200 programming networks, which negotiate to get carriage in a guaranteed number of households.
Brenner also noted that the Further Report assumes an all-digital world, "when at least 60 percent of customers do not have a digital box."
Preston Padden, executive vice president of the Walt Disney Co. said Disney Channel was a object lesson in the cost of a la carte.
"Disney Channel was born as an a la carte channel," he said. "For 15 years, it cost $12 to $14 for each consumer."
It never reached major penetration and had high churn -- customers picking it up and dropping it. For a while, Padden said Disney did a "dual model" with the channel, where it was on expanded basic in some areas, and offered as a pay premium service in others.
"It didn't work," he said. "We and our cable partners made a painful transition onto expanded basic."
During the painful transition in question, Time Warner Cable elected to drop Disney-owned ABC in New York rather than move Disney Channel to expanded basic. The cable operator instead succeeded in enflaming the cable-subscribing population of Manhattan.
Even while Padden vigorously defended the cable tier model, he talked about a video distribution system that could eventually render it obsolete. I.e., ABC will start delivering its shows over the Internet in April, just eight hours after they are broadcast on TV. The net already sells episodes of "Desperate Housewives" and "Lost" through iTunes for cell phone video junkies. Padden said if 'Net streaming works well for ABC, other Disney owned nets may follow suit.
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