Policy

NCTA-Funded Study: A la Carte Hikes Rates

7/15/2004 5:30 AM Eastern

A cable-industry-funded study released Thursday showed that under three scenarios, the forced sale of cable networks a la carte would cause rates to rocket higher and clobber niche networks denied the scale afforded by highly penetrated tiers.

The study -- funded by the National Cable & Telecommunications Association and conducted by Booz Allen Hamilton Inc. -- was filed with the Federal Communications Commission in connection with the agency’s congressionally requested a la carte study due Nov. 18.

In one finding, Booz Allen’s study determined that if cable operators had to offer all channels a la carte even while continuing to offer tiers, cable rates for subscribers who elected not to purchase even a single a la carte service would rise between 7%-15%, simply due to costs to outfit cable systems with a la carte technology.

In all, the NCTA billed the study as a strong refutation of claims that a la carte would empower consumers to control the cost of their monthly cable bills.

The study did not address arguments that a la carte would prevent parents from having to pay for channels with indecent content that is inappropriate for children.

The study, unveiled at a press conference at NCTA headquarters, examined the following scenarios:

• All channels offered a la carte, except for broadcast channels.

• All channels offered a la carte except broadcast channels, but tiers would be offered simultaneously.

• A number of themed tiers that have channels also offered in larger tiers.

“In each of the scenarios, the model shows that the average consumer -- indeed, almost all consumers -- would be significantly worse off,” the NCTA said in an FCC filing accompanying the Booz Allen study.

The study concluded that a la carte would punish networks because the lack of full household distribution would hammer their advertising revenue and force marketing spending to rise from about 4% of revenue to 20%.

A la carte would also slam cable companies because they would have to convert analog channels to digital and consume bandwidth on duplicative channels that would otherwise be used for advanced services.

And cable operators would have to shoulder back-office costs because a la carte menus would require new billing software in call centers, where phone traffic would surely rise.

Booz Allen confirmed another point stressed by the NCTA in its opposition to a la carte: Consumers would pay more for fewer channels.

The study said analog-only consumers would be able to purchase only six channels and digital customers only nine channels in order to guarantee that the cost of an a la carte system did not exceed what they currently pay for cable.

The stresses an a la carte system would place on the cable industry would be disproportionately felt by cable networks trying to break into the business, the study said.

“As many as one-half to three-quarters of emerging networks could fail under each of the scenarios, including a growing number of targeted niche and ethnic program networks, and new network launches would likely become extremely unlikely,” Booz Allen said.