May
01
2012

With a la Carte Cable, Pay for What You Watch

Maybe you don’t want to send Murdoch money every month

Cables (cc photo: Pulpolux)

cc photo: Pulpolux

If you’re like most people, you probably don’t tune in to Disney-owned all-sports channel ESPN very often. (The channel has roughly 2 million primetime viewers per night.) But it’s likely the most expensive channel on your television; and since everyone pays for it, that means you’re subsidizing the people who do watch it.

And guess who’s the ESPN of cable news? The right-wing Fox News Channel.

There’s a comforting notion that customers have a level of control in the modern media landscape like never before—recording programs on a hard drive to skip the commercials, viewing video on the Internet, listening to radio on demand. But in the world of cable and satellite television—the way the vast majority of American households still get TV—power is still firmly in the hands of the big media companies that own the product. And they get to name the price you pay.

Aside from a small number of premium pay channels, ESPN is the most expensive channel in your cable lineup, costing about $5 per month per cable household. (By one count, the next most expensive channel, TNT, costs less than $1.50—Newsweek, 1/23/12.) Add in other regional sports channels, and total sports costs really start to pile up. “Whether you like sports or not,” explained NPR commentator Frank Deford (1/11/12), “you’re charged about eight bucks on your cable bill for the privilege of not watching sports.”

The economics of cable television are little understood—a good thing if you own either a cable company or a company that provides programming to cable companies. (In some cases, this is the same entity.) But the set-up is fairly straightforward: Cable companies negotiate carriage agreements with content providers, in most cases agreeing to pay a certain amount per subscriber to carry a given channel or bundle of channels. Those costs are passed along in your monthly bill.

Customers have little to no voice in determining which channels they pay for, and how much they pay. All the while cable bills have risen dramatically; the price for expanded basic service has more than doubled over the past 15 years, according to the FCC (3/9/12). And content providers make enormous profits, in no small part because they are essentially able to bill every customer, whether they watch their programs or not, for their service. So while other media outlets struggle to devise profitable business models for the digital age, cable channels are laughing all the way to the bank.

According to some estimates (Business Week, 9/29/11), the money that content providers make from carriage deals has risen about 90 percent since 2004, or a roughly 6 to 10 percent increase every year over the past decade (Reuters, 9/27/11).

These fees are, unsurprisingly, a big part of what makes cable television profitable for station owners. As Marketwatch (8/16/10) reported, “There’s never been a better time to own one of the top cable television networks.” That much could be said for Fox parent News Corp; the company’s cable channels were, according to president and COO Chase Carey, “more than half our profits, and that percentage will continue to increase.... We believe the most exciting growth is ahead of us.” Even at CNN, subscriber fees make up about half of the channel’s revenue (TVNewser, 5/24/10), though the channel’s primetime ratings have been weak.

Cable carriage is at the intersection of several media issues—not the least of which are the future of journalism in a digital age and the constant battles over funding for public broadcasting. Fox News Channel, by contrast, has no funding worries, since they’re able to collect what is essentially a tax on virtually every cable-subscribing household to fund a right-wing propaganda network.

It sure didn’t start out that way. When it was launched in 1996, News Corp could not charge for Fox News. In fact, Rupert Murdoch’s company had to pay its way onto cable television, to the tune of roughly $300 million (Adweek, 10/3/11). As the channel’s audience—and political influence—grew, it began to drive a hard bargain with distributors. By the time Fox entered negotiations with cable companies in 2006, the money started flowing the other direction.

The channel has been able to increase its prices since then, basically tripling its carriage fees (Multichannel News, 3/7/11). Fox is of “enormous importance to its segment of the market,” News Corp’s Carey told investors. The company was reportedly seeking deals in 2011 in the neighborhood of $1.25 per month (TVNewser, 2/18/11). Some estimates peg these affiliate fees closer to $1 per month (Multichannel News, 2/6/12). In any event, Fox costs you more than CNN (about 50 cents per month—TVNewser, 5/27/10) and much more than MSNBC (20 cents).

Part of the explanation would seem to be fear of the Fox audience. One industry source quoted by Adweek (10/3/11) put it, “The viewers are completely convinced that it is the one thing that stands between our tenuous grip on democracy and total chaos and dictatorship on the left.” This fact has not gone unnoticed by Fox. News Corp head Rupert Murdoch (Australian Financial Review, 11/5/10) once boasted that the nature of the Fox audience meant his company could play hardball with cable distributors:

We said to the cable operators when we put the price up, we said, do you want a monument to yourself...? Cancel us, you might get your house burnt down.

All this raises the obvious question: Why can’t I just pay for the channels I actually want? That idea—usually called a la carte pricing—has been mentioned for years as an easy answer to runaway costs. And given how people tend to consume media, it holds a certain appeal.

“Even though the average U.S. home now gets 118 cable channels, the dirty little secret of the industry is that the typical subscriber watches only about 17 channels regularly,” explained Los Angeles Times business columnist David Lazarus (3/12/10). Lazarus noted that some in the industry were talking about the possibility of smaller suites of channels—giving customers some flexibility in a media environment where consumers can download a single song instead of buying an entire CD. Or as Lazarus put it in a subsequent column (7/13/10), “Imagine being forced to subscribe to Field & Stream if you want the New Yorker.”

A few cable companies have begun to see things this way too. One small operator—Vermont Telephone—sent customers a letter stating that they “should have the legal right to pay less” (AdAge.com, 10/15/10). In four states, Comcast is rolling out an option called MyTVChoice (Charleston Post and Courier, 10/5/11) that would allow customers more flexibility in station packages—tiered “themes” that would lower the price tag for customers who want fewer channels (particularly by skipping ESPN).

Reuters (9/27/11) reported that a major provider—Time Warner Cable—“launched a three-city trial of a low-cost TV Essentials pack with fewer channels.” And the CEO of a smaller provider—Mediacom—wrote a letter to the FCC that seemed to endorse the idea of “a carefully designed a la carte system, so that decisions about what video services are bought are made by consumers themselves, rather than by content owners.”

There are, to be sure, some potential drawbacks. Critics of a la carte have long argued that niche channels like BET or Oprah Winfrey’s OWN that provide a measure of diversity could not possibly survive in an a la carte world.

And selling channels wholesale this way means they are cheaper. A cable channel that can be run for 10 cents from each subscriber might require a substantially higher contribution if forced to sustain itself on the customers who actually wanted to watch it.

But would consumers, overall, really pay more for the 25 channels they actually wanted than they do for hundreds of channels they mostly don’t watch? Research on this question has been mixed. The FCC published research critical of a la carte in November 2004—then, two years later, issued another report more favorable to the idea (AP, 2/22/06).

The cable industry has made several arguments against a la carte: There would be practical or technical hurdles, for instance. Or a “mandatory” a la carte system that forced all customers to choose channels from a menu would be confusing. The channel lineup selected by customers would very likely be less diverse than what they currently receive.

During the FCC’s 2004 a la carte hearings, Consumers Union and Consumer Federation of America offered some substantive challenges to the industry’s arguments. They pointed out that cable operators are more likely to carry channels in which they have an ownership stake—making for a far less diverse system. The groups also argued that advertisers would not suffer in an a la carte world; some channels would have smaller reach, but advertisers would actually be reaching those dedicated viewers.

There are other innovations possible. A good a la carte system would include a tier of free channels, granting a platform to independent programmers shut out of the current system. While the industry argument against a la carte stresses the supposed programming diversity currently available thanks to bundling, one could just as easily argue that a more diverse media system would result from opening up access to the airwaves. And consumers perfectly happy with the current bundled system could keep things as they are.

The real industry opposition would seem to boil down to a preference for continuing to make enormous profits under the current system. A mixed a la carte system might be slightly less profitable for them.

If customers are forced to pay—and pay more—for the dubious privilege of 24-hour access to the Fox News Channel, why not offer them the chance to watch Al Jazeera English, Current TV or Free Speech TV in addition to the O’Reilly Factor? It’s not impossible to imagine. Thanks to a push by media activists, channels like Free Speech TV and LinkTV are available on major satellite carriers, which set aside dedicated space for non-profit public interest channels.

No such luck in cable households. So when Arab Spring activists were toppling Egypt’s Mubarak regime, some of the best English language coverage—on Al Jazeera English—was mostly only available on the Web. As AP (6/14/10) reported, Bush-era hostility towards Al Jazeera made it “virtually impossible to win a space on an American cable or satellite system.”

So Al Jazeera English or left-leaning Current are reduced to trying to enlist viewers to contact cable providers on their behalf. Those viewers are reduced to signing petitions—even while they’re forced to help pay Sean Hannity’s salary. A la carte is certainly no panacea, but giving citizens some say over what kind of media they’re getting—and what they’re paying for it—should be a priority.