Cable Promises Massive Rate Hikes For A-La Carte

[dampier]

Reacting strongly to proposals by the FCC to require cable operators to offer a-la carte cable service, several cable operators and programmers have warned that a-la carte could drastically reduce the number of channels accessible by customers and dramatically increase cable bills. End result - subscribers could pay over $50.00 a month for a package of just 10 channels.

Cable Programmers React

Cable programmers have told newspapers like USA Today and trade publications that prices paid by end consumers would be much higher than the wholesale rate currently charged cable companies to account for new end user marketing campaigns, reduced ad and subscriber revenue, customer service and billing expenses. Here is a roundup from Bear Stearns and other comments to the trade press. Rate ranges assume a 75% buy rate on the low side, and a minimum buy rate of 25% on the high side. If fewer than 25% of subscribers take a channel, rates could be significantly higher than quoted:

ESPN: $5.12-15.82 per month
Disney: $1.97-5.90 per month
MTV: $0.64-2.32 per month
Fox News(*): $0.70-2.17 per month
Court TV: $5.00 per month
Discovery Channel: up to $5.00 per month depending on bundle
Scripps-Howard Package (HGTV/Food/DIY/Fine Living): $3.00-5.00 per month)
TBS: $0.69-2.42 per month
CNN: $0.60-3.00 per month
WGN: up to $6.00 per month

FCC 2004 Report predicted average rate per channel overall would range between $3.90 - $4.73 per month.

Gov't Mandated Broadcast Basic Package - New Rate: $10.00 per month(**)

(*) - Prior to rate increase announced 10/2005. Fox News announced a 400% increase in their wholesale rate after the Bear Stearns study was completed.

(**) - FCC proposes new nationally regulated broadcast basic tier at a uniform rate of $10 per month. Package would contain all local broadcast signals, public access/government/educational channels, and optionally additional channels varying by cable operator.

Cable Operators React

The National Cable TV Association called a-la carte a very dangerous idea, akin to requiring newspapers to charge consumers for individual sections of the newspaper. Cable operators warned that government regulation left over from the 1990s requires them to use the government pricing formula for cable equipment, which means the average household without a digital converter box would see an average increase in the cable equipment portion of their bill of at least $12.00 per month.

The NCTA promises vigorous court challenges to a-la carte, saying it violates their free speech rights.

Meanwhile, the House is also considering legislation that would tax cable modem subscribers with a portion of that revenue being added to the fund for Internet access to schools and libraries.

 

[Stitch]

> Reacting strongly to proposals by the FCC to require cable
> operators to offer a-la carte cable service, several cable
> operators and programmers have warned that a-la carte could
> drastically reduce the number of channels accessible by
> customers and dramatically increase cable bills. End result
> - subscribers could pay over $50.00 a month for a package of
> just 10 channels.
>
> Cable Programmers React
>
> Cable programmers have told newspapers like USA Today and
> trade publications that prices paid by end consumers would
> be much higher than the wholesale rate currently charged
> cable companies to account for new end user marketing
> campaigns, reduced ad and subscriber revenue, customer
> service and billing expenses. Here is a roundup from Bear
> Stearns and other comments to the trade press. Rate ranges
> assume a 75% buy rate on the low side, and a minimum buy
> rate of 25% on the high side. If fewer than 25% of
> subscribers take a channel, rates could be significantly
> higher than quoted:
>
> ESPN: $5.12-15.82 per month
> Disney: $1.97-5.90 per month
> MTV: $0.64-2.32 per month
> Fox News(*): $0.70-2.17 per month
> Court TV: $5.00 per month
> Discovery Channel: up to $5.00 per month depending on bundle
>
> Scripps-Howard Package (HGTV/Food/DIY/Fine Living):
> $3.00-5.00 per month)
> TBS: $0.69-2.42 per month
> CNN: $0.60-3.00 per month
> WGN: up to $6.00 per month
>
> FCC 2004 Report predicted average rate per channel overall
> would range between $3.90 - $4.73 per month.
>
> Gov't Mandated Broadcast Basic Package - New Rate: $10.00
> per month(**)
>
> (*) - Prior to rate increase announced 10/2005. Fox News
> announced a 400% increase in their wholesale rate after the
> Bear Stearns study was completed.
>
> (**) - FCC proposes new nationally regulated broadcast basic
> tier at a uniform rate of $10 per month. Package would
> contain all local broadcast signals, public
> access/government/educational channels, and optionally
> additional channels varying by cable operator.
>
> Cable Operators React
>
> The National Cable TV Association called a-la carte a very
> dangerous idea, akin to requiring newspapers to charge
> consumers for individual sections of the newspaper. Cable
> operators warned that government regulation left over from
> the 1990s requires them to use the government pricing
> formula for cable equipment, which means the average
> household without a digital converter box would see an
> average increase in the cable equipment portion of their
> bill of at least $12.00 per month.
>
> The NCTA promises vigorous court challenges to a-la carte,
> saying it violates their free speech rights.
>
> Meanwhile, the House is also considering legislation that
> would tax cable modem subscribers with a portion of that
> revenue being added to the fund for Internet access to
> schools and libraries.
>

I'll just get a dish and live with the fact that I'm stuck with Jewelry TV and that French-language feed from China Central TV.

 

[dampier]

> I'll just get a dish and live with the fact that I'm stuck
> with Jewelry TV and that French-language feed from China
> Central TV.

That's "Le China Central TV."

 

[Yeziknoradio]

Ok now, does this mean that international customers will have to pay more too?
For example, a Canadian that wants the Fox News channel.
Will they also be hit with an increase by their cable service?<P ID="signature">______________
"If you never say NO, How much is your YES worth?"
</P>

 

[stationi]

> The National Cable TV Association called a-la carte a very
> dangerous idea, akin to requiring newspapers to charge
> consumers for individual sections of the newspaper.


If magazines were like cable tv, you'd have to subscribe to 100 magazines just to get the 10 you want.<P ID="signature">______________
<a target="_blank" href=http://www.stationindex.com/>TV Station List</a></P>

 

[dampier]

> Ok now, does this mean that international customers will
> have to pay more too?
> For example, a Canadian that wants the Fox News channel.
> Will they also be hit with an increase by their cable
> service?

No. Canadians have a modified a la carte service already that bundles channels into mini-packages. The Canadian government has stronger regulatory control over the cable industry than in the USA.

 

[mjlarochelle]

> Reacting strongly to proposals by the FCC to require cable
> operators to offer a-la carte cable service, several cable
> operators and programmers have warned that a-la carte could
> drastically reduce the number of channels accessible by
> customers and dramatically increase cable bills. End result
> - subscribers could pay over $50.00 a month for a package of
> just 10 channels.
---------
Of course the price will go up, because it's just another opportunity to make more money. Then again, if the price goes up enough, there will be a massive enough backlash that will see hoards of people cancelling their cable and moving to OTA or satellite that the price will have to drop. I'm going to be sticking with OTA in my future.<P ID="signature">______________
From WNBC-TV New York this is Liiiiive at Fiiiiive!</P>

 

[Tom_Desmond]

> Here is a roundup from Bear
> Stearns and other comments to the trade press. Rate ranges
> assume a 75% buy rate on the low side, and a minimum buy
> rate of 25% on the high side. If fewer than 25% of
> subscribers take a channel, rates could be significantly
> higher than quoted:
>
> ESPN: $5.12-15.82 per month
> Disney: $1.97-5.90 per month
> MTV: $0.64-2.32 per month
> Fox News(*): $0.70-2.17 per month
> Court TV: $5.00 per month
> Discovery Channel: up to $5.00 per month depending on bundle
>
> Scripps-Howard Package (HGTV/Food/DIY/Fine Living):
> $3.00-5.00 per month)
> TBS: $0.69-2.42 per month
> CNN: $0.60-3.00 per month
> WGN: up to $6.00 per month

What a dishonest load of nonsense from the cable industry!

Those rates seem to assume that cable networks will linearly raise their per-subscriber rates to account for any loss that occurs from a lower subscriber base -- in other words, if half of viewers subscribe to a given channel, rates will double to compensate. Reality is more complex than this, which means that the folks that are spreading these numbers probably don't even believe in their accuracy.

Depending on how "loyal" the audience is for a given channel, the per-subscriber fees might rise far more than these so-called predictions would indicate...or they might not rise at all. In some cases, the per-subscriber fees might actually go down, or even disappear completely!

Why?

Because if the audience for a particular channel is extremely loyal, a network might find that it can charge a very high price without significantly reducing the number of subscribers that are willing to pay. Say that Fox News does research that shows that at $10/month they will get 25 million subscribers or at $2/month they will get 30 million subscribers. In this instance, they would go with the higher price since it would generate far more revenue. If the audience is sufficiently loyal for a particular channel, that channel might actually become more profitable in an ala carte world since it would be able to "capture" that loyalty in the form of higher per-subscriber fees.

Conversely, it may turn out that WGN's viewers aren't especially loyal and few will pay anything to receive the channel. In this instance, even a $2/month fee might cut WGN's coverage down to 10 million viewers or so -- which would absolutely kill their ability to sell national advertising. It might make sense to offer the channel for free in order to maintain full distribution in order to maximize advertising revenue. Obviously, one side effect of this scenario is that "low loyalty" channels would become less profitable since they would no longer be able to profit from the dual revenue streams of advertising and per-subscriber fees. If the advertising revenue on its own is not sufficient to maintain a profit, then WGN might go away as a cable superstation, and go back to being what it originally was -- a local Chicago-area station.

Obviously, there would be winners and there would be losers. Most likely, there would be more losers (decreased profits) than there would be winners (increased profits). Some channels would go away, if they lacked sufficient audiences to generate profits from either subscriber fees or advertising. The cable industry acts like this is a horrid scenario, and that there is something inherently bad about having some networks go dark. My opinion is that ala carte would allow the free market to really work when it comes to cable channels, with viewers able to directly "vote" for the channels that they value.

Another claim from the cable industry is that new channels would not be able to launch if ala carte service existed. Like most of the rest of the industry's claims regarding ala carte, this is a lie. Back when C-band (large satellite dish) service was a significant force in the market, when new cable channels launched, they would typically be offered "in the clear" (unscrambled) for some period of time. During that period (sometimes a year or more) viewers could sample the new channel and decide if it was something that they would value enough to pay for. After a while, an announcement would be made that the channel was going to start scrambling -- and viewers could make a decision at that point whether they wished to pay to continue receiving it. There is absolutely no reason not to use the same approach on cable if ala carte service is ever mandated.

 

[DeanSB]

> Ok now, does this mean that international customers will
> have to pay more too?
> For example, a Canadian that wants the Fox News channel.
> Will they also be hit with an increase by their cable
> service?


Actually, in Canada, Fox News Channel, and the vast majority of the digital cable special-interest channels there are already sold either as a-la-carte, or as part of smaller "themed" packages of services for $5.00 apiece beyond the regular basic level.

And the Canadian satellite TV carriers also offer many of the more-established cable channels (such as MuchMusic, Space, Comedy Channel, YTV, and others like those) also in "themed" packages.

Of course, the option to take a much-larger package also still exists, though.

I don't think that offering cable channels "a-la-carte" will be the "ruination" of cable channels. I personally think that cable companies will offer incentives for people to continue purchasing channels in packages, and offering larger numbers of channels at lower prices overall if they take more channels, kinda like what's done in Canada.

DeanSB<P ID="signature">______________
Dance Music RULEZ!! </P>

 

[shadowman]

> > Ok now, does this mean that international customers will
> > have to pay more too?
> > For example, a Canadian that wants the Fox News channel.
> > Will they also be hit with an increase by their cable
> > service?
>
>
> Actually, in Canada, Fox News Channel, and the vast majority
> of the digital cable special-interest channels there are
> already sold either as a-la-carte, or as part of smaller
> "themed" packages of services for $5.00 apiece beyond the
> regular basic level.
>
> And the Canadian satellite TV carriers also offer many of
> the more-established cable channels (such as MuchMusic,
> Space, Comedy Channel, YTV, and others like those) also in
> "themed" packages.
>
> Of course, the option to take a much-larger package also
> still exists, though.
>
> I don't think that offering cable channels "a-la-carte" will
> be the "ruination" of cable channels. I personally think
> that cable companies will offer incentives for people to
> continue purchasing channels in packages, and offering
> larger numbers of channels at lower prices overall if they
> take more channels, kinda like what's done in Canada.
>
> DeanSB
>

This came to my mind. The idea of A-LA-Carte will work only if pricing controls are put in place to avoid overcharging for an individual channel or bundle of channels.

 

[mwebster]

Lies, lies and more lies

Once again this political activist, ignorant of the broadcasting industry but with a political agenda to advance, publishes unattributed and probably fabricated "disinformation."

Since he provides no source, the implication remaining is that this is his option, no more no less. He provides no source because there is none. A search on multiple search engine failed to yield any publishes articles or press releases resembling (even remotely) what he posts here. This includes the National Cable and Telecommunications Association website (what he calls the "National Cable TV Association" - he couldn't even get the name right). The NCTA website says at this point it has not seen the proposal and can not comment on it specifically (although it remains critical of a la carte pricing, as it has always been).

This political zealot has no credibility and even less standing as a journalist.

 

[rugrats1]

Re: Lies, lies and more lies

> This includes the National Cable and Telecommunications
> Association website (what he calls the "National Cable TV
> Association" - he couldn't even get the name right).

Personally, the latter's what I thought "NCTA" stood for, until now. But still, in articles like these, accuracy counts.

 

[dampier]

> Those rates seem to assume that cable networks will linearly
> raise their per-subscriber rates to account for any loss
> that occurs from a lower subscriber base -- in other words,
> if half of viewers subscribe to a given channel, rates will
> double to compensate. Reality is more complex than this,
> which means that the folks that are spreading these numbers
> probably don't even believe in their accuracy.

Cable networks earn the majority of their revenue through subscriber fees. Their ad revenue helps, but only the largest basic nets would survive on ad revenue alone. While the Bear Stearns study doesn't make conclusions on the motive for the industry, my past experience with cable television lobbying tells me there is some truth to the threat they will jack the rates up, but there are also some scare tactics here to keep a-la carte at bay.

The C band satellite experience is probably the closest thing we have akin to how the industry treated a-la carte. There was tremendous price disparity and it fueled a major effort by dishowners to help lobby to reregulate the cable industry and force more competition as well.

Dishowners were given the opportunity to purchase certain channels individually, usually on an annual basis, or choose a company that offered a range of individual channels, small mini-packages, or even a comprehensive package similar to what you'd find with DirecTV or DISH. You could choose to pay monthly, partial years, or for the entire year up front. Some of these companies were independent, others had direct ties to cable operators and/or programmers. Satellite guide advertising by these companies probably kept a lot of printed guide publishers in business.

The pricing was always substantially higher than the wholesale rate charged to cable operators. If a cable operator paid CNN 20c a month, a satellite dish owner would pay five times that amount. The argument dishowners had with the disparity in program pricing is that dishowners should be paying less than cable customers because dishowners own their own equipment, are responsible for servicing it, and the infrastructure costs to deliver it to the end satellite consumer are much lower than a wired cable system. But the industry argued that marketing, customer service, and administrative costs required the disparity in pricing. They are using that argument again here.

> Obviously, there would be winners and there would be losers.

Part of what drives the industry is what Wall Street has to say. After the first round of cable reregulation was passed, cable stocks didn't do as well and the industry also claimed that investment capital dried up and it "stalled" cable development until Clinton signed a bill that turned back some of those regulations. The industry's contention is hotly disputed by consumer advocates, but the industry does listen to Wall Street.

In an a-la carte world, should a substantial majority of cable subscribers abandon the traditional "package" concept for a-la carte, I predict a lot of the second tier cable programmers, especially those born as a diginet on a digital cable tier, will close down their current operations. A lot of them might go for the route Trio is taking by streaming things online, and others might relaunch as on demand program services on cable.

More important, the opportunity to launch any new networks will probably be severely limited. No cable network that launched really counted their C band satellite viewers as anything beyond extra gravy. They could not do a rate card based on unmeasured satellite audiences for a channel "in the clear" so they didn't dwell on those viewers. Since the hurdle to overcome in launching a new network is to obtain financing, few investment firms are going to agree to finance a channel that lives or dies in an a-la carte world already filled with hundreds of channels. What gets financed and launched these days are networks already owned by cable operators/programmers, networks than can show launch commitments (and guaranteed subscriber revenue based on the current package model), and niche pay services (especially adult ones!)

I still think a reduced size analog (for now) basic package around the size of what we had ten years ago, sold at a lower price, would be a better compromise than going to an all a-la carte model or just leaving things status quo. Let the YES, Current, Sleuth, Hallmark, and other newer networks be available for an extra price for those who want it.

 

[dampier]

Re: Lies, lies and more lies

> Personally, the latter's what I thought "NCTA" stood for,
> until now. But still, in articles like these, accuracy
> counts.

Actually, it did until 2001 when they changed their name to reflect the "two way" capabilities of the modern cable era. They are still commonly known by their former name, so much so that if you type 'ncta' into many search engines, you get National Cable Television Association as a result. That was my error.

I stand by the other information contained in the report. I may do a point by point breakdown, but wanted to tread carefully in this forum so I made an inquiry with the moderator first.

 

[dampier]

Re: Lies, lies and more lies

After consultation with the moderator on how to best handle my reply to this thread, let me preface it by saying to the readers that mwebster and I have some far-reaching disagreements about politics and radio, none of which have anything to do with this thread. So I'm only going to deal with the piece of rice surrounding all of the hulls.

> The NCTA website says at this point it has not seen the proposal
> and can not comment on it specifically (although it remains
> critical of a la carte pricing, as it has always been).

Typically one looks beyond press releases on an industry trade group's website to get to the whole story.

Kyle McSlarrow, head of NCTA, was widely quoted in the press, calling the a la carte mandate a "very dangerous idea." He said it would violate cable companies' free-speech rights. (USA Today, or just Google "a-la carte dangerous" under the News heading for more. Although mwebster had trouble finding sources, Google News users can find more than 480.)

The Bear-Stearns rate data is partially also available via USA Today: http://www.usatoday.com/tech/news/2005-11-29-alacarte-sell_x.htm

Fox News rate increase courtesy of Multichannel News.

"Kyle McSlarrow, NCTA president said the proposed changes were akin to forcing newspaper publishers to sell each section of their newspapers separately simply because some consumers wanted, for example, only the sports section." (Courtesy MSN Money)

View full hearing/testimony of NCTA and other witnesses on indecency issues/a-la carte: http://commerce.senate.gov/archive.decencyforum112905.ram

Issue of equipment costs. Since mwebster enjoys the NCTA website, he can find a press release from them on the issue of addressable converter boxes and the costs to end consumers: http://www.ncta.com/press/press.cfm?PRid=495&showArticles=ok Others can learn more about how the FCC enforces the 1996 Telecommunications Act requirement that cable operators pass thru the actual cost of the equipment by reading up on FCC Form 1205, the form used to justify equipment costs and recouping formulas: http://www.fcc.gov/mb/facts/treatmen.html

Cable modem fees: Read all about the proposed USF Reform Act of 2005 here: http://leeterry.house.gov/press_detail.cfm?press_id=44

All of this information was readily and easily obtained from Google searching. That mwebster was unable to locate the information does not make the facts presented untrue. It instead calls into question his skills at using a search engine.

> This political zealot has no credibility and even less
> standing as a journalist.

I'll leave that question up to individual readers who, I'm sure, make those decisions everytime they read any message here - no prompting required.

I renew my invitation to you that you follow your own advice which you posted in another board on here. Since you have a disagreement with me that seems to upset you so, do as you suggested and "ignore me." For the benefit of others who may be wondering about my "credibility and standing," I've provided additional information and links. In the future, any questions of sourcing can routinely be answered by competent use of most major search engines.

 

[FightingIrish]

> ESPN: $5.12-15.82 per month
> Disney: $1.97-5.90 per month
> MTV: $0.64-2.32 per month
> Fox News(*): $0.70-2.17 per month
> Court TV: $5.00 per month
> Discovery Channel: up to $5.00 per month depending on bundle
>
> Scripps-Howard Package (HGTV/Food/DIY/Fine Living):
> $3.00-5.00 per month)
> TBS: $0.69-2.42 per month
> CNN: $0.60-3.00 per month
> WGN: up to $6.00 per month
>

Wait a minute!!!

CourtTV costs $5 a month, even more than MTV, CNN and FOX news?

Personally, I could live without it. That sounds ridiculous.

As for WGN, I could see it only worthwhile for Cubs fans.

As for ESPN, I've known for awhile that they're one of the most expensive channels for cable companies to carry.<P ID="signature">______________
The Liberal Talk Radio Update</P>

 

[Yeziknoradio]

> This came to my mind. The idea of A-LA-Carte will work only
> if pricing controls are put in place to avoid overcharging
> for an individual channel or bundle of channels.
>
The Canadian Sattlelite companies charge $1.99(CDN)plus tax per month for Fox News channel as a "Stand alone purchase"
The Cable companies are currently charging $2.49(CDN)/month plus tax for it.
<P ID="signature">______________
"If you never say NO, How much is your YES worth?"
</P>