There was a column in the L.A. Times yesterday from David Lazarus entitled: “Let’s pay only for the TV we watch.” So, once again, back we go to the topic of “a la carte” cable service.

I get it. It feels like much of the content world is going to a pay-only-for-what-you-want model. Certainly, it feels right emotionally to only pay for the stuff you’re going to use. But this argument is almost always predicated on one premise: If I could pick and choose, my bill would go down.

Lazarus writes:

The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly.

That’s more than 100 channels that most cable subscribers are paying for but seldom if ever watching.

Because of the number of cable systems nationwide, it’s hard to get a fix on the average monthly bill. But many estimates place this figure at $60 to $70.

This means, if all channels cost the same, the typical cable subscriber is spending about $9 a month for the 17 channels he wants to watch and about $55 for the 101 channels he never sees.

There are big problems with the figures here, so let’s break it down.

If you’re getting 118.6 channels, that means you’re getting digital cable service, because analog can’t deliver that many. SNL Kagan estimates that the current average monthly price for digital service is $59.23 (expanded basic is $44.28), which not only provides a wide range of programming but also opens up the door to high-definition and Video on Demand.

The first important point that Lazarus overlooks is that the average cable subscriber has elected to switch from a cheaper level of service with fewer channels, in order to take a more expensive level of service with more options. Perhaps people like the greater choice that comes with digital?

For example, Cablevision recently reported that more than 90% of its video customers subscribe to digital service, which means that 9 out of 10 of its customers want more channels, not fewer. If you look at the largest cable operator, Comcast, you find that 69% of its video customers elect to subscribe to digital service. Industry-wide, approximately 62% of cable’s video customers have made the decision to receive more channels via digital service.

Lazarus continues:

But all channels don’t cost the same amount. By most accounts, the sports channel ESPN is one of the most expensive carried by cable systems, costing by some estimates more than $3 a month per subscriber. Many other channels are said to cost as little as 25 cents monthly.

I never watch ESPN. When I watch TV, it’s usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.

That, of course, is not what the cable industry wants.

Lazarus leaves out all of the relevant content here. Those figures he cites are carriage fees that cable operators pay programmers in order to carry those services and offer them to their customers (The real rates are found in private contracts; actual figures will vary by company and circumstances). It’s not what those networks “cost” and it’s not a reflection of what you would be charged in an a la carte world.

He also writes:

According to the FCC, average cable rates nationwide more than doubled over the last 10 years.

In fact, the FCC has not released any reports containing this information. There have been statements in the media to this effect, but the Commission has not released any reports to back up this assertion. It is irrelevant to compare today’s rates to the rates from more than ten years ago, since the nature and value of that service has changed over that same time-frame, but it is worth noting that over the last several years, the increases in cable rates have actually lagged behind inflation rates.

Read this post for the financial details, but the short version is that if each network lost the carriage they have now and then had to market and sell the channel to individual consumers, revenue goes down, operating costs go up and programming quality probably also goes down.  And the price you think you’ll pay for individual channels on an a la carte basis? You’re probably grossly underestimating it. The reason why you should pay for more than you watch is that it beats paying more to have fewer options.

Lazarus writes that cable needs to be brought “in line with the wholesale shift in how consumers now approach entertainment.” But different distribution outlets have different pricing models. If you saw Iron Man in the theaters, you probably paid ten bucks. The DVD is probably $20. Buy it on iTunes for $15 or watch it on VOD for $5. As I’ve written previously, different businesses operate on different models and it’s a mistake to assume they should all be the same.

Lazarus makes a comment early on about knowing “as a newspaperman” a little something about “outdated business model[s].” The print edition of his newspaper, the Los Angeles Times, is not sold on an a la carte basis, with the option of buying just the sports section or the business section. They did experiment a few years ago with putting their online entertainment section behind a wall and then charging a subscription fee for access. They later ended the experiment. The New York Times did something similar with its TimesSelect service. In these instances, the free market determined their actions, not regulation. Business models change over time and the models of the cable industry will undoubtedly do so as well.

If you look at the comments of this column, you’ll find some other reasons given why mandatory a la carte would probably be problematic. You could also check out some of Mike Masnick’s posts at Techdirt, such as here, here or here.

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.