proufo
05-10-2003, 06:15 AM
Interesting situation. Do you agree?
A La Carte Cable Service Won't Cure Runaway Bills
By Joe Flint
Dow Jones Newswires
05/07/03
A colleague was complaining the other week about her cable bill. Why, she wondered, does she have to pay $60 for 100 channels when she only really watches 20 of them? She wanted to know why she couldn't just pay for the channels she wants and discard the sports channels and other fare that she has never looked at.
It's a good question -- one that millions of cable subscribers no doubt ask every month when their bill shows up in the mail. Recently, lawmakers have started to wonder the same thing. The cable industry is facing what is sure to be a heated debate over what is known in the industry as a la carte billing, in which subscribers pay only for the channels they want.
Arizona Republican Sen. John McCain has written to the country's biggest cable operators urging them to give consumers more choice when it comes to channels they receive and how they pay for them. That, he wrote, would be the first step in getting cable prices down. Cable rates went up an average of 6% in the U.S. last year. The senator, who chairs the Commerce Committee, which oversees the cable industry, held a hearing on the issue on Tuesday.
Sen. McCain isn't the only one urging cable companies to consider some form of a la carte billing. Federal Communications Commissioner Kevin Martin, a Republican appointee, wants cable operators to create a family-friendly group of channels that could be offered on an a la carte basis. Nickelodeon, Cartoon Network and the Hallmark Channel, for example, could be bundled together and sold in a separate package.
The Best of Intentions
Supporters of a la carte billing like Sen. McCain and FCC's Mr. Martin are well-intentioned -- they want to lower consumers' cable bills and stop forcing subscribers to pay for services they don't use. While that might sound like a good idea, the reality is such a move likely would have the opposite effect: Cable bills would increase, while programming choices would shrink, hurting both consumers and the industry. That's because pooling a big group of specialty channels into one cable package effectively lowers the cost of offering all the channels.
To see why that's the case, it's important to understand how the cable industry works. Networks such as MTV, Nickelodeon and CNBC charge cable and satellite distributors like Time Warner and DirecTV a monthly license fee to carry their service. The distributors then pass along those costs to subscribers.
The fees the networks charge vary tremendously. Walt Disney Co.'s ESPN, for example, comes with the steepest price tag, at about $2 a month per subscriber. At the other end of the spectrum, AOL Time Warner's Cartoon Network costs distributors only 12 cents per subscriber. For cable networks, license fees often account for more than 50% of their total revenue; most of the rest comes from advertising.
If cable networks saw their revenue from subscriber fees fall, some would be forced to cut back on their programming; others could be driven out of business entirely.
Take the children's channels Nickelodeon or Cartoon. Not everyone has kids, so many subscribers would opt to drop those services. To make up for the lost revenue, those channels in turn would boost subscriber fees for those who still wanted the service. Advertising dollars would be lost, too, since the channel's potential viewership would drop. The end result would be that many channels would have less to spend on programming.
Leo Hindery, chairman of the New York Yankees' YES Network, argues an a la carte system would mean only the channels "that appeal to the lowest common denominator would survive." Mr. Hindery readily acknowledges that he doesn't watch Lifetime or a whole lot of C-Span, but he is willing to pay for them.
It's tempting to think that the fate of the less-watched channels should be left to the marketplace. Except remember that the 10 channels you don't want to pay for won't be the same 10 channels your neighbor doesn't want, which means all programming costs would likely rise, and those increases would be passed on to consumers.
The Real Culprit
So if a la carte billing isn't going to lower your monthly cable bill, what will? One solution would be to address the soaring costs of sports programming. Right now, everyone foots the bill for the out-of-whack economics of TV sports. ESPN, whose carriage fees already are among the highest in the industry, recently disclosed plans to jack up distributors' rates by 20% this summer.
ESPN and other, regional sports programmers defend the rate increases, saying they reflect high viewer demand and the hefty prices the sports leagues themselves charge the networks to show their games. ESPN is one of the most profitable cable networks, but that is little relief for the distributors or the consumers who are footing the bill.
Many cable operators want to put all sports channels on a special tier so not every subscriber has to pay for it. But special rules can't be put in place for one group of programming and not for others. Just as the nonsports fan doesn't want to pay for ESPN, the sports fan may not want to buy Discovery or Bravo.
Instead of offering sports or any other type of programming as a separate package, the cable industry needs to tackle the real issue and confront the sports leagues. Prices continue to skyrocket for TV deals, even for sports like baseball and hockey, whose ratings are in decline.
General Electric's NBC, which has said no to most professional sports, is now the most profitable broadcast network. It is time for other networks to draw a line in the sand. But opening the door to a la carte billing won't solve the real problem.
A La Carte Cable Service Won't Cure Runaway Bills
By Joe Flint
Dow Jones Newswires
05/07/03
A colleague was complaining the other week about her cable bill. Why, she wondered, does she have to pay $60 for 100 channels when she only really watches 20 of them? She wanted to know why she couldn't just pay for the channels she wants and discard the sports channels and other fare that she has never looked at.
It's a good question -- one that millions of cable subscribers no doubt ask every month when their bill shows up in the mail. Recently, lawmakers have started to wonder the same thing. The cable industry is facing what is sure to be a heated debate over what is known in the industry as a la carte billing, in which subscribers pay only for the channels they want.
Arizona Republican Sen. John McCain has written to the country's biggest cable operators urging them to give consumers more choice when it comes to channels they receive and how they pay for them. That, he wrote, would be the first step in getting cable prices down. Cable rates went up an average of 6% in the U.S. last year. The senator, who chairs the Commerce Committee, which oversees the cable industry, held a hearing on the issue on Tuesday.
Sen. McCain isn't the only one urging cable companies to consider some form of a la carte billing. Federal Communications Commissioner Kevin Martin, a Republican appointee, wants cable operators to create a family-friendly group of channels that could be offered on an a la carte basis. Nickelodeon, Cartoon Network and the Hallmark Channel, for example, could be bundled together and sold in a separate package.
The Best of Intentions
Supporters of a la carte billing like Sen. McCain and FCC's Mr. Martin are well-intentioned -- they want to lower consumers' cable bills and stop forcing subscribers to pay for services they don't use. While that might sound like a good idea, the reality is such a move likely would have the opposite effect: Cable bills would increase, while programming choices would shrink, hurting both consumers and the industry. That's because pooling a big group of specialty channels into one cable package effectively lowers the cost of offering all the channels.
To see why that's the case, it's important to understand how the cable industry works. Networks such as MTV, Nickelodeon and CNBC charge cable and satellite distributors like Time Warner and DirecTV a monthly license fee to carry their service. The distributors then pass along those costs to subscribers.
The fees the networks charge vary tremendously. Walt Disney Co.'s ESPN, for example, comes with the steepest price tag, at about $2 a month per subscriber. At the other end of the spectrum, AOL Time Warner's Cartoon Network costs distributors only 12 cents per subscriber. For cable networks, license fees often account for more than 50% of their total revenue; most of the rest comes from advertising.
If cable networks saw their revenue from subscriber fees fall, some would be forced to cut back on their programming; others could be driven out of business entirely.
Take the children's channels Nickelodeon or Cartoon. Not everyone has kids, so many subscribers would opt to drop those services. To make up for the lost revenue, those channels in turn would boost subscriber fees for those who still wanted the service. Advertising dollars would be lost, too, since the channel's potential viewership would drop. The end result would be that many channels would have less to spend on programming.
Leo Hindery, chairman of the New York Yankees' YES Network, argues an a la carte system would mean only the channels "that appeal to the lowest common denominator would survive." Mr. Hindery readily acknowledges that he doesn't watch Lifetime or a whole lot of C-Span, but he is willing to pay for them.
It's tempting to think that the fate of the less-watched channels should be left to the marketplace. Except remember that the 10 channels you don't want to pay for won't be the same 10 channels your neighbor doesn't want, which means all programming costs would likely rise, and those increases would be passed on to consumers.
The Real Culprit
So if a la carte billing isn't going to lower your monthly cable bill, what will? One solution would be to address the soaring costs of sports programming. Right now, everyone foots the bill for the out-of-whack economics of TV sports. ESPN, whose carriage fees already are among the highest in the industry, recently disclosed plans to jack up distributors' rates by 20% this summer.
ESPN and other, regional sports programmers defend the rate increases, saying they reflect high viewer demand and the hefty prices the sports leagues themselves charge the networks to show their games. ESPN is one of the most profitable cable networks, but that is little relief for the distributors or the consumers who are footing the bill.
Many cable operators want to put all sports channels on a special tier so not every subscriber has to pay for it. But special rules can't be put in place for one group of programming and not for others. Just as the nonsports fan doesn't want to pay for ESPN, the sports fan may not want to buy Discovery or Bravo.
Instead of offering sports or any other type of programming as a separate package, the cable industry needs to tackle the real issue and confront the sports leagues. Prices continue to skyrocket for TV deals, even for sports like baseball and hockey, whose ratings are in decline.
General Electric's NBC, which has said no to most professional sports, is now the most profitable broadcast network. It is time for other networks to draw a line in the sand. But opening the door to a la carte billing won't solve the real problem.