Advocates Of A La Carte Mandates Misunderstand Infinite Goods
from the bundling dept
Some minority organizations are making the case that a la carte mandates would destroy the market for niche channels. They point out that the market for minority programming like BET and Univision is relatively small, so they (and minority viewers) benefit from being able to tag along with channels that have broader interest. FCC chairman Kevin Martin disagrees, saying that "if a cable operator only wants to carry one channel, it should not be required to buy 10 or 20 channels in order to do so." Martin seems to be thinking of cable channels as tangible products like cars or toasters: if people are only "required" to buy the channels they really want, they'll save money because they won't be "forced" to waste money on other channels they're not interested in. But this argument ignores the fact that television content is an infinite good. The costs of delivering cable content is almost all fixed; once coax has been run to a customer's house, it costs almost exactly the same to provide a given customer with every channel on the cable network or with only one channel. As a result, bundling is economically efficient: throwing in additional channels increases the value of the cable service without imposing any extra costs on the system.
People imagine that an a la carte mandate would mean that if they're currently paying $50 per month for 50 channels, then they should be able to pay $1 per month for one channel. But that doesn't make any sense. Switching a given customer from 50 channels to 1 channel doesn't reduce costs (the other 49 channels would presumably still be produced for other viewers), so why should the customer expect a lower bill? If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels. In reality, what would happen is that the cost of each channel would go up a lot. Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average. The result would be that most people would pay about the same for a lot fewer channels.
It's a mistake to think of bundling as being "forced" to pay for channels we don't want. After all, non-sports fans don't get outraged about the fact that they're "forced" to take the sports section with their morning paper. The right way to think about it is that you're paying for the parts of the bundle that interest you, and the rest of the paper is a freebie that doesn't cost you anything extra. It would be silly to demand that newspapers price each section of their paper separately and let you do without the sections you don't want. It's equally silly to demand that cable companies not show you channels you're not interested in watching, since those aren't costing you anything either.
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Filed Under: a la carte, cable, costs, economics, infinite goods, prices
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Pricing
Then you pay an amount per channel, which might be $1 per channel or $10 per channel. Depending on the cost of production, different providers can potentially charge independantly.
There is some argument though about many of the minority channels that are currently "free" with a cable package that may disappear if people are not willing to pay seperately for them. I'm not sure if this is a good or a bad thing, its hard to tell.
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Ummm...I still disagree, Tim.
Bundling is a fundamentally immoral and coercive practice that makes customers angry. And I don't think anyone really expects $1 dollar channels. What we expect is to be able to keep the HomeShopping/WrestlingNow/500WaysToPaintABedroom dreck out of our faces.
With ala-carte pricing the old phrase "500 channels and not a damn thing to watch" just may fade from memory.
And...I'm still chewing on your assertion that TV programming is an infinite good.
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Good points, but...
I do disagree with you that the cable companies would need to charge a lot more per channel with ala carte pricing because they'd have to upgrade their billing systems, etc. Why? Because they already have ala carte pricing of sorts - they're just called "premium" channels - and they're already billed on a per-channel, per-month basis.
Why can't we pay a simple flat rate for basic cable ($13.00/month in our area) and then treat everything over and above that as "premium" channels that are billed on a per-channel, per-month basis? If they can do it with HBO and Starz and MLB Extra Innings and Howard Stern On Demand, they can do it with ESPN and the History Channel and the Food Network just as easily.
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Re: Ummm...I still disagree, Tim.
The point is having cable companies go A La Carte will NOT make things THAT much cheaper. Hell, depending on the cable company and your area it may make your costs go up.
The reason TV programming is an infinite good is the same exact reason why MUSIC is now an infinite good. It's called the DIGITAL AGE and anything that can be turned into an e-format can be duplicated for practically ZERO cost (real cost is small percentages of a penny).
The point is, with cable TV you are paying for the actual cables to your home more than anything else. With satalite TV you are helping pay for the satalites that supply you with a feed. In either one you are paying for the maintanence to keep those methods working.
What most people don't realize is that TV broadcasts no longer work like they used to. They're digital, which means they work more like websites on the internet.
Tell me, do you pay Comcast or whatever ISP you have for access to 5 million websites and just 'not get' the others? While the technical details differ, the economic details are essentially the same now.
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Channel noise
Having too many channels makes watching tv an organization nightmare on the user side. Ever since when has this site thought that it's a valid business model to not improve service because it would incur capital cost. Changing the organization structure is a sunk cost. They should be forced to pay it to compete just like the mobile service providers keep on improving their services in order to survive.
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Big Dish Satellite
My folks, up until about a year ago, had "big-dish" satellite TV -- using a dish that looked more like Arecibo than DirecTV. While you could buy packages for big-dish, a la carte was also available, which my folks used. They wound up paying under $10/month, as I recall, for maybe a couple dozen channels (note: they needed a UHF/VHF antenna for local channels). Some of those channels were "free" because they were effectively subscribing to the satellite feed, not the individual channel. The only reason they stopped was their receiver died and it was ridiculously expensive to replace, in part because big-dish has generally faded away from consumer TV.
Getting to some of your specific points:
"If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels."
CATV billing systems already handle pay-per-view, their existing tiered packages, a la carte premium channels, Internet access, phone service, and the like. They probably already are sufficiently powerful to handle a wider variety of a la carte channels.
"Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average."
And you just pulled those figures out of a hat, right? If not, please provide a citation.
Because if we're pulling figures out of hats, it's just as likely that instead of $1/channel, it's $0.50/channel on top of a base $10/month subscriber fee. Heck, all they need to do is price the flat subscriber fee to cover costs plus an acceptable profit margin, then pass along the per-head fees the cable channels charge, perhaps with a small markup.
The ones who lose in this arrangement are the cable channels. Recall the brouhaha over NFL Network and...Comcast? Cablevision? one of those C cable firms, when the cable carrier didn't want to have NFL Network on "basic cable" because it was too expensive. NFL Network, of course, wanted it on basic cable to get the millions of heads automatically. With a la carte, they're the ones who won't be able to charge $8/channel and, therefore, will lose a fair chunk of revenue. On the other hand, they have other revenue streams (e.g., ads) to fall back on.
"It's equally silly to demand that cable companies not show you channels you're not interested in watching, since those aren't costing you anything either."
You're also forgetting the moral aspect, which IIRC is what got Mr. Martin into this area in the first place. Think of a la carte cable as the V-Chip writ large.
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bundling/vs a la carte programming
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Re: Re: Ummm...I still disagree, Tim.
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Big piece you (intentionally?) failed to mention.
The anti-ala-carte flappers, seem to think all channels charge the same and aren't encumbered with obtuse requirements. I mean if the world was so frelling rosey as the astro-turfer's article implies I wouldn't have to wonder why my cable company doesn't carry the Anime network.
I shouldn't, nor should the cable companies, have to pay for any channel/content that contains advertising, PERIOD. This is especially galling when local cable companies replace nation ads with local or even more disgustingly their own ads.
And please don't obtuse claim infinite good, they are a number of factors that make that claim effectively false, ie wheres my Anime Network, channel limitations, bandwidth, licensing, and the simple fact that the additional channel are not free hence the infinite droolings are not experienced in the real world.
I mean seriously the only thing infinite on a cable network are infomercials.
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You are concentrating on the physical costs of carrying the channel, when that is not the problem with bundling vs. a al carte. My problem is the programming fees passed on to me by the cable operators for the 70% of channels that I will NEVER watch.
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NFL Network
I don't know what J. Jones intent was, but it was a perfect example of why we need a la carte.
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They're not charging for distribution
Instead, cable operators are forced to buy stations and then charge the customers accordingly. And they're forced to buy stations in bundles, and must then pass the cost along to consumers. The costs of the coax cable that's been run into my house for the last 30 years hasn't changed. But the price that cable operators want to charge has gone up substantially. That's because popular stations are either demanding more money, or are forcing the cable operators to buy in a package of programs.
A-La-Carte is an attempt to fight back against high prices through the introduction of market forces. If a station wants to charge $1 for a popular station, but then force it to be bundled with 4 $0.50 channels, then A-La-Carte will unbundle it. If a popular station thinks that it can demand $8 for a station, that's fine, but then people might dump the channel and watch something else. Currently the major stations have a mentality that thinks "Well, the cable operator is FORCED to carry this channel since it's so popular, so therefore we'll do X to charge extra".
Kevin Martin is absolutely correct, because the current billing system is based on station pricing and bundles, not for the distribution.
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It's the content cost, not the delivery cost
The delivery costs seem to be almost completely irrelevent to the topic of a la carte cable. As someone else pointed out already, it's not the delivery cost that is in question, but the cost of the content.
As a result, bundling is economically efficient: throwing in additional channels increases the value of the cable service without imposing any extra costs on the system.
Adding extra channels may indeed add to the value of the cable service, but as anyone who has paid a cable bill for more than a couple of years would know, the cost of the content is getting passed on to the consumer. As I understand it, the content creators force the cable providers to buy bundles of channels. So of course the cable providers pass the cost along. The cable companies don't just "throw in additional channels" for free. Someone gotta pay for that content. Perhaps from the cable companies viewpoint it's "econonicaly efficient" to add more content and raise the price without giving the consumer an option, but to most people, this is just going to seem unfair. And not just a little unfair, but unfair to the point of infuriating millions of people.
The right way to think about it is that you're paying for the parts of the bundle that interest you, and the rest of the paper is a freebie that doesn't cost you anything extra. It would be silly to demand that newspapers price each section of their paper separately and let you do without the sections you don't want.
I think the flaw of this analogy is the very large difference in cost between a newspaper and a monthly cable bill. How much is a newspaper these days? 50 cents? A dollar? Whatever. I have friends that have triple digit monthly cable bills. When it's only fifty cents, who cares if you're paying for sections of a newspaper you won't read? To make your analogy work, newspapers would cost $20 per edition, but would be a foot thick. You used to read the comics and do the crossword puzzle for a quarter? Too bad. Now you have to pay 20 smackers for those sections. But don't worry! We're giving you enough newspaper to line bird cages and wrap fish for a lifetime, all for "free!" Using your logic, this is economic efficiency.
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Almost there...
Cable does not charge me a fee and then let me get to all of their content.
Right now the cable companies are playing the role of content provider and carefully creating packages to milk all they can get out of certain channels and offset their costs for others.
A La Carte would put the cable companies back in the role of service providers and then the market could decide which channels live or die - the way it should be.
Perhaps instead of A La Carte, what we need to do is call it the same thing we do for the web... Network Neutrality.
LarryD
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On the other hand.... Can you imagine if cable/sat goes to a la carte then turns around and says.. huh well if people don't mind paying for each channel, they won't mind paying for each website. They'll get their wish to ram net un-neutrality down our throats.
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Re: They're not charging for distribution
I couldn't agree more. Let the people vote with their remote controls. Let market forces naturally dictate which channels survive. Bundling of cable channels is just a distortion of free market system.
Besides, I think the impact on niche channels is way overblown. If you had a la carte cable channels, the competition would force a consolidation of channels. So, you'd only have 10 home improvement shows instead of 50. But even if you cut the average American's cable bill in half, I just don't see how there wouldn't be enough money to pay for the content that most people want to see, plus some left over for public interest or niche programming. The purpose of cable television is not to subsidize the entertainment industry, but to entertain. Let the invisible hand decide where the entertainments dollars go.
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Infinite good?
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No TV - No Problem
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I don't have cable anymore, just watch over the air when I do watch, otherwise I find the shows I want Elsewhere.
DEATH TO THE CORPORATIONS!
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Price per subscriber
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It is only the consumer that loses, and IMO not enough people have cared enough in recent times for it to make any difference.
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Cable and satellite are in need of changes.
Answer this question: If the fee for distribution is relatively the same, then why does every cable company/satellite distribution offer tiered programming?
Based on your summary, we should all be paying one base price for every channel that's not subscription based or pay-per-view.
Yet, Brighthouse cable recently increased its prices on all THREE of its tiered programming options.
Ever see those "$19.99" ads by DirecTV? Ever see what you get for that amount? Now take a look at what it costs you for the channels you really want. Bye-bye $19.99.
The simple fact is cable can now offer ala carte programming. Most cable systems are now set up such that an operator can flip a switch and disable/enable specific stations.
I know this to be true because there was a recent addition to some HD channels, but something glitched and I lost several non-HD channels.
When I called to bring up the issue, the service rep simply got onto their computer and reactivated each channel independently while I sat and confirmed its return.
So why am I paying for channels I don't ever watch? If the distribution costs are the same, then I should be able to dictate to the cable channel which channels I want to watch.
What pisses me off is the assumption that people make that bundling stations saves us money. This is a load of crap. In fact, in order to bundle those channels, the station charges a fee to carry its signal. Making it worse is these "local" channels to the area pay nothing for the very station I have to pay $70/mo to get and have to deal with commercials.
ANY STATION THAT BROADCASTS ADVERTISING WITH CONTENT SHOULD BE FREE TO THE PUBLIC.
There is no excuse why anyone has to pay $50/mo to get TBS, TNT, Superstation, Lifetime, or any other channel with ads.
Note: DirecTV ups its price to get these channels because they KNOW these are channels consumers want.
Ala carte pricing will never happen to save consumers money because you can bet cable companies will find ways to screw over consumers to make up for the lost revenue.
Cable companies have NEVER, EVER been proactive to consumer wants but reactive to changing times, often catching up after the fact and over charging consumers once they dominate the market.
This is why most areas don't have multiple choices in cable subscriptions. It's also why satellite prices are relatively identical in order to stay competitive (re: price fixing).
As for the comments about the content, not distribution, being what costs, this is also incorrect.
There's no way to place a cost on content value. Some of you may enjoy watching CSPAN and find it's worth a monthly cost while others will never watch this station, forcing it's worth to $0. A cable company can only base an ala carte price based on the number of viewers and the length of time one watches the show.
This means CSPAN will cost less per month than Lifetime and this is NOT an ala carte structure we will want. We'll all be paying more for popular stations while lackluster stations are virtually free.
Right now, everyone pays the same basic amount for these stations we enjoy. Go ala carte, and the ones you really enjoy will increase in price so fast, it'll make you wish for bundled packaging.
Of course, after seeing what's been on lately, it's almost getting to the point of dropping TV altogether when it's nothing more than content covered by advertising during the show.
Which reminds me. I need to send one nasty letter to the idiots at TBS and let them know I'll never watch their station again.
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pricing may be fixed, but its still a monopoly and service sux
Nothing is "free" there is no such thing as a "free good" or "free service" despite the analyzes and statements to the contrary.
Somebody must pay for the infrastructure to carry free. Somebody must film, edit, market and sell the "free product." The fact it is being carried by my local government-approved monopoly provider means there is a cost involved. Now that cost might be small or nearly nonexistant, but its still there and I don't want to pay it.
I don't want to watch the spanish channels, the sports channels, the cooking channels, the public access channels, the green channel nor any of the other funeral channels. I don't want to have to purchase 4-6 different tiers of service to get the 3-4 channels I want to regularly watch.
A la carte might give me the opportunity to purchase my choices without having to subsidize the others.
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It isn't that people hate bundles it is the fact that something that has become nearly a commodity is being priced out of the commodity market and they blame bundles.
I however disagree with some of the arguments made throughout the article. Popular channels will remind cheap. Niche channels will skyrocket. I believe the bundles are about subsidizing.
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Just plain wrong.
>cable service without imposing any extra costs on the
>system
Sorry, but you are completely, utterly, totally wrong. About as wrong as it's possible to be. I think you've let your enthusiasm for your thesis about infinite goods cloud your thinking.
It's only an increase in value if it's a value to the customer. So throwing in BET, Univision, 6 religious channels, 8 home shopping networks and ESPN-U does NOT increase the value to me. At all. Maybe it's a value to somebody else... but that's an argument FOR a la carte pricing, not AGAINST it. And because you didn't factor that in, none of the rest of your argument works.
Meanwhile, it DOES impose extra costs: at the very least, it imposes opportunity costs, because the capacity of cable is not infinite and the cost is not free. It costs somebody money to produce all that unwatched content; it costs Comcast money to buy it; and Comcast passes the cost on. Without all those channels, I could have more channels I do want to watch; or more of my channels in HD (not compressed to death...); or a lower price.
Everything about your premises is totally flawed, I'm afraid.
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Market econmics would settle this
With the flexibility operators have in selectively enabling or disabling channels on a customer-level basis, I'd like to see the following: Before a cable operator's license is renewed, they have to begin offering an a la carte option in addition the their current bundles. The a la carte plan would provide public access and broadcast channels for a low base price, and the cost for channels with commercials would be lower than for those without. The cost for channels like ESPN or YES that charge a premium to the cable-providers would be have to be renegotiated for a la carte use, but if it's too high, no one will watch.
The content providers would lobby like hell against this, but in the end they have to recognize that technology is providing more and more alternatives for connecting people to the content they actually want to watch. If they're not competitive on a good content/price basis they're not going to last, period.
Besides, some of the providers may be surprised at what they can charge and still maintain a good audience. Considering the cost of taking a family to a major-league baseball game, people may pay a decent price to watch the occasional game on a pay-per-view basis instead of subsidizing year-round programming for a dedicated channel.
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Re: Re: Ummm...I still disagree, Tim.
Those items surely are not going up in price after they have been installed. What we are paying for are the ever escalating salaries of those in the entertainment industry. Its all about the content!
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Re: Cable and satellite are in need of changes.
So, you're using an example of the basic principle of supply and demand to disprove the idea that the majority of the cable costs come from content? Firstly, of course people should pay more for popular stations. That's how the free market systems works. Secondly, what's this have to do with content vs delivery?
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Forced? I think not...
Okay, I followed a tangent a bit there. The point is, TV is not food, gas, or electricity. It is entertainment, and you have plenty of options of where to spend your entertainment dollars. $70.00/mo can purchase a lot of TV shows on DVD in better quality with no commercials. So, quit saying the cable companies are forcing you to pay for this or that.
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"introduction of market forces"
If multiple providers could operate in a city, I'm sure that at least one would decide to try a-la-carte pricing. And then we would see the results of true market forces.
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Re:
This is the way that I'm thinking of it. Say someone is paying $100 a month for cable for access to 500 channels, including premium channels. A la carte goes into effect, they select their top 10 channels, and their bill falls to $50 in the first year. (Optimistic, I know.) Over the next five years, using the boil-the-frog-slowly technique, the per channel prices go up and the new bill is back to $100. They're paying the same, but getting less. That's bad, right? Well, here's the difference. Instead of there being this built in "we're giving you all of this content for free" excuse, people will know exactly what they're paying for. Before, there was a pretence that there was value in all of this extra (but mostly unwatched) content. But after, that pretense will be gone.
Instead of having to go off the grid and drop cable altogether, if the total cable bill gets too high, people will just drop individual channels. And, class, what happens when demand drops? That's right, prices go down. That is, if you put a system in place that at least resembles a free market system.
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Re: Cable and satellite are in need of changes.
I have Internet and basic cable. I didn't pay my bill for 55 days, the Internet got cut off. I asked why the Internet didn't work but the TV did and the support person told me that a tech has to go on site to disconnect the cable. Same with basic cable vs. standard. They have to come on site to install a blocker so I don't get channels 22-99.
This argument douse point to most of the cable bill price going to the stations and not maintenance, since all the channels are being broadcast threw all the wires all the time. And it also helps the argument that ala carte pricing would lower our bills, if the cable companies don't artificially inflate prices to make up for the difference.
I was watching Mythbusters on the Discovery channel, that episode where they revisit the rocket car myth. At the end, after the car blows up on the ramp, Adam says "I think someone owes me $10,000". That made me start thinking. If the Discovery channel can blow $10,000 on a rocket that was expressly ordered to wreck a car, why the hell do I have to pay so much for cable and DVDs? Then I look at other shows on that channel and others and think "Damn, advertisements must pay a fortune."
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Re: Forced? I think not...
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4966591
I live in NYC. The local cable company is Time Warner. They offer these packages:
http://www.timewarnercable.com/nynj/products/cable/packagesandpricing.html
( try zip 10001 )
It is nothing short of obvious that their billing systems already wholly support a'la carte billing. The unit now is "a package" instead of "a channel" but I can still choose from 6 premium, 19 international, 6 sports, six "additional", or 9 on demand/PPV packages. There is no added cost for a system that can bill based on the selections an individual consumer makes. I'm already free to make 40 different mutually compatible selections.
The cable companies make it very hard to find the most basic service level. (It would appear that it's to their financial advantage to encourage the consumer to buy a larger package.) The only links to a real basic cable service I could find is:
$12.76 http://www.alamedapt.com/cabletv/
$10.58 http://www.optimum.com/ratecard.jsp?searchby=corp&corp=07869&serviceType=io&z=10601
T he base cost is low, and it's reasonable to assume it will continue to come with (as that example does) the "free" channels: local broadcast, PBS, and the like. From there we get the packages:
Time Warner: Digital Starter Pak, 130 channels, $49.95
( link above )
Cox: Limited Basic, 40 channels, $45.99
( http://www.cox.com/oklahoma/cable/prices.asp )
Cablevision: Family Cable, 80 channels, $49.95
( "optimum" link above )
Basic cable, the cost of setting up all the hardware to handle the connection from the cable co. to the house, is about $12. The next level package up from that, in the three examples above, cost about $50. Subtract the $12 for the (included) basic service, and the average is between $1 and $0.40 per channel.
Your "$8 per channel" guess number is wild and FUDdy. It's clear that there would be a charge of about $10 to $15 for the basic service, and that non-premium channels could be had for under a dollar each on top of that. Some higher-demand channels (your ESPNs, HBOs, and so forth) which are in higher demand might draw a higher price. But the supposition that a'la carte must raise the overall price by its very nature is unfounded.
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Re: Forced? I think not...
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Re: bundling/vs a la carte programming
I don't think so, hence, increase in price doesn't seem too strongly correlated with the channels they offer...
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Re: 4966591
I can dig, based on the numbers for the Warner, Cox and Cablevision amounts, that right now, it would less than a dollar for each channel on top of that.
however there's 2 problems with that:
1) you really think the companies wouldn't charge a little more than simply dividing the total amount the number of channels?
but much more importantly:
2) let's say they wouldn't do 1), what you say (less than a dollar per channel) would only happen if everyone would pick all the channels they get now in a bundle. Which they won't, so instead of "getting" $1 from 80.000.000 million people for channel X and channel y and channel z, they'd get money from 40.000.000 people for channel x, from 20.000.000 for channel y and 10.000.000 for channel z (numbers are arbitrary of course). Do you really think that they'll only charge $1 for channel z and get only 1/8 of what they got before for that channel? or do you think they'll charge something around $8 to compensate for that so they'd end up with about the same amount of money? Which means you are SOL too, because even though you can drop the $1 for channel x and the $1 for channel z, you'll be paying $4 for channel y...
you might want to rethink your argument...
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Re: Re: Forced? I think not...
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Re: Re: Forced? I think not...
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Think about it
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Re: Think about it
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Re: Re: Think about it
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Re: Re:
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money mangment
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http://www.skyvision.com/programming/alacarte.html
You can get Animal Planet, The Travel Channel, TLC, and the Discovery only $3.65 a month for 4 channels. That's cheap.
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Me: What channels does you basic cable package include?
Cable company: Discovery, CNN, TNT, 10 shopping networks, 15 spainsh/French/German channels, 3 movie trailer channels.
Me: hmm...I think I will stick with over the air tv.
Cable company: I can throw in 60 pay-per-view channels.
Me: Ummm...Why should I buy channels where I would have to pay to watch content?
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ala carte cable or satellite
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A good point, but...
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paying for the content
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