'A La Carte’ — A Menu for Failure

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I’m a news junkie. I devour The Washington Post every day. But while I crave the hard news sections, I could care less about the rest.

Yet if I asked the Post to deliver — and charge for — only the sections I like, does anyone really think it would? Of course not, because its business depends on requiring readers to buy the whole bundle of sections — even ones readers don’t want — so that advertisers can reach all of the paper’s readers. Few would challenge the Post’s right or logic in doing so.

Yet some groups want the government to require cable television and direct-broadcast satellite multichannel video-program distributors (MVPDs), and the program networks they distribute, to unbundle MVPDs’ program tiers.

The Federal Communications Commission will soon send Congress a report regarding so-called “a la carte” and “themed-tier” options for programming distribution on cable and DBS systems.

One can only hope that the FCC will take a real-world look at the business model on which nonpremium multichannel networks depend, the crippling effect that a la carte would have on existing and planned networks and the profound disservice that a la carte would render to the American viewing public.

Television Revolution

Three decades ago, most U.S. television viewers were served by only a handful of broadcast stations. In ensuing years, viewers experienced a revolutionary transformation in the quantity and quality of viewing choices.

Today, 400 national and regional multichannel programming networks provide highly differentiated content that mirrors the rich cultural and social diversity of the American television audience. No longer are viewers tied to broadcast networks’ homogenized, lowest-common-denominator programming, or to daypart schedules created to maximize revenues, not consumer convenience or choice. Instead, multichannel networks serve viewers by providing an enormous degree of choice on a 24-hour basis.

Broad Distribution

This wealth of choice is made possible by multichannel networks’ distribution on MVPDs’ widely distributed tiers.

Attainment of a critical mass of viewers both increases the license fees paid by MVPDs and also puts a network “in the game” as a potential medium for national advertising revenues.

This dual revenue stream creates an upward spiral of success that enables networks to invest in original programming and innovative technology, and in later years to launch progeny networks, which further enhance subscribers’ programming options.

Consumer Benefits

Broad-tiered distribution benefits consumers tremendously by providing a rich diversity of programming. The fact that most MVPD subscribers choose to purchase an expanded tier (not just basic service), and that viewership of multichannel networks continues to increase (while broadcast viewership steadily declines), reflects the value that MVPD subscribers obtain in a multichannel universe.

The ability to “channel surf” is an important part of the value proposition, with cable-tier subscribers employing it as the most-used means to discover what is on television and decide what to watch. Subscribers value broad tiers, according to the independent General Accounting Office, not only because of channels they regularly watch, but for the opportunity to experience networks to which they otherwise might never be exposed and the ability to watch channels only on rare, but important, occasions.

Downward Spiral

Government-imposed a la carte would cause a precipitous drop in networks’ subscribership, by as much as 90%, according to network estimates. Lost ad revenues could not be replaced merely by increasing per-subscriber license fees because, given consumer demand elasticity and MVPDs’ capacity constraints, networks could not risk pricing themselves out of the market.

Diminished revenues would launch networks into a downward spiral, impairing their innovation and investment in programming and technology, their ability to serve the public and, ultimately, their viability.

So-called “voluntary” a la carte, which would require networks to allow MVPDs to distribute their programming a la carte or on thinly distributed themed-tiers, would be no less disastrous. Revenues would plummet and, to offset lost distribution, many networks would be forced to broaden their genre in order to attract more subscribers, resulting in a broadcast television-like homogenization of multichannel networks. Moreover, networks would risk breaching the strict “content/genre” guarantees in most distribution agreements.

Proponents’ Arguments

Proponents portray a la carte as a “cure all” for a host of problems, including media concentration and vertical integration, indecency and rising cable rates. In fact, a la carte would cure none of these. Numerous laws already address media concentration issues, and vertical integration among program networks has sharply declined.

Moreover, as most networks distributed on MVPDs’ broad tiers contain no “indecent” material, and MVPDs provide effective tools for screening out any such programming, addressing indecency through a la carte would paint with too broad a brush. Further, as GAO concluded, a la carte would raise, not lower, cable rates by ravaging networks’ ad revenues and imposing substantial additional technological and transactional costs.

Constitutionally Suspect

Finally, a la carte in any form would not pass constitutional muster. A la carte would destroy billions of dollars in network value, casting such regulation in conflict with the Fifth Amendment’s takings clause.

Moreover, subjecting multichannel networks to a la carte while broadcast stations receive preferential bundled carriage status through must-carry and retransmission consent regulations would violate the Constitution’s Equal Protection guarantee.

Most fundamentally, because government-imposed a la carte would inexorably force networks to change the content and format of their programming, it would contravene the First Amendment.

FCC Report

Certainly, neither Congress nor the FCC wants to reduce the enormously diverse and valuable programming choices that multichannel networks afford.

Yet, that would be the result of a government-imposed a la carte requirement, an outcome antithetical to the core objective of communications law and policy — promoting a diversity of information sources. The FCC should report to Congress that requiring any version of a la carte distribution of multichannel networks is not necessary, would raise, not lower, prices to consumers, is of questionable legality, and indisputably would not serve the public interest.

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