A la Carte Cable TV Will Raise Rates, Decrease Diversity

Published September 1, 2004

Government regulation requiring cable and satellite providers to offer networks on an “a la carte” basis would dramatically raise prices for most consumers, even those who continue to purchase one of the current tier packages, according to study the National Cable & Telecommunications Association (NCTA) submitted to the Federal Communications Commission (FCC) in July.

The study, conducted by the worldwide consulting firm of Booz Allen Hamilton, is included in NCTA comments filed with the FCC as it examines a la carte and themed programming tier business models.

The costs of implementing a government-mandated a la carte pricing system, the Booz Allen study concludes, mean that even if no consumers were to choose the a la carte option, consumer prices for current tiers would increase between 7 and 15 percent. The study also concludes the number of cable networks, and the quality and diversity of cable programming, would be severely diminished under an a la carte regime. Smaller niche and independent non-vertically integrated networks would be most likely to disappear, the report says.

The Booz Allen report, “The A La Carte Paradox: Higher Consumer Costs and Reduced Programming Diversity,” confirms findings of last fall’s General Accounting Office study, which concluded a la carte could “result in higher per channel rates” and “cable rates could actually increase for some consumers.”

Higher Prices, Less Diversity

According to the Booz Allen study, a la carte would drive up consumer prices by increasing the cost of delivering such a system, borne by both cable networks and operators:

Cable networks. “A la carte and themed tier options would adversely impact program networks. Their household distribution would decline dramatically, diminishing their advertising revenues. Moreover, networks’ marketing costs would sharply increase: even if only a small percentage of consumers selected a la carte or themed tier options, networks would need to spend more on marketing given the risk of lost subscriber levels. Networks would respond by either raising license fees to operators or cutting programming expenses,” Booz Allen says.

Cable operators. “Making services available on an a la carte or themed tier basis would raise the costs incurred by cable operators. Services offered on such a basis would need to be offered as digital services. Operators would need to incur fixed costs of using bandwidth to duplicate analog service on digital, and would incur higher costs for customer care due to increased call center volumes and more complex billing. Consumers would incur variable costs of adding digital set-top boxes,” says Booz Allen.

Booz Allen concludes consumers who opted for a la carte would face significantly higher cable bills unless they were to choose a very limited number of channels. Analog customers would be limited to six or fewer channels, and digital customers nine channels, in order to restrict their monthly service charge to the same or less than they pay today, Booz Allen said.

The introduction of a la carte or themed tiers would lead to a reduction in the diversity of programming available to consumers, as well as greater concentration of media ownership, according to Booz Allen.

NCTA (http://www.ncta.com) is the principal trade association of the U.S. cable television industry.