A La Carte's Pushed Up Hill…

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Cable's expanded-basic package could be the most powerful force in American media.

Now it's a matter of whether it can withstand Sen. John McCain's (R-Ariz.) bone-set-in-molars determination to grind it to pieces.

McCain, chairman of the Senate Commerce Committee, wants cable to offer every programming service a la carte as an alternative to bloated programming packages that keep rising in price, but that consumers must buy if they want a level of service above local TV stations and public-access channels.

McCain considered attaching his à la carte proposal to recent broadcast-indecency legislation, but had second thoughts. He's now toying with a vague idea floated by Gene Kimmelman of Consumers Union: A la carte should be tested in a market.

If the test showed that cable rates continued to rise, it would be abandoned.

"We're looking at Kimmelman's suggestion about some kind of pilot programming. I am not sure of the legality of it," McCain told reporters last Thursday after an a la carte hearing in his committee.

McCain explained that he would not forbid cable from offering expanded basic, but he would require a la carte as an option. He acknowledged to reporters that a la carte prices would have to be monitored, perhaps even regulated, to ensure that consumers didn't opt for the tier by default because a la carte channels were priced at unreasonably high levels.

"Obviously, they would risk intervention by the [Federal Communications Commission] if they were not engaging in sound practices," McCain said.

The regulatory structure hinted at by McCain would be the reverse of current policy, which allows local governments to set the price of basic cable, but bars any government entity from regulating the price of premium and pay-per-view channels.

McCain's beef is that consumers pay more each year for cable, without an offsetting increase in value, because they refuse to watch many of the channels offered or added.

He's also upset that cable subscribers that want to block indecent cable networks are not allowed to deduct the cost of those channels from their monthly bills.

So for McCain, a la carte is a classic two-fer: It allows consumers to lower their bills by opting out of expanded basic, while eliminating mandatory payment of unwanted programming, indecent or otherwise.

McCain wasn't the only lawmaker to vent his frustration.

Sen. Trent Lott (R-Miss.) put it to cable as bluntly as possible: Consumers, he said, would get a la carte programming one way or another.

"I am not prepared to mandate or regulate rates now, or a la carte options, but if you don't do something about it, we will," Lott warned.

Lott, though, has threatened cable with regulation before but not followed through.

CABLE PUSHES BACK

Resistance to McCain's a la carte movement from big cable was absolute on the basis that it would batter a hugely successful business model that allows niche channels that could not stand on their own to flourish.

EPSN president George Bodenheimer flatly rejected à la carte for his sports channel.

"It would be a consumer disaster for Congress to force ESPN and other channels out of the expanded-basic lineup," Bodenheimer said. "A la carte would force consumers to pay more for their programming and to rent or buy set-top boxes they don't now need or want."

But Mark Goldstein, an official with the U.S. General Accounting Office, told the Senate panel that while a la carte had many problems, sports programming was likely the best candidate to survive such an environment, because of strong fan loyalty.

"If there were any kind of [mini-]tier that would be implementable, that could be done fairly easily, it would be a sports tier," Goldstein said.

Cox Communications Inc. president and CEO James Robbins also objected to à la carte, calling it an economic model that "results in higher prices and fewer program choices."

McCain accused cable of having it both ways. The industry, he said, opposed must carry for local TV stations and a la carte for consumers. Cable companies, he explained, shouldn't deny consumers a la carte, while wanting it for themselves in selecting local TV stations to carry.

"I encourage the industry to find a consistent message for itself — if they want choices, provide the same choices for your customers," McCain said.

Bodenheimer and Robbins had allies on the committee in both parties, an indication that McCain's ability to draw publicity to the a la carte issue may not mean a majority of the Senate would vote to impose it.

BURNS'S QUALMS

Sen. Conrad Burns (R-Mont.) argued that a la carte would undermine cable networks that rely on expanded-basic distribution for their survival.

"I have serious reservations about that," Burns said. "We wouldn't see Biography or National Geographic, A&E, Discovery and dozens of other networks. They would struggle and probably some would fail."

Sen. Daniel Inouye (D-Hawaii) echoed that point.

"What will happen to C-SPAN? If we have a la carte, how many people will take C-SPAN?" Inouye asked.

Sen. John Breaux (D-La.) made the point that Congress determined that because cable wasn't a monopoly, price regulation was unnecessary.

On that theory, government mandated a la carte was likewise unnecessary, he said.

Breaux also argued that comparing cable rates to the Consumer Price Index wasn't highly relevant, because the widely recognized inflation-measurement tool did not reflect changes in an industry's costs or quality improvements.

"At best, it's a very unreliable comparison," Breaux said.

Sen. Ron Wyden (D-Ore.), who falls into McCain's camp, argued that cable had to drop its defense that technology prevented a la carte from becoming a reality.

"A lot of us are not going to swallow that anymore," Wyden said.

Robbins conceded that the broad trend in the industry was toward more individualized viewing, but the price tag was substantially above the $85 billion cable MSOs have already invested in network upgrades since 1996.

ROBBINS: LOOK TO VOD

"That, frankly, is long-term where this industry is going to go with video-on-demand," Robbins said. "But there's something like a $30 [billion] to $40 billion bridge to get over to make that technology available to every television set."

Lawmakers were searching for the right analogy to describe their understanding of expanded basic.

"When I go buy a newspaper, I don't have to buy Sports Illustrated, Popular Mechanics
and a number of other periodicals along with it," McCain said.

But that comparison didn't seem to address cable's point that the newspaper might not even exist as a product to buy if it could not be bundled in a package with the magazines.

In defending cable, Burns compared expanded basic to a newspaper. He noted that a consumer can't buy just the business section and get a refund for the sections he or she doesn't want.

But that point failed to take into account that many consumers today use the Internet to cherry-pick newspapers section by section or article by article, and often for free.

Sen. Olympia Snowe (R-Maine) said she was troubled by rising cable rates and was looking for a compromise.

"Honestly, we don't want to turn this whole industry on its head," Snowe said.

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