Inefficiencies: A La Carte Cable

So on CNBC there was a discussion on whether cable companies should institute a la carte programming, which the FCC just released a report on.

A la carte programming means that consumers pay only for certain channels instead of for a broad line-up of a variety of channels. The FCC concluded that consumers would save 13% on their cable bill with a la carte programming, based on the finding that “[t]he average household, the FCC said, watches only 17 channels.”

Said the article:

“In the first quarter of 2005, American households spent an average of $57.12 a month for pay television, an increase of 35.7 percent from 2000, according to TNS Telecoms, a research firm.”

An industry shill responded that the FCC “overstated the average price per cable channel by more than 50 percent”.

Uhhhh, right. I just installed my Comcast cable and internet service. It cost me $155 for the initial install plus initial month. That includes only analog cable ($40.75/mo), but higher-speed internet access (at $52.95/mo, which is a joke since they shouldn’t have tiers and I doubt they even let me max out my bandwidth anyway). I had to pay a $35 fee (or something like that) for internet installation because apparently you cannot do a self-install of internet unless you already have cable. Never mind the fact that all you have to do is plug in three cables into your router, computer, and splitter! What a freaking rip-off.

Comcast does not even offer VoIP, HD, or DVR yet here. Oh well, guess I’ll just use Vonage and third-party DVR software like BeyondTV instead! No HD solution yet since that’s primarily over-the-air and Ft. Campbell isn’t that high-speed yet.

So CNBC had some corporate shill on the air whining about how a la carte was bad for consumers. His argument? Imagine if a la carte programming was introduced. ESPN would have fewer subscribers, so its revenues would drop (it has the highest re-broadcasting fees in the cable business apparently). This in turn would force ESPN to raise its prices to compensate. At this point Mark Haines (who always puts people in their place) interjected that oh well, it wouldn’t be a competitive business and it would fail! The shill responded that consumers’ prices would go up.

Not that the FCC, who just released this report, is clean and just and working in our best interests. Just a couple years ago they released a report saying that a la carte would drive prices UP. This most recent report was a reversal on their earlier findings. Hmm, could it be because there’s more support for a la carte in Washington than there was then?

And it’s not like the “free” thinkers are much smarter on the issue. Take this page at the APTLY-named “Competitive Enterprise Institute”, which claims that a la carte programming will kill “experimental” channels, whatever the fuck that means. It cites Discovery, the Weather Channel, and the Food Network as channels that would NEVER have made it if it weren’t for the innovative, emboldened cable companies’ ability to diversify our tastes! I mean, there’s no WAY that people would go out and find their own channels that addressed their own hobbies and interests, is there? Maybe Comcast should tell us which web sites to visit, to diversify our tastes! Clearly consumers are not capable of finding their own content! That’s why we need cable companies’ portals, sponsored browsers, and restrictive usage policies!

The channels themselves are fleecing the cable companies. Take for example ESPN, which according to this 2003 article, charges the highest fees to cable companies in the business.

“Cox, the No. 4 operator, with 6.3 million subscribers, is leading the charge among operators. CEO James O. Robbins says Cox can’t afford the 20%-a-year fee increases ESPN is asking for (industry averages are about 6%). The network now accounts for 18% of Cox’s programming budget, the costliest of its slew of channels, says Robbins.

Why is it that people are afraid of change? How can you justify paying for channels you never watch? How can you argue against basic economic principles?

Cable companies control all the supply by way of their fiber networks and cable lines installed into neighborhoods. They’ve invested a shitload of money into laying down all that fiber. They feel as though everyone owes them a fee for everything that passes through the fiber. The problem is that there’s really no alternative to them right now. Yes, there are satellite networks but satellite will always have a time delay which is unacceptable for widespread use. Cable companies are currently working out ways to charge even more for their traffic, including considering Google a freeloader for all the traffic it generates over their traffic. It’s as though they want you to pay to browse web sites. It’s as though they want companies to pay for you to view their web sites.

You are locked into whatever the cable companies choose to offer you. You are locked into whatever packages they deem worthy for you, and they lock you into restrictive contracts with equipment you don’t own with extra fees front-loaded onto their service that you can’t avoid.

It is my belief that cable needs to be broken up or taken over by the government as a public service. It is already starting. Metropolitan wi-fi is the new thing. The government invests in transmitting equipment and broadcasts wi-fi signals city-wide. Bandwidth is turned into a public work, like water or electricity (work with me on that one) or natural gas or phone service. The government decides that all citizens should have access to Internet, hopefully for free. I would have no problem paying more taxes for free public Internet.

The Internet facilitates trade. A broadband wi-fi project would be the equivalent of the massive highway projects after WWII. Because of the new highways, a new era began in American culture and business. The first fast food restaurants started because people wanted to stop off for some food while driving long distances. Logistics and shipping efficiency improved dramatically. It is in the government’s best interest to facilitate commerce and communication. By extension, it is also in the government’s best interest to maintain that service with little downtime and to enforce bans on spamming and illegal activities.

Now this naturally brings up the issue of government surveillance and filtering. But we deal with these issues as it is, anyway. People just aren’t as aware with it as the companies keep quiet about it, but the truth is that the government already has access to all the traffic passing over the Internet in the United States, thanks to cooperation with the companies. Both sides keep it very opaque, very subtle. At least if the government is responsible for maintaining our Internet, then we will have better mechanisms for monitoring THEM, and our freedoms will still be protected under the Bill of Rights.

But what is happening in the cable industry is inefficient and ripping us off. It is holding America back. I’m tired of cheap patriotism. And yes, if bandwidth is going to be run by the government, patriotism is definitely involved. I personally think it is patriotic to want more Americans to have and to take advantage of the Internet. I believe bandwidth is our right. I believe unrestricted, abundant bandwidth will lead the world to a new age, faster than it is already happening now. I believe cable companies are placing artificial constraints on the Internet, which affects business, society, culture, scientific innovation, artistic creativity. I believe they’re like mini oil companies.

People still don’t take the Internet seriously but it will guide us towards the future. We are unlocking our potential as a species using collective wisdom and open knowledge by way of the Internet. But if we can’t even fucking pay for only the channels we watch, how are we not shooting ourselves in the foot? If we can’t even get our heads around the fundamental economic flaws of basket-style cable programming, how are we going to open our minds up to the bigger picture, of cable kabals and cronyism?

Listen, the argument against a la carte programming (as summarized well here) holds no economic weight. The CNBC Squawk Box crew skewered it. Say we go with the average number of channels people watch according to the FCC report, 17 channels. Say we assume every channel charges $3, which is well above what they all cost, even ESPN. 17×3=51. Then you add in the cable company’s monthly fees for providing the service, which we’ll say is about $10/mo. (based on their charging that much for limited cable) That’s $61/mo. Not much more than what I pay now, AND that’s assuming worst-case scenario for fees. I fail to see how this is worse for consumers.

The reality of a la carte programming is not that channels will compensate by raising their fees. Basket programming is subsidizing bad channels. Channels that are not economically viable. They deserve to go out of business. The consumer is not responsible for subsidizing shit. Okay, maybe some channels will fail, but others will not. Statistics on what people actually watch will be far more accurate, and channels will then be able to tailor their content more specifically towards the market they want to reach. This is simple fucking business principles. Eventually channels that can’t afford to go through cable companies will be broadcasting over the Internet, which is cheaper for everyone (especially if we get government-built massive bandwidth).

You know, assume we pay more? So fucking what? It won’t happen, but if it did, at least I’d be paying for shit I actually wanted to pay for. I seriously doubt prices would go up under a la carte — the efficiencies it offers would drive prices down even lower, in my opinion. The Internet is the future anyway — targeted distribution is far cheaper than broad swathing of a product. Just look at magazines and newspapers — it’s far cheaper to subscribe than to buy at the counter.

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