CABLE MSOs, SMALL OPERATORS DISAGREE ON A LA CARTE

There aren’t enough viewers to carry every network if channels were sold individually, Mandel contended. He said broadcasters would regain market share in such a world, but ultimately many viewers would leave TV for computers or other media forms. Channels must acquire shelf space before they can gain an audience, he said. The symposium was held at the behest of several members of Congress, including Sen. McCain (R-Ariz.), who want the FCC to produce a report on the benefits and drawbacks of a la carte pricing. Some in Congress say constituents are upset over cable bills that continuously rise faster than the consumer price index.

Oxygen Media CEO Geraldine Laybourne said her channel would never have gotten off the ground in an a la carte model because people wouldn’t have given it a chance. “A la carte is not the answer. In fact, it’s one of the worst ideas I've ever heard,” she said. Emerging networks couldn’t get financing, resulting in fewer channels and original programming, and consumers would pay more for less, Laybourne said. And to survive now, she said, her company would have to triple the amount spent to continue marketing itself. She said she would be forced to dramatically reduce the channel’s budget for original, independent programming. “The idea that we would have to spend that money for marketing is an abomination,” she said.

Earlier, executives of consulting firm Booz Allen Hamilton presented findings from a study of a la carte produced for NCTA. The study showed, among other things, that, with mandatory a la carte, 1/2-3/4 of emerging networks would go out of business or be bought by larger networks, leading to further industry consolidation. They said that after broadcast basic, consumers could only pick up to 6 channels before their bill would top what they pay today for a much larger bundle of channels. Media Bureau Chief Kenneth Ferree said he thought the study took for granted the idea that ad dollars would automatically fall, which he questioned.

Rogers Vice Chmn. Philip Lind said cable is heavily regulated in Canada, but when pressed on why Rogers offered a la carte pricing, he conceded the company did choose to do so. Nevertheless, Lind said Canadian consumers can get a la carte choices only when they get digital service in addition to analog. He said there was a low take rate for the service and it wasn’t nearly as popular as analog. The Canadian govt. mandates that the channels on basic analog be carried, and the channels include programming native to Canada. He said customer service costs have gone up in the 3 years since a la carte digital was introduced, but not prohibitively. He told Ferree that it would be difficult to make a direct comparison since Canada’s system is more regulated.

Buford Media Group CEO Bennett Hooks said the FCC must act to help small cable companies like his, which he said are being crushed under ever-increasing license fees and forced tying arrangements by a handful of conglomerate programming companies. He said pure a la carte is a fallacy and the issue is really about giving small operators the freedom and ability to fight off conglomerates forcing programming down their throats. Hooks said some of the programming is violent or sexualized and inappropriate for many customers in his area. His company has 78 cable systems with 56,000 subscribers in 6 states.

Hooks, representing the American Cable Assn. (ACA), said 5 companies own nearly every channel of the top 50 on his systems, even on the 2nd tier. To obtain “must-have” channels, contracts force other channels onto the dial, giving small operators “very little flexibility,” he said. Hooks also said the conglomerates engage in price discrimination, resulting in many small and rural cable companies having programming costs 20% higher than larger MSOs. That, he said, means rural customers end up subsidizing the cable bills of people who live in big cities.

Hooks said he and other ACA members would like to try a la carte, at least as an experiment. Ferree said it sounded like an “intriguing idea” that the FCC may explore further. Consumers Union Senior Dir.-Public Policy & Advocacy Gene Kimmelman also endorsed an experiment. He proposed keeping a basic tier that would include broadcast and public access channels and then making a la carte available to those consumers who buy digital.

Insight CEO Michael Willner said there were several technical hurdles to offering a la carte, and those were expensive options that would hold back the digital transition as cable MSOs would have to divert funds to that effort. Customer service costs also would increase significantly, he said, as consumers pick and choose each channel. Willner said the cable industry was already “out of favor” with Wall St. and a la carte would only cause more harm. “The fix may be worse than the problem and that’s what we have to be careful of,” Willner said.

Kimmelman and Consumer Federation of America Research Dir. Mark Cooper disputed the Booz Allen study, saying there would still be the same number of viewers -- just ones who were actually watching. Noting that many channels get little viewership, Cooper said advertisers could better target their ads. Because of media consolidation, Laybourne’s success as an independent programmer is “a drop of success in an ocean of utter failure” for independents, Cooper said. But Kimmelman said Time Warner and Charter’s Paul Allen are among Oxygen’s financial backers. In any case, Cooper said independents have “"been squeezed out of the marketplace.” Cooper and Kimmelman also said they weren’t talking about pure a la carte, but a mix of tiers and a la carte.