Industry Fiercely Opposes Unbundled TV
By SETH SUTEL (AP Business Writer)
From Associated Press
February 24, 2006 2:39 PM EST
NEW YORK - It's a question that many cable TV subscribers ask: My cable company keeps adding more channels to my system, but I don't watch many of them. Why can't I just pick the ones I want?
Rupert Murdoch, a titan of TV, has a simple answer: "I think it kills the whole business model."
Murdoch echoed the views of many in the cable business when he told reporters recently that "a la carte" pricing wouldn't work for the industry and would lead to higher cable bills for consumers. Murdoch's News Corp. owns Fox News Channel, FX and other cable channels and controls the satellite TV broadcaster DirecTV Group Inc.
The industry's argument goes like this: If consumers are free to drop less-viewed channels, many of them would go out of business, and others would have to sharply raise their per-customer rates to stay afloat. "Bundling" them together helps spread costs around and supports a variety of programming.
However, pressure is building on the industry to change.
In early February, the Federal Communications Commission released a report challenging the industry's long-held position that a la carte would be undesirable for consumers.
A wave of technology breakthroughs including digital video recorders, video iPods, video "on demand" from cable and satellite providers and the increasing availability of video over the Internet have gotten people accustomed to picking and choosing what they watch, when and even where they watch it.
Those changes are "making the point that a la carte is not only possible, but desirable," said Gene Kimmelman, senior director of public policy at Consumers Union and a big supporter of a la carte pricing.
Those concerned about sexual and violent programming on television also favor a la carte TV pricing, calling it a good way to give parents greater control.
Consumers, not surprisingly, would love the chance to pick and choose their channels.
A recent AP-Ipsos poll taken in mid-December found that 78 percent of American adults prefer the a la carte option. Two-thirds of those surveyed said there was too much sex on television, and about the same number said there was too much violence.
FCC Chairman Kevin Martin, a Republican party loyalist and a longtime advocate of curbing sexual and violent programming, put the cable industry on notice last fall about raunchy programming, saying that one option to address parental concerns was to sell cable channels a la carte. Soon thereafter, several big cable companies said they would offer new "tiers" of family-friendly programming.
Many analysts believe the FCC likely won't force the industry to adopt a complete a la carte pricing model, but the agency's reversal of its previous opposition to the idea could embolden others to challenge the status quo.
All this comes just as cable companies are seeing an emerging threat from the likes of AT&T Inc. and Verizon Communications Inc., which are beginning to offer cable-like video services, carried mainly over ultra-highspeed fiber optic cables.
For now, those offerings tend to resemble the bundled packages available from cable companies. But with the FCC clearly favoring competition among TV providers, the phone companies are signaling that they would like to offer more flexibility to their video customers - providing they can.
"Our perspective is that competition should be allowed to flourish in a free market, and the issue of programming will take care of itself," Verizon spokesman Mark Marchand said. "In a competitive market, providers are going to listen to consumer wants and provide for them."
In a statement, AT&T said it would "be happy to offer a la carte programming as long as we are able to obtain access to the programming in that manner."
But cable networks have been reluctant to let television services sell channels individually.
Network executives say that too much choice could drive some niche channels out of business. If fewer people sign up for, say, Black Entertainment Television or the History Channel, they might have to raise their rates for each customer to stay in business.
"The way the cable industry works now, we bundle in strength with weakness," said Dick Parsons, chief executive of Time Warner Inc., which owns a major cable company along with several cable networks including CNN, Cartoon Network and TBS. "If we actually went to an a la carte world, you would see people's choices constrict and collapse rather than expand."
Cable networks prefer the "bundled" system because they can charge more for advertising if they're distributed to as many homes as possible. Plus, cable companies pay them a monthly fee for each home they're in.
With a packaged approach, large media companies that own must-have cable channels like Walt Disney Co.'s ESPN or Viacom Inc.'s MTV can use their muscle to get attractive carriage deals for their smaller cable networks, like Disney's ABC Family channel or Viacom's new gay and lesbian network, Logo.
It's also far simpler for cable companies to offer one standard package. Think of the administrative costs Comcast Corp. faces if it must create custom cable packages for each of its 21 million customers, then get all the monthly bills right.
But Kimmelman, of Consumers Union, says such arguments mask industry intransigence.
He believes government intervention will ultimately have to regulate how networks make contracts with cable operators, as neither the programmers or cable companies have any incentive to rock the boat.
"No current programmer ... would dare say anything positive about a la carte for fear that they would be dropped" from cable or satellite systems, Kimmelman said.
AP Business Writer Gary Gentile in Los Angeles and AP Writer Jennifer Kerr in Washington contributed to this report.