FCC’s Crammed Menu

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So many ideas about cable a la carte pricing have flooded the Federal Communications Commission, they could fill a Chinese menu.

For many programmers, the issue has a simple context.

A la carte would cost them millions of potential viewers, causing big advertisers to flee. Thus, nearly all revenue would have to come from license fees, which they’d need to raise to offset lost ad money. Higher license fees would lead to higher cable rates, reducing demand for a wide range of programming.

Many cable operators have stressed operational drawbacks.

A la carte would require MSOs to overhaul billing and customer service to accommodate millions of discrete transactions, wiping out efficiencies provided by tiers. Add in that every customer opting for a la carte would need a set-top box and the result is clear: higher cable bills.

But those in favor of a la carte consider the views of their opponents to be too pat.

Looking at the structure of today’s market, they argue the corporate parents of ABC, NBC, CBS and Fox withhold their TV stations unless their cable networks get expanded-basic carriage under contracts that call for annual license-fee increases.

The American Cable Association, a consortium of small cable operators, told the FCC that small operators’ ability to provide a la carte and mini-tiers would represent a sea change in the market, leading to lower cable rates.

“Some ACA members are prepared to lower rates if they can achieve more flexibility in how they offer channels in local markets,” the ACA said in FCC comments last month.

EchoStar Communications Corp. also complained about the retransmission-consent practices of the Big Four. The satellite carrier urged the FCC to enforce the law that requires TV stations to bargain in good faith.

To EchoStar, good faith means the elimination of tying TV stations to carriage of unwanted cable networks.

“Broadcast networks can exercise their market power in retransmission-consent negotiations to coerce distributors to carry the networks’ affiliated cable programming. The [FCC] should not turn a blind eye to such conduct,” EchoStar said.

The Walt Disney Co., owner of the ABC network and 10 ABC affiliates, told the FCC that the bundling complaints lack merit. The Mouse House said its TV stations are offered to pay TV distributors on a standalone basis for cash.

Disney also addressed its distribution of ESPN, the expensive sports network that many cable operators would prefer to retail in a sports tier to take rate pressure off expanded basic.

ESPN is also provided on a standalone basis, although the company acknowledged ESPN’s sister brands are bundled, Disney said.

“ESPN does provide the complimentary ESPN-branded services only to those distributors who have licensed ESPN; however, no distributor who licenses ESPN is required to license any of the other ESPN-branded services,” Disney told the FCC.

Some have told the FCC that the pros and cons of a la carte were too theoretical for the agency to form valid conclusion.

The Broadband Service Providers — which represent cable overbuilders Knology Inc., Everest Connections, and Gemini Networks — volunteered to conduct a multiyear a la carte experiment to determine whose theory was correct.

Time Warner Cable said a small-scale test was unnecessary, because the results couldn’t be used to draw valid conclusions about the broader pay TV market.

“Constantly fine-tuning their mix of premium, tiered and mini-tiered, on-demand and pay-per-view offerings, [cable companies] are experimenting in the marketplace every day,” Time Warner said.

Some favor a la carte because it would allow parents to block indecent programming without having to pay for it.

The National Religious Broadcasters made that point, stressing the need for wholesome programming. But the NRB refused to endorse a la carte if it meant the loss of mandatory cable carriage: “NRB opposes the a la carte proposal because of its direct threat to the must-carry provisions in federal law and the likelihood that it would cause irreparable damage to religious, independent, ethnic and niche program producers.”

NRB’s concerns might be misplaced, because the National Association of Broadcasters told the FCC that the 1992 Cable Act forbade the a la carte sale of a TV station, whether the station elected must-carry or retransmission consent.

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