Given the FCC approval of the XM – Sirius merger, and the release of the “voluntary commitments and other conditions” that sealed the deal, one natural question that has arisen is “If satellite radio can do a la carte, why can’t cable providers do it?”

The answer, of course, is buried in the details.

To understand the answer, you need to understand several major differences between cable providers and satellite radio.  Some of these include:

• Ownership of content
• Advertising support and business models
• Delivery and ease of reproduction/pricing

Most XM/Sirius channels are produced and owned by XM/Sirius so they do not compete with each other for listeners or access to the satellite radio lineup because the company only produces channels that they launch.  In the video world, most channels are not owned by the distributor so they compete against each other for access to viewers, ratings and advertising dollars.  In an a la carte world, this competition would require each video channel to spend significantly more money on marketing and promotional costs to attract viewers, driving up the cost of that programming to the subscriber.

In addition, satellite radio was founded on the notion that most of its channels would be commercial free or have very limited advertising.  Unlike video programming which relies heavily on commercial advertising, XM/Sirius programming is supported almost entirely by subscriber fees.  So with each channel relying on little or no advertising support, applying an a la carte model to satellite radio would not require each channel to boost its price (or reduce its quality) to make up for lost advertising revenues.  In the video world, that is exactly what would happen.

You also must consider the programming.  While satellite radio does have a respectable diversity of programming, each of the channels is essentially a technical reproduction of the other and the cost of production (which largely consists of recorded music and other material) is lower than video production and generally does not vary widely. Obviously attracting well known personalities like Howard Stern can affect costs (including potential litigation costs), but generally speaking, music and talk programming are fairly consistent.

In the video world, however, the cost of producing channels varies greatly and the cost gaps continue to widen with the growth of high-definition and more and more original programming. For instance, it costs more to produce an episode of Burn Notice than it costs to produce How Do I Look? So, while XM/Sirius may be able to offer customers the opportunity to purchase any fifty of its music channels at the same per-channel price, it is impossible for cable operators to offer video channels in this manner.

Finally, aside from the structural business issues mentioned above, it’s also important to understand that what Sirius-XM has agreed to is not actually ”a la carte”. Despite the marketability of attaching the words “a la carte” to their new options, according to their channel lineup and pricing document, XM and Sirius are offering consumers the opportunity to purchase smaller bundles.  You can choose either 50 channels from ONLY one provider (out of a total of 100 possible choices) or 100 channels combined from both.

The pricing document makes it clear that the “a la carte” option will not be available for a year, and will require new equipment.

A la carte programming will be available beginning within one year following the merger, and the other programming options will be available beginning within six months following the merger… A la carte programming will only be available for subscribers using new radios, which will be developed following approval of the merger.

There is no opportunity to buy only 1, 3, 5 or 6 channels.  You have to start with at least 50 channels.  That’s not what most people describe when they talk about a la carte.

There’s no comparison between cable’s business model of delivering ad-supported television purchased from multiple competing providers and satellite radio’s model of delivering ad-free content of their own design.  People may try to make such a comparison in order to argue that since XM and Sirius have agreed to provide “a la carte,” cable must be able to do it, too.    Unfortunately, as study after study has shown, the facts just don’t support the fiction.

It’s worth revisiting a topic that never goes off the radar: Concern about content. Everybody can agree that cable transformed the television landscape by vastly expanding viewing choices, but not every viewing option is to everybody’s taste.

But the important point to remember that what cable delivers is choice. You get a ton of options and then you pick out the ones that appeal to you. Spouses, partners, kids, friends and neighbors all are likely to make different choices. But by starting with a wide initial set of options, everybody can have a better chance of being satisfied.

Some people are very concerned about certain programs. This is very understandable, because not all programming is appropriate for all ages. Some content may not be to your taste or may even offend you. Fortunately, there is a solution: parental control features.

You can find out more at our website Control Your TV or from a report prepared by the Progress & Freedom Foundation’s Adam Thierer. Suffice it to say that between your television’s V-chip controls and those of cable’s digital set-top boxes, you have the ability to block by channel, rating or show. (Also, read this chronology to see how long the cable industry has been addressing this issue.)

Philosophical argument #1: I don’t like a piece of content, so it ought to be stopped. The problem with this approach is that what’s a problem for you may not be a problem for me and vice versa. The best solution is not to ban, but to allow me to choose that content and allow you to block it out.

Philosophical argument #2: That piece of content is so offensive that it’s wrong that I’m “forced to subsidize it” with my cable subscription. Currently, the best and most economically efficient way to deliver a broad array of viewing options is through bundles of channels. You may feel like you’re “subsidizing” the channels you don’t watch, but your fellow subscribers who don’t watch your favorites may be “subsidizing” yours. There is plenty of evidence to show that a mandatory a la carte system would lead to fewer viewing options, less diversity of content, and higher prices overall.

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.

There are any number of issues that come up all the time in the cable business. And one of them is the pay-per-channel scheme known as “a la carte.” Sure, it sounds attractive. But when people describe what they think they will get under a mandatory a la carte plan, it doesn’t match reality.

It came up last week when NCTA’s Kyle McSlarrow was on a panel; it comes up all the time. Steve Jobs just gave his yearly Sermon on the Mount (a.k.a, his Macworld keynote) and he announced movie rentals on iTunes and an overhaul of Apple TV. This led to the Bad Luck City blog’s headline: Apple TV and iTunes video rental: Bye Bye Netflix and Cable.

What this means is that I may be able to cancel my Netflix account and rely on Apple for my movies on demand. Why send bits of data on a envelope through snail-mail when I can do it over my Internet connection?

As you know, I ditched cable for OTA television long ago, but now everyone else can do the same, at least until the cable industry offers programming a la carte.

Of course, Netflix already offers online movie viewing and they just lifted time restrictions, so that their customers can watch all they want. And cable customers get a lot more viewing options (especially if you’ve got digital cable with VOD) than someone getting DTV over-the-air.

Here’s another example in a blog post about the satellite radio business:

Sirius’ CEO Mel Karmazin has promised the FCC to allow a la carte programming for a cheaper price if the merger goes through. This way customers can pick and choose what they want to listen to. Chairman Martin of the FCC has tried to get the cable companies to allow a la carte programming, but to no avail, so he may see the Satrad merger as a precedent for a la carte options.

I’m going to keep referring people to this great column by the NY Times‘ Joe Nocera about why a la carte means fewer choices and higher prices. Maybe the message will get through.

UPDATE: And here’s another one. Diane Keaton drops an F-Bomb on Good Morning America and a Wednesday evening panel grapples with the effects. Tim Winter, President of the Parents Television Council, and Shawn Ryan, creator of FX’s The Shield, got into a tiff:

The evening’s hottest moment flared between Winter and Ryan over a PTC-supported proposal to offer consumers a la carte cable choices. Instead of having to buy multiple channels bundled in one package, the PTC supports legislation that would allow consumers to cherry-pick and pay for only the channels they want to watch.

“Why should I have to pay for FX when all I want is the Disney Channel?” argued Winter.

But Ryan, whose award-winning, gritty cop drama “The Shield” broke new ground for language and violence on basic cable, said that proposal would stifle creativity.

“I’d prefer you be honest about this,” Ryan said to Winter, whose nonprofit group originally referred to “The Shield” as “filthy trash” when it debuted. The a-la-carte proposal is a “backdoor way to censor shows and networks,” Ryan added.

On the one hand, you have mandatory a la carte leading to less diversity in programming, which could lead to fewer family-friendly viewing options. And on the other hand, cable has a better solution for content that you may be concerned about: parental controls. Everyone has different opinions about what they might block and cable’s controls let you decide. Check out our Control Your TV website or this report from PFF’s Adam Thierer.

Today, there was a SuperSession run by CNET entitled “Next Big Thing,” in which CNET editors set out to reveal what’s coming in three key areas: automobiles, personal handhelds and television. We here at CableTechTalk were keenly interested in the third of these topics, not just because it’s a key part of our business, but because our Fearless Leader Kyle McSlarrow was appearing on the panel

There were some interesting tidbits to be heard. For example, there are GPS systems that will search for local businesses as you travel from Point A to Point B and the #1 search is for “pizza.” The audience was polled throughout the session and most people indicated that they were not prepared to ditch their PC for a handheld device that could (supposedly) do it all.

Then Molly Wood, Executive editor, CNET.com, led a discussion with Patrick Norton of Revision3 (pictured at left), NCTA President & CEO Kyle McSlarrow (center) and George Kliavkoff of NBC Universal (on the right). Norton indicated an interest, as have others on the bleeding edge, to ditch traditional delivery methods of television and get all his viewing accomplished online through streaming and downloads. McSlarrow indicated that online content is a great complement to cable, but didn’t express concern that the cable industry should feel threatened right now. A poll of the audience confirmed that the vast majority did not intend to drop their cable or satellite service in favor on online viewing. Curiously, for what one would expect would be a tech-savvy group, about a third of the audience said they didn’t watch any online video at all.

McSlarrow acknowledged how complex the evolving business model for video is, but asked for that business to be allowed to develop without regulatory intervention. He added, “It tells you something about the economics of a la carte. There is enormous value in paying 50-60 bucks a month to watch eight hours a day, selected from hundreds of channels and large VOD libraries. Is that the right model? Let the marketplace decide.”

Kliavkoff also mentioned that NBC Universal’s new video service Hulu replicates what cable and satellite have “done well,” which is to act as an aggregator. He did say that there will be an incremental approach, due to existing contracts, but predicted that contractual issues will change over time.

Norton, formerly of TechTV, took a few shots at cable over the course of the panel and closed with a pitch for a la carte. As part of his rationale for this position, he said that he got hundreds of channels that he didn’t watch, that viewers only looked at about 20 channels over the course of a year and only really watched six of those channels regularly. Of course, as with most people who make this argument, he overlooked the fact that not everyone in a household watches the same six channels and every individual household also differs in terms of their preferences.

McSlarrow noted the attractiveness of an a la carte system, but asked if it seemed as attractive in light of abundant evidence that your new smaller package of cable channels would actually cost you more.

(I refer you to this recent column by the NY Times‘ Joe Nocera which examined the issue of a la carte and stated that “When we pay for the cable bundle we are, in effect, subsidizing those channels for everybody — including ourselves.”)