A La Carte Entertainment Video Might Not Work, Though People Want It

Most people these days would probably agree that the ability to buy video a la carte, show by show, series by series or channel by channel, using the Internet or any other distribution method, is a good idea. Some blame the distributors for failing to meet demand. But distributors would say their programming contracts forbid such sales. 

"We should be clear about something: cable companies are at the mercy of content companies on the issue of content rights and use," says Michael Powell, National Cable and Telecommunications Association president. 

The licensing rights dictate most of what distributors can, and cannot do, with that licensed programming. Most consumers probably think, intuitively, that shifting to an a la carte retail regime would lead to lower costs.

Powell points out the flaw: "The a la carte model is deceptively attractive until you do the math."

People generally assume that if ESPN were sold a la carte the price would fall. But if you assume a shift to a la carte could not happen unless such a development were revenue neutral, you have the crux of the problem. With fewer customers, there would be less revenue, but programming and other costs would remain the same. So prices would rise. 

Studies are inconclusive, though. Some show a sort of neutral or slightly positive outcome if a typical consumer purchased about 11 channels. 

A la carte would mean fewer subscribers and fewer advertising dollars. So prices actually would rise. For "ESPN to maintain its current revenue, it would have to cost hundreds of dollars," says Powell.

An economist might say the typical video bundle works because it allows distributors to apply scale and scope economics. The corollary is that most networks, which are advertising supported, want to be part of a "no choice" basic tier for business reasons of their own, namely the ability to better sell the advertising that underpins their business models. 

When multichannel video distributors say a bundled approach creates economics that favor smaller, niche networks to thrive, they are right. An end to bundling would likely decimate most smaller, more-lightly-viewed networks. To the extent that content and program diversity is a desired end user benefit, "choice" in all likelihood would decline in a full a la carte environment, because most people would not buy most channels. 

The possible advent of over-the-top TV viewing worries most in the current ecosystem for one compelling reason: "households view less than one quarter of the networks they are forced to buy in the bundle," the Consumers Union noted in an past analysis assuming a 50-channel offering. Even today, with hundreds of available channels, end user behavior does not seem to have changed much. 

Most people watch a dozen or so channels on a regular basis. 

Cable operators have argued that end-user costs might actually climb in an a la carte environment, for a number of reasons. Higher customer care costs, operating and marketing are likely, cable operators have argued. Part of the argument has been based on the need to supply new decoders to customers who did not previously need them. That is likely not much of an issue these days, as cable operators convert to largely-digital or all-digital services where customers already must be provided set-top boxes.

Operators also have argued that customer care costs would rise, and there is more substance to that argument, at least during the period where customers would be confused about the new way of buying service. The National Cable and Telecommunications Association has estimated that customer care costs increase by more than 75 percent in a pure a la carte scenario, the Consumer Union says. 

Others believe a typical household might wind up paying about the same amount each month. That is likely true more for ulti-person households and for households that watch more television.

Separate studies by the Federal Communications Commission seem to have concluded that unbundling could save money, or wouldn't save money. One of the studies suggested  “consumers that purchase at least nine networks would likely face an increase in their monthly bills" when buying a la carte. 

Likewise, one of the studies suggested bill increases ranging from 14 percent to 30 percent under a la carte, while the other suggests a consumer purchasing 11 cable channels would face a change of bill ranging from a 13 percent decrease to a four percent increase, with a decrease in three out of four cases.