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Cable Con

Progress Snapshot
Release 3.15 November 2007

[Originally published in Los Angeles Daily Journal on November 8, 2007]

by Adam Thierer*

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There is no free lunch. That's the one universal truth about all government regulation. Government can promise us some short-term benefits by regulating the price or quality of certain goods or services, but eventually the chickens will come home to roost. The long-term consequences could include decreased quality or quantity, or even higher prices for that good or service.

Policymakers and antitrust attorneys would be wise to heed that lesson as they push for mandatory "a la carte" pricing for cable and satellite television programming, a policy suggested in a recent Daily Journal column ("Changing Channels," October 30). Kevin Martin, the Republican chairman of the Federal Communications Commission, and some federal lawmakers are currently proposing that a la carte mandates be imposed on cable and satellite TV systems. These regulatory advocates argue that a la carte will give us the freedom to pick and choose our TV channels. In turn, they claim, this would allow us to lower our monthly cable bills because we could just pay for the few channels we enjoyed most and discard the rest.

If only it were so simple. And, in the short term, it might be. But, in the long run, the costs associated with a la carte regulation will be steep in terms of true consumer choice and program diversity. Monthly bills aren't likely to go down either.

To understand why, we need to consider how it is that we have gained access to a 500-channel universe of diverse viewing options on cable and satellite. All of these channels didn't just fall like manna from heaven. Companies and investors took risks developing unique networks to suit diverse interests. Thirty years ago, few could have imagined a world of 24-hour channels devoted to cooking, home renovation, travel, weather, religion, women's issues, and golf. Yet, today we have The Food Channel, Home & Garden TV, The Travel Channel, The Weather Channel, EWTN, Oxygen, The Golf Channel, and countless other niche networks devoted to almost every conceivable human interest. How did this happen?

The answer is "bundling." Many niche-oriented cable networks only exist because they are bundled with stronger networks. On their own, the smaller channels can't survive; nor would anyone have risked launching them in the first place. "Bundling" is a means for firms to cover the enormous fixed costs associated with developing TV programming while also satisfying the wide diversity of audience tastes. Bundling channels together allows the niche, specialty networks to remain viable alongside popular networks such as CNN, ESPN and TBS. Bundles, therefore, are not anticonsumer but proconsumer.

Thus, when critics claim that making bundling illegal would offer consumers "choice" and lower prices, they're ignoring the longterm consequences. Their static view of things takes the 500-channel universe for granted; they assume it will always be with us and that it's just a question of dividing up the pie in different (and cheaper) ways.

But if a la carte regulation is mandated and smaller, niche-oriented cable networks are "unbundled" from other stronger channels, they will immediately struggle to attract enough subscriber and advertiser support to prosper. That will make survival extremely difficult. That is why a la carte regulation is so dangerous in the long-run; it threatens the wonderful diversity of programming we have at our disposal today.

Indeed, most family-focused networks, female-oriented channels, and religious programmers oppose a la carte mandates for this reason. They understand that their programs attract only a small subset of the overall universe of eyeballs. If their networks are not bundled alongside other channels, they might disappear entirely.

Consider an analogy: Could the metro section of your local newspaper survive on its own if the government mandated it be sold separately in the name of bringing more "choice" to the sale of newspaper sections? Probably not. If newspapers had to produce and distribute each section separately, costs would skyrocket.

In that scenario, people who bought the paper primarily for the sports section (for example), but sometimes glance at the metro section would only buy sports — thus giving up the "options value" of checking out the weather or obituaries, and depriving the newspaper of the ability to charge for that value.

In other words, the whole is greater than the sum of the parts for both newspapers and cable TV systems. Consumers derive great value and benefits from the diversity associated with such bundled media products.

Of course, a critic might argue that they don't care about programming diversity; they just want a few TV channels at a lower price. But who's to say that your channels are everyone else's favorite channels and will continue to exist under an a la carte regime? Moreover, it's unlikely that prices will actually fall for the most popular channels that do survive. Channel bundling not only promotes programming diversity, it also keeps the cost of the most popular channels in check by spreading out costs across a bigger group of subscribers.

For example, The Disney Channel, Discovery Channel, ESPN and TBS are received in virtually every cable or satellite subscriber's home today. Because they are on almost every basic cable system, the higher cost of those networks is spread across all subscribers. If such channels lose subscribers in an a la carte environment, the cost per network will increase until, eventually, consumers are stuck paying about the same amount they do today, yet with far fewer channels to show for their money.

Not only is there no free lunch, but in the case of a la carte regulation, we'll have to pay more for smaller servings. Sounds like a lousy meal to me.

*Adam Thierer is a senior fellow and director of the Center for Digital Media Freedom at The Progress & Freedom Foundation. The views expressed in this report are his own, and are not necessarily the views of the PFF board, fellows or staff.



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