'Think About That For A Minute'

Commentary by Steve Effros An ‘A La Carte’ Year Take your pick, as we begin this new year, as to what the major issues are that will face the cable industry. I suspect the list will be long, from negotiating through the turbulence of the "digital transition," to new hearings on cable rates and the old standby, must carry. Of course the underlying issue of copyright in all its various permutations is going to be with us as well. It is probably the most complicated part of the digital transition. But for now, I would have to pick another subject as the one we will hear more about this year than we have for the last decade: "a la carte" program offering. The background noise about it has started already. The FCC rules that prohibit "tier buy-through" got some publicity at the end of 2002. Amusingly, one "reporter/analyst" at "BusinessWeek Online" thought that she had instigated the entire discussion – apparently unaware that this issue has been around for many years and has been hashed out more than once. Her "solution" to high cable costs: "a la carte" selling of program services. That way folks could buy only what they want, and presumably, of course, that would mean their bills would be lower! I guess she didn’t really think about that business model too carefully, and she is not alone. I was testifying for a cable company at a local hearing recently and had to go through the whole explanation of "a la carte," its benefits and drawbacks, before they understood that this is not a simple "fix" for the problem of increasing costs. So let’s just go through it briefly again, so you have it on your shelf the next time you are asked. First, the assumption that "a la carte" selling will result in lower overall bills is generally not accurate. Why do you think the most expensive restaurants have "a la carte" menus? Their individual dishes are very expensive precisely because they are selling "a la carte!" Think of a newspaper. Imagine if you demanded that it sell readers the front page/news section separately from the metro page, and the classified ads, as well as the sports, the obits, and the international news sections. Do you think the cost of the aggregate sections the average reader wanted would be lower or higher than delivering the whole bundle? Of course it would be higher. That’s the only way the paper could stay in business. The same is true of our delivery of video. But there is more to consider than that. The implications of "a la carte" selling include a massive increase in the difficulty and cost of introducing new products. The established brands, especially the big ones, will be OK, but the smaller, newer ones would be in trouble. The entire advertising equation would be changed. We would effectively be limiting diversity. Is that a good idea? It may be right for the very big, established brands that are now demanding extraordinarily high prices for their products, and some operators may soon propose that. But for the rest of the creative community it would be disaster. These are things that have to be considered before there is any legislative or regulatory push for total "a la carte" selling. It’s a much more complicated subject than most people think when first exposed to the idea, and just one of the many that will be on our plate this year.