The following is a response to a Forum article written by Mike Pandzik, president and CEO of the National Cable Television Cooperative, which appeared in the Oct. 20th issue of Multichannel News.
Offering, and especially requiring, a total á la carte menu for cable television channels would be a disaster for the cable industry, program suppliers, and particularly our customers. I have to take exception with the recent Opinion piece authored by my friend, NCTC CEO Mike Pandzik.
Mike spent the late 70's working in sales and marketing for Home Box Office. By then I had participated in writing the first major set of federal rules for cable television at the Federal Communications Commission, and had helped nurture the Cable Telecommunications Association (CATA), a new cable trade association specifically attuned to the problems of smaller cable operators, through its formative years. I learned a few things along the way. Hoping that government regulation would "fix" marketplace problems was not one of them.
Constantly escalating costs, an imbalance in negotiating leverage, and the unintended consequences of outdated laws have resulted in serious problems for the cable industry. We have, in essence, lost control over the pricing of some of what we offer our customers. There needs to be a rebalancing. But federally mandated á la carte programming is not the answer.
While Mike describes cable as akin to a magazine stand, questioning how we could ask someone seeking one magazine to buy 20, I see it as a newspaper. We have built a delivery system for information and entertainment. We negotiate with suppliers of those products and package them in the most attractive way we can. The customer doesn't come to us, we deliver! Á la carte delivery, however, would require universal addressability, which would cost the customer more, not less.
Of course all customers don't watch all program channels, just like most folks don't read everything in the newspaper. But if a publisher tried to print, market and deliver separately the front page, the sports page, the classifieds, the horoscope, etc., there is little question that each section would cost the consumer a whole lot more and the likelihood of economic survival would be dim.
That, too, I suspect, would be the outcome of a federally mandated á la carte regime. The cable industry has done a remarkable job of creating amazing diversity in the programming marketplace. New channels are still proliferating as creative folks come up with new ideas. Customers prove the increasing value of that programming by watching more of it all the time. The price per viewing hour of cable programming has dropped significantly; proving that the value delivered is going up. But a sure prescription for failure would be to require those new and improved channels to enter a market where they could not be seen alongside other channels, where they would have to spend most of their capital on promotion, not product, just to get name recognition so that there was a chance someone would order them on the mandated á la carte menu.
And what of the channels that now are a part of the cable banquet but are not mass-audience channels? That is the strength of cable. The business design allows the viewing audience to find those channels and support them. Á la carte would see them dry up and die since only volume would succeed. We would return to the days of "lowest common denominator" programming since, as Mike pointed out, most programmers rely on a combination of fees and advertising to survive.
In both cases, without being provided to a broad audience and having the potential to be seen, not necessarily pre-selected, they would be in dire straits. Yes, á la carte can work for a select few but for most of what cable is, á la carte would not only change the business plan, it would destroy program diversity and the model that created it. It would ultimately wind up being more expensive for the consumer, as well.
And let's look at that idea of á la carte "… forced by Congress" for a moment. There are a lot of well-meaning folks in Washington, D.C., both on the political and the regulatory side. But having been one, I can tell you that trying to write "balanced" laws regarding programming would be an almost impossible task. Those famous "unintended consequences" would flourish. Just look at cable-rate regulations for an example of how bad an idea it can be. That effort clearly failed, and hurt both the industry and consumers by delaying new services for years. An á la carte mandate would likely have the same result.
There are currently á la carte experiments regarding some types of programming going on through marketplace negotiations. We have to study the results. But for the vast majority of cable programming, trying to "tear the newspaper apart page by page" and sell each page separately would not help the consumer, the programmer or the operator.
I do not deny there are challenges. But there are also marketplace solutions slowly but surely being hammered out. Á la carte program offerings have their place, but not as a governmentally mandated menu.
Stephen Effros was president of CATA for 23 years.