Forget a la carte cable idea; the future is in Internet TV

24 juli 2004, 08:37

Everyone resents the high cost of cable TV, which has gone up three to five times faster than the inflation rate in the last five years. And we’re all forced to buy big packages of 50 or 100 channels to get the five or ten we really want to watch.

So why not force the cable companies to sell channels individually?

You could, for example, just buy CNN and American Movie Classics if you’re an effete liberal, or just Fox News and the Outdoor Life Network if you’re a conservative hunting-and-fishing type. Parents could get Nickelodeon and Disney Channel for their children without also having to take racy channels such as FX and Spike TV.

Since this is an election year, politicians are making “a la carte’’ cable a hot topic in Washington.

It sounds like a good idea, but it’s not. It’s highly unlikely a la carte cable would save consumers money and it could have ugly unintended consequences, including messy government regulation and the death of many worthy cable networks with small audiences.

The debate picked up momentum in May when Sen. John McCain, R-Ariz., sent a letter to Federal Communications Commissioner Michael Powell asking him “to explore all available options within your authority to promote a la carte cable and satellite offerings as soon as possible where such offerings would benefit consumers.’‘

The FCC is holding a daylong symposium in Washington on Thursday, following a hearing in the House of Representatives on July 14.

It now appears unlikely Congress will take action this year, although the FCC will respond to McCain’s request with a report due in November.

Meanwhile, the issue is bringing together some unusual allies.

Conservatives offended by adult-oriented cable shows are joining with liberals upset by the tight grip mega-media companies have on the creation and distribution of cable programming.

Big cable operators, who own many of the channels they offer, are very much against a la carte, while small independent cable operators like the idea.

Independent channels, now widely available on cable, worry they wouldn’t attract enough viewers to survive in an a la carte world. Independent channels on the outside view a la carte as a way to break through.

To their credit, cable operators have invested heavily of late to build new digital systems that offer far more channels, along with high-speed Internet access.

Comcast in the San Jose area now provides about 225 channels, not including music channels or pay-per-view movie and sports channels, to digital subscribers. But the cost is steep; the least expensive digital package is $54.45 a month for 100 channels.

Let’s say Comcast instead offered all the local broadcast stations for $10 a month and let you pick your own line-up of cable channels for $1.50 each. You could get the locals and 20 channels of your choice for $40 a month—one-fourth less than Comcast’s best offer for digital cable today.

But what if Comcast set a la carte prices at $5 per channel? You’d only save money if you ordered nine channels or fewer.

Or Comcast and other cable operators might thumb their noses at any future a la carte regulations by charging $20 per channel. Congress and the FCC could respond by attempting to set prices for individual channels, a guaranteed regulatory sinkhole. Is ESPN worth more than MTV? What about C-SPAN compared with The Weather Channel?

There’s also a big technical hurdle. About half of the 70 million cable households in the United States have a converter box that could be programmed to accommodate a la carte. But the other half connect the cable directly to their TV sets, and these viewers couldn’t move to a la carte without the installation of extra hardware—an expense that would be immediately passed along to consumers.

The Government Accountability Office, the non-partisan research staff of Congress, looked at the issue in a March report and concluded subscribers’ monthly cable bills “would not necessarily decline under an a la carte system.’‘

Anyone searching for relief from high cable rates in Washington is stuck on the wrong coast. Silicon Valley will ultimately provide a much better solution: broadcast-quality television delivered through the Internet, completely independent of the bloated cable industry.

Akimbo, a start-up company in San Mateo, says it’s no more than six weeks away from launching a digital video recorder (DVR) that gets TV shows through a high-speed Internet connection rather than a cable, satellite dish or roof antenna. San Jose-based TiVo, which pioneered the DVR category, plans to add Internet delivery next year.

Cable companies will have to scramble like they’ve never scrambled before to meet the challenge of Internet TV. Their pain will be our gain.


Marco Derksen
Partner bij Upstream

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