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The FCC thinks that cable TV's bundling policies are bad, according to this report.


Chairman Kevin Martin, reversing a course set by predecessor Michael Powell, told lawmakers on Tuesday that cable subscribers could benefit if given the option to pick individual channels instead of being forced to sign up for predesigned programming packages. Another option would be the creation of "family- friendly" packages.

..."His support for a la carte pricing should help push it forward, giving consumers' wallets a break and allowing them more control over their television choices," said Gene Kimmelman of the Consumers Union, publisher of Consumer Reports magazine.


My guess is that the only way that a la carte pricing will be lower is if regulators force it to be lower. My guess is that if I were a cable company trying to maximize profits, I would charge more for packages that include fewer channels.

With some phone companies threatening to get into the TV business through their fiber-optic cables, this point may become moot. It could be that in a competitive market, unbundling will occur naturally. There is absolutely no reason for the FCC to inject itself into cable TV pricing in this way.

I happen to think that cable TV is over-priced. I express my opinion by not subscribing. If only my issues with Kevin Martin of the FCC could be dealt with so easily.

And if you are in any doubt about whether a policy is justified or not, you can be sure that "protecting the children"/"family-friendly" is a contrarian indicator.

UPDATE: Reader Steve Postrel recommends a paper by Yannis Bakos and Erik Brynjolfsson on the economics of selling large bundles when marginal costs are low.

Oh, and Steve also recommends this essay, which was Instalaunched. I'm either getting senile or I write too much, because I had not remembered about that one. At least my current position on the issue is consistent with the one I forgot about!


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/403
The author at Acton Institute PowerBlog in a related article titled A La Carte writes:
    As much as I would love to have the choice to pick what channels I pay for and receive over cable individually, I think Arnold Kling is right: The FCC shouldn’t force cable companies to offer that option. He says, “With some phone companies th [Tracked on December 2, 2005 9:59 AM]
COMMENTS (7 to date)
daveg writes:

It just seems so hypocritcal not to mention that the cable industry is one of the least competitive and highly regulated industries in the nation, and then get your panties in a bunch over the suggestion that a la carte channel offering be mandated.

If cable companies don't like being told what to do by the FCC then they should open themselves up to direct competition to the curb, or something similar.

If they prefer no real competition then they should be heavily regulated like any other monopoly industry.

Brad Hutchings writes:

daveg... The problem with your suggestion is that it ignores history. The cable companies were not like AT&T, which wanted nationalized monopoly and regulation from D.C. They were local franchises that had agreements with cities and were subject to competition as their agreements came up for renewal. Then the Feds just kinda stepped in.

It is strange that Janet Jackson's boob was the symbol of the Powell FCC, and yet a real Nazi like Kevin Martin doesn't seem to have attracted the wrath of anything yet. Strange how that works. Perhaps you could write to Matt and Trey and get them to do a South Park episode exposing this guy.

Doc McClenny writes:

Unless Congress passes a law making bundled content contracts illlegal, ala carte isn't going to happen.

The content deals define which pricing tier a channel will be offered on. Most contracts call for the channel to be on the lowest digital tier or highest analog tier. Content providers would rather have a fixed take rate and don't want the uncertainty of ala carte pricing.

The cable/telcos don't really control how the channels are offered - the content bundles define what goes where.

daveg writes:

While negotiating monopolies with the cities is not quite as bad as an AT&T style monopoly. it is still a monopoly. I have never had the opportunity to purchase my cable from more than one provider. Never ever.

And I wonder why exactly the feds "stepped in?" Could it have been lobbying on the part of the cable industry, which didn't like all the demands being made on them by the different municipalities?

And regardless as to the history, the fact is the cable companies have a government imposed monopoly at this time. Try starting your own cable company right now. Given this position it is ridiculous to argue that they should be free from other types of government regulation.

In general, I don't object to free markets. But just calling something a free market does not make it so.

Brad writes:

Cable companies are not monopolies. There are two companies, DIRECTV and Echostar (owners of the DISH service) that have roughly 20% of the multi-channel market and compete is every market. Thus, unless you live in an apartment building that won't allow satellite dishes, or you don't have an unobstructed view of the southern sky, then you have at least 3 options for multi-channel video. In addition, both Verizon and SBC have announced their intentions to offer a video product - Verizon already is in Keller, TX. And finally, other companies can, and have, built cable networks where cable networks have already existed. They were called "overbuilders" and it never worked. Building a cable plant is very expensive.

I think the intention of the FCC is to bully Comcast and Time Warner into "volunteering" to do a family tier. Martin has a limited window though - his strongest leverage point is holding up the Adelphia acquisition. Martin's motivation is to deliver the White House a clear victory to those constituents who feel that much of TV is "un-family-like" I guess.

Chris Bolts writes:

I used to believe that a la' carte pricing would give consumers more bargaining power when dealing with the cable and satellite companies, but now I've been convinced that the idea might be more costly than getting services, as thoughtfully argued here. Perhaps cable and satellite companies could offer a wider array of bundled products and "price discriminate" to maximize revenues and profits.

daveg writes:

Sure cable TV has some competition, for example satellite TV or books, but I the point is that other are forbidden from competing with them on equal footing.

The debate on a la carte vs bundle should be on what is good for the consumer, not whethher such regulation should be performed at all.

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