NCTA White Paper Says A La Carte Will Lead to Fewer Choices, Less Diversity, Higher Prices
New Orleans, LA – A government policy that would require a la carte distribution of cable and satellite networks would result in a fundamental restructuring of the cable programming business that would harm consumers by reducing choice and driving up prices, the National Cable & Telecommunications Association (NCTA) said in a white paper released today. The white paper, titled “The Pitfalls of A La Carte: Fewer Choices, Less Diversity, Higher Prices,” provides an in-depth analysis of how the negative consequences of a la carte would far outweigh any theoretical benefits of such a government mandate.
“A government policy to require a la carte is not simply ‘tinkering’ with the cable and satellite industries’ business model,” the paper states. “It forsakes a highly successful, market-driven business model, to substitute an entirely new model with no empirical evidence as to its long-term viability, and turns back the clock on the extraordinarily diverse programming business that has developed over the last 30 years.”
About 85 million U.S. households currently subscribe to cable and satellite service that have the ability to choose from a variety of basic and digital tiers that offer a wide range of new and well-established networks. This network distribution system has resulted in substantial growth in cable networks with 339 national and 84 regional cable networks available today, offering programming devoted to a variety of genres including children and family, news and public affairs, minorities and foreign languages, sports, history, religion and more.
By changing the way networks are distributed and marketed, a la carte pricing would overturn the economic foundation on which cable networks and operators have invested billions of dollars, the paper says. Whereas basic cable networks today generate revenues from two sources – subscription fees and advertising fees – removing the networks from a tier that is available to several million households will require them to recoup lost advertising fees primarily by increasing their monthly subscription price.
“By allowing new networks to share the large subscriber base created by the more established networks, tiers provide a critical financial base for new networks to reach the potential audience necessary for survival. And this dynamic creates the investment incentives that produce the rich diversity of programming consumers enjoy today,” the paper says.
Whether a la carte is mandated for distribution of all cable networks or provided as an addition to the current tiering model, the paper says either result would harm consumers in several ways. It would:
- Reduce choice for consumers – Since many networks would not be able to attract enough subscribers to make up for the loss in advertising revenue previously available from being carried on a tier available to millions of households, those networks would go out of business and other new networks will not be created. Smaller niche networks that target small, underserved audiences would be among those most affected by a la carte.
- Increase prices for consumers – Going to an a la carte system wouldn’t reduce the cost of producing programming, so in order to recoup lost advertising fees, cable networks would be forced to charge higher subscription fees to a smaller base of potential viewers. Further, an addressable set-top box would be needed for each television set in a home to receive a la carte services, adding equipment costs for millions of consumers.
- Create customer service problems – In order to implement a la carte pricing, cable companies would need to revamp order-taking and billing systems as well as customer service procedures. And the vast number of options provided by a la carte means that a typical call to order or change service would be much lengthier and more complicated.
In addition to the expected consumer harm that would result from a la carte pricing, no evidence exists that a la carte is a viable business model or one that consumers prefer, NCTA says. While some parties have suggested that Canada’s limited a la carte offerings support a similar requirement in the U.S., the vast majority of Canadian cable subscribers receive programming in analog tiers, precisely the same way U.S. subscribers receive cable service, NCTA said. Although some Canadian cable operators recently began to offer newer and less popular digital program channels on an a la carte basis, NCTA said there is no proof that it is sustainable.
In the paper, NCTA argues that previous government efforts to regulate cable pricing and packaging have been counterproductive. After cable regulation was enacted in 1992, investment in new technology and programming slowed considerably and set back broadband deployment at least five years, NCTA said, which led Congress to repeal the regulations after four years. According to a recent economic survey of the cable industry, cable contributes hundreds of thousands of jobs and billions of dollars in investment, franchise fees, and state and local taxes to the U.S. economy.
“History is clear: in addition to raising consumer prices and reducing program diversity, a la carte pricing would have a serious negative impact on investment, growth, and job creation for the U.S. economy,” the paper concludes.
NCTA is the principal trade association of the cable television industry in the United States. NCTA represents cable operators serving more than 90 percent of the nation's cable television households and more than 200 cable program networks, as well as equipment suppliers and providers of other services to the cable industry.