ACA: A La Carte Would Be Status Quo

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Washington – Big cable programmers shouldn’t have a worry if the Federal Communications Commission adopts so-called wholesale a la carte rules because many content owners claim they make their channels available in that manner today, the American Cable Association said Tuesday.

“Many programmers say they already offer channels on a stand-alone basis. ACA’s proposals would simply codify this practice, and give a remedy in case stand-alone channels were not offered on reasonable terms,” ACA told the FCC in a filing. “As programmers and broadcasters claim they already do this, they should have no legitimate objection to the [FCC’s] incorporating this into its regulations.”

ACA – which represents 1,100 cable companies with 8 million customers – has been battling Viacom, The Walt Disney Co. and other big programmers for many years on the wholesale distribution of cable programming. Small MSOs complain that the bundling of channels, also called tying, forces them to buy more programming than they want and pass along unwanted costs to unhappy consumers.

In separate comments, Disney repeated that the FCC has no legal authority to force it to wholesale channels one at a time. Disney submitted a study by Criterion Economics chairman Jeffrey Eisenach, who argued that any wholesale mandate had to be accompanied by FCC regulations to ensure that a la carte prices were reasonable.

“Regulation advocates have failed to establish that there is a market failure of any sort associated with the wholesale market for television programming,” Eisenach argued, adding that ACA’s proposal would “reduce economic welfare significantly, though the precise magnitude of the welfare loss would likely never be known.”

From ACA's perspective, the FCC needs to force programmers to make every channel available to cable and satellite distributors on a stand-alone basis. ACA’s plan would not bar programmers from offering package deals at the same time.

“Programmers and broadcasters want to be free to offer wholesale channel bundles. Under ACA’s proposals, they would remain free to do so. They would simply need to also offer channels on a stand-alone basis on reasonable prices, terms and conditions. Rather than restrict wholesale offerings, ACA’s proposals would expand them,” ACA’s filing said.

FCC chairman Kevin Martin, who has embraced ACA’s proposal, could try to pass a rule at any point. Although ACA has endorsed wholesale a la carte, it has not agreed that its members would turn around and retail those channels to customers on an a carte basis.

FCC Republican Robert McDowell has expressed concern that wholesale a la carte mandates would lead to price controls on cable channels, but FCC Democrat Michael Copps believes the FCC doesn’t need to set prices to make wholesale a la carte a viable venture.

In his paper for Disney, Eisenach said wholesale a la carte proponents were in denial about achieving their aims without price regulation. Someone, he said, would demand that the FCC decide whether an a la carte price for a channel was reasonable.

“[Wholesale a la carte rules] cannot be meaningfully implemented without the imposition – whether implicitly or explicitly, directly or indirectly, immediately or eventually – of wholesale price controls on television programming. And no matter what form they take, price controls over wholesale television programming would prove unworkable, distortionary, and damaging to the [FCC], the industry and consumers,” Eisenach said.

Price controls could come into play because programmers could defend their bundling preferences by pricing a la carte channels at very high levels, defeating the purpose of the FCC’s rules.

In its comments, ACA suggested programmers overcharge for a la carte channels today, providing powerful evidence that programmers’ a la carte offerings are not realistic options.

“For smaller distributors, programmers' `stand-alone’ offers are illusory because they're priced at levels that coerce purchase of the bundle,” ACA said.

ACA said the FCC also had to peek inside programming contracts to understand the market as it really works.

“We encourage the [FCC] not to be fooled,” ACA said. “We again suggest that the [FCC] require programmers to provide actual contracts, both for large and small distributors, to get behind the rhetoric and see the reality of tying and bundling, distribution obligations and price discrimination.”

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