The issue of mandatory “a la carte” for cable television service continues to be a hot topic. This is actually a pretty broad and complex topic, so I’d like to break it down a bit.

For some people, when they think of “a la carte,” they simply mean, “I feel that my cable bill is too high and I’d like to pay less.” Just remember than any discussion of price ought to include an examination of value. Is the product or service delivering value in proportion to its price? (For more on the relationship of value to price, see this earlier post.)

But, let’s accept the premise for a second. You think your cable bill is “too high.” Many fans of a la carte are making this calculation.

• Average Monthly Price for Expanded Basic Programming Packages: $42.76
• Average Number of Channels in Expanded Basic Package: 80
• Average U.S. Household Tunes to Channels per Month: 15.7

“So, wait,” the thought goes. “If I pay 43 bucks for 80 channels, but I’m only looking at 15 of them, than the other 65 are wasted. There are channels I never look at. Why am I paying for them? If only I could pay for exactly what I want and nothing more, surely I would pay less.”

Let’s also accept another premise. You like some cable channels. You probably don’t watch them all, and there may be a few you actively hate. But if you get some kind of multichannel video service, it’s because there are channels you enjoy and want to see continue and prosper. So, while you might want to pay less, you don’t want that to happen at the expense of the viewing choices you now enjoy.

There’s the conundrum. Mandatory a la carte won’t satisfy either of these desires. You probably won’t end up paying less and you’ll also endanger the economics of the channels you love.

The Yankee Group recently issued a report entitled “A-la-Carte: The Demise of Television as We Know It.” The Research Recap blog has highlights of the report. It’s important to remember that most cable networks – except for premium services such as HBO, Showtime and Starz – have multiple revenue streams. They make money from cable operators for allowing them to carry the service (i.e., to deliver it to you in your home) and they also get advertising revenue. Both of these revenue streams rely on being in as many households as possible, even separate from the issue of ratings.

If I am the president of the Fly Sneaker Channel, in an a la carte world, I now have to market to each household individually to convince you to buy my channel. So, my marketing costs go up. Plus, I won’t make my advertising revenue, because now I’m in zero households to start and I’ll probably never build up to a very large number except very slowly. You might like my channel; you might want to skim it occasionally to check it or there might be a positive review that makes you want to see a particular program. But because it’s not on your lineup unless you choose to subscribe to it, that won’t happen.

Now read the recap of the Yankee Group’s analysis.

• Under a la carte, programmers will lose their current economic model. Surviving networks will have to charge consumers between $5.00 and $10.00 per channel to overcome the decrease in carriage fees.
• With a la carte, casual viewers go away, decreasing both viewers and advertising revenue. Niche networks won’t have enough reach to survive.
• With mandatory a la carte, the 565 national video programming services and networks will dwindle.

Some networks will not be able to financially survive. Before you say “Good riddance,” don’t assume your favorites will survive. Many networks may not have the money to invest in new and innovative programming, so you may have to kiss your favorite shows goodbye as well. The networks that do survive may have to charge several bucks a month for subscription fees. Odds are you could select very few channels before you’re right back up to the price you’re paying now.

The cable industry has spent more than $100 billion since the Telecommunications Act of 1996 to create the most extensive and robust broadband network found in America. This robust technology platform now passes more than 117 million households with high-speed Internet Service, serves 65 million households with video services, and provides telephone service to 15 million customers.

Digital Phone

Consumers now have access to more competition than ever thanks to cable. Digital telephone service provides consumers with a true alternative to standard telephone service. While some cable operators have offered traditional circuit-switched telephone service for years, most are now offering digital phone service. This service often comes as part of a “bundle” where multichannel video, high-speed Internet and voice services are offered as a package and billed in a single invoice, providing a better value and more simplicity for customers.Through the use of software, digital phone service provides all the functionality of the public switched telephone network (PSTN), while making possible new features not available through traditional telephone service, such as Web portals that allows customers to review their calling history or listen to voicemail messages online when away from home. Digital phone service is a revolutionary technology that has the potential to completely change how phone calls are made and how voice services are used.

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There are many ways that the cable industry has expanded consumer choice. You don’t have to be that old to remember a time when you had maybe a half-dozen TV viewing choices – maybe a few more, maybe less – and now you probably have hundreds. Not that long ago, it was the same situation with the telephone.

A couple years ago, NCTA created a video to explain cable’s impact on America. Take a look and skip ahead about two minutes in. That image of the phone industry as stodgy is amusing because it was so true. Rotary dials, touch-tone, mobile phones – the pace of these innovations was pretty slow.

But today, consumers are finally enjoying true facilities based competition in local phone service. Cable’s service is reliable plus it offers many of the standard features for a great price. Generally, you get unlimited calls anywhere in the U.S., Canada and Puerto Rico. You get to keep your current home phones, wall jacks and phone number. Many operators include services like Call Waiting, Caller ID, Call Forwarding, Speed Dial, and so on. But you also see features like digital voicemail that can be accessed over the Internet from any location, and new features like Caller ID on the TV are beginning to be introduced in some communities.

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More than 15 million Americans have switched to cable’s digital voice service. One big reason that consumers are switching is the significant savings that can be found, especially if the service is included as part of a bundle that includes video and high-speed Internet.

In fact, in the past four years, consumers that have switched to cable phone service have already saved $23 billion. Evidence of that can be found in a study by Microeconomic Consulting & Research Associates, Inc. (MiCRA). The report, “Consumer Benefits from Cable-Telco Competition,” was first prepared in 2006 and then updated in November of 2007.

According to MiCRA, consumers and small businesses across the country have already saved $23.5 billion and may save a total of $111 billion on their phone bills over the next five years as a result of robust competition. MiCRA estimates that residential consumers could save an average of $144 or more each year, while small businesses could save 50-70% on their phone bills – although the projections conservatively assumed that small businesses would save about $240 each year.

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In 2007, J.D. Power and Associates’ annual rankings of telephone service provider customer satisfaction ranked cable companies #1 in customer satisfaction in all six US regions. More than 15 million customers currently enjoy cable’s phone service, and it’s no wonder cable companies are signing up millions of new customers every year.

Cable’s telephone service often comes as part of a “bundle” where multichannel video, high-speed Internet and voice services are offered as a package and billed in a single invoice, providing a better value and more simplicity for customers.

Cable’s digital phone service makes possible new features not available through traditional telephone service – such as Web portals that allows customers to review their calling history or listen to voicemail messages online when away from home. Digital phone service is a revolutionary technology that has the potential to completely change how phone calls are made and how voice services are used.

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