Cable customers' choices being debated

Cable customers' choices being debated

Sports fans everywhere want to know: "Why do I have to subscribe to the soap opera channel when all I really want is ESPN?"

That's the kind of question the cable TV industry hates answering. The channel choice issue comes up every few years, but people who argue that subscribers should be able to choose channels "a la carte" have never made any real headway.

The latest effort, and the newest reasoning for requiring cable companies to offer channel choice, or a la carte cable, has to do with yet another issue: television violence.

The
Federal Communications Commission released a report in late April suggesting to Congress that an a la carte system would allow parents to shield their children from violent shows by not subscribing to the channels that carry them.

FCC Chairman Kevin Martin, who has been unshakable in his support of channel choice, says it can't happen without federal legislation. And thus far, the issue has gotten little traction on Capitol Hill.

Sen. Jay Rockefeller, D-W.Va., who is expected to unveil a bill addressing television violence any day now, has opposed the creation of an a la carte system.

The overall lack of support might seem surprising, considering that the average household in 2006 received 104 channels, yet tuned in to only 16 of them, according to the Nielsen TV ratings company.

If we aren't watching all those channels, why can't we just pick the ones we want and avoid paying for the rest? The answer lies within the arcane world of cable television economics.

In the old days (pre-1970s), cable systems provided viewers with broadcast channels that viewers couldn't tune in because the signals were too weak where they lived.

Since then, there has been a steady growth in cable-only channels, starting with popular ones such as HBO, CNN, MTV and ESPN.

Federal law requires cable companies to offer a bare bones, "basic tier" of service, consisting of local broadcast and public access channels. The second tier, commonly known as "expanded basic," includes most of the major cable networks. There's usually no choice on this tier; subscribers get all the channels or none of them.

Beyond that, subscribers may pick premium channels like HBO, that are priced separately.

Unlike over-the-air broadcasters, which rely almost entirely on advertising to stay in business, cable networks earn about half their revenue from per-subscriber charges levied on cable system operators. Those costs are passed on to cable subscribers.

Two types of companies dominate the cable industry: those that own both broadcast and cable networks (like Walt Disney Co.); and those that own both cable systems and cable networks (like Time Warner Inc.).

Disney, for example, owns the ABC television network, which feeds programming to 228 affiliates, several popular cable-only channels (80 percent of ESPN) and several not-as-popular cable channels (SOAPnet).

Cable customers demand that their local cable company carry the ABC affiliate so they can watch popular shows such as Desperate Housewives and Lost, or catch the local news. Disney can charge the cable operator to carry the ABC network, but the cable operator can avoid the cost by agreeing to carry other, less-popular Disney-owned networks.

The second model is a form of vertical integration, or ownership of the cable delivery system as well as its programming content.

Time Warner owns the second-largest cable television service in the nation with 13.4 million subscribers. It also owns some of the most popular cable channels in the United States. That means that Time Warner the cable system owner has to negotiate with Time Warner the cable channel owner to provide programming.

In a nutshell, the cable television business is a closed, profitable system with a small number of very large players who negotiate secret deals with one another and have a vested interest in maintaining the status quo.

"The whole system feeds on itself," said Jeannine Kenney, senior policy analyst with Consumers Union, the nonprofit publisher of Consumer Reports magazine. "It's almost like everyone benefits except for the consumer and the independent content provider."

An a la carte regime would blow up that system and disrupt its economic model. And that would lead to higher prices and less programming diversity, according to the National Cable and Telecommunications Association, an industry trade group.

Fewer channels would mean less advertising and fewer advertising dollars. An a la carte system would also require more customer service representatives, higher billing costs and higher marketing costs.

These factors and others would ultimately lead to higher rates for consumers, according to the NCTA.

The bottom line, though, is there is no way of knowing for sure. A 2003 GAO report stated that "a variety of factors" make it "difficult to ascertain how many consumers would be better off and how many would be made worse off under an a la carte approach."

Consumers Union has lobbied long and hard for a la carte, saying it would put a halt to steadily rising cable prices. It has an ally in the Parents Television Council, a group that successfully pushed for higher fines for broadcast stations that air raunchy programming.

The opponent is the cable industry, led by the NCTA, which issues press statements every time Martin utters the words "a la carte."

Cable networks that cater to minorities are fearful of cable choice. They worry that it will drop their subscriber base dramatically and run them out of business. (The biggest minority networks, such as Black Entertainment Television, are owned by big cable or broadcast companies.)

Cable's closed system has developed largely because of the industry's status as a monopoly for most of its early years. Even when direct broadcast satellite providers like Dish Network and DirecTV came on the scene and cut heavily into cable's customer base, the system still didn't change much.

The same programming rules that apply to cable apply to satellite; if you want the popular channels, you have take the unpopular channels.

Prior to Martin's anti-violence crusade, the most high-profile supporter of a la carte was Sen. John McCain (news, bio, voting record), R-Ariz. Under former FCC Chairman Michael Powell, the agency released a report that relied heavily on a cable-industry sponsored study that concluded "few consumers would experience lower bills" under an a la carte system.

In early 2006, with Martin in charge, the agency released another study, the first 30 pages of which were dedicated to refuting the first study. This one concluded that "Consumers could be better off under a la carte. ..."

Now the price argument has been overshadowed by the issue of content.

The Parents Television Council and Martin argue that the best way to protect children from gory or tawdry programming is to give parents the option of keeping certain channels out of the lineup.

Supporters say an a la carte system is more palatable constitutionally than imposing rules to restrict the airing of violent content during certain hours of the day.

Thus far, Congress has yet to bite on it.

Rockefeller hasn't introduced his bill, and when he does, an a la carte regime will not be part of it, according to spokeswoman Wendy Morigi.

The No. 1 contributor to the senator's political campaigns over his career in federal politics, according to the Center for Responsive Politics: Time Warner.

Morigi said Rockfeller doesn't create legislation based on contributions, and predicted "the cable industry will both support and oppose some of the provisions" in his bill.