Cable Companies' A La Carte Plan Seems Like a Bait-and-Switch
After years of fighting the idea of offering a la carte service- or product menus, cable TV operators (ISPs) are planning to switch positions and ask the FCC to let them give customers the option of buying one service (TV channel or specialized Internet function) at a time.
Until now cable TV providers such as Comcast, Time Warner and Verizon all insisted that the only way they could stay financially stable, and allow all those hundreds of independent and semi-independent channels to stay alive was to boil down all the potential iterations of their service offerings into just two or three bundles that include all the channels a customer would want at that price except one or two.
For most people that meant having to upgrade to a service level that's too expensive – because BBC America isn't available on the mid-priced plan and you'd never hear the end of it if the kids couldn't watch Dr. Who all weekend.
A la carte pricing would let customers choose and pay for only the channels they wanted,theoretically giving them far more control over what they spend every month while eliminating the need to scroll through dozens of channels they may literally never use at all in order to get to the ones they watch all the time.
There's a catch in the way the carriers view “a la carte,” however.
A la carte doesn't mean what you think it does
Carriers are not interested in giving customers more granular control over spending. They want to be able to cut some of the channels that are now part of their normal packages and turn those into Premium channels like HBO or Starz, for which customers have to pay extra.
Sports channels, for example, are among the most popular on the dial, so carriers' literally can't squeeze enough of them onto the channel listing.
Skyrocketing TV broadcast deal costs have come down the line to cable companies, however, forcing them to pay as much as $4 per subscriber to run ESPN, according to cable-industry research firm SNL Kagan.
Niche special-interest channels like the History of Knitting Channel, on the other hand, either get onto channel listings free in order to fill out the list and make it more impressive-looking, or actually have to pay to be included (presumably in handmade socks; there hasn't been a lot of money in knitting since the automatic loom was invented).
The upshot is that cable companies would like the option of creating a la carte menus they can use to shift more expensive channels into a semi-premium category that would carry extra costs, while leaving all the other channels in their same old bundles.
That way they still get to overcharge nearly everyone on the basic channel packages, and overcharge even more for the channels those people really want to watch.
The plan is not only self-serving and expensive, it directly contradicts the argument carriers have made for years about why they had to bundle channels in the first place.
Forget the old logic, this logic is much more lucrative
By putting high-cost and low cost channels in one bundle, cable companies are subsidizing the small channels – independent voices whose point of view would disappear from public discussion if not for the public-spirited support of Comcast, Time Warner, Verizon and other companies famous for their generosity toward customers (they don't actually use a gun when they hold you up for your subscription fees every month).
Now they want to reverse that, with no real rationale other than to increase profits, leaving all the me-too channels in the bundles so customers have to buy things they don't want and putting the slightly more expensive channels in an additional tier of semi-premium channels for which they can charge separately.
This is how Jerry Kent, CEO of cable provider Suddenlink, which has 1.3 million subscribers, described the goal to Reuters: "We feel that some of those expensive channels should be offered a la carte so only those people who want to watch them actually pay for them."
Cable companies are required by law to carry local broadcast TV stations, so they wouldn't be able to offer subscribers only the channels on the semi-premium list. Everyone would have to buy at least a basic bundle of channels, then pick through the semi-premium list and pay extra for ESPN, BBC America, The Discovery Channel, The Discovery Channel During Shark Week (don't bet they wouldn't price them separately), and all the other stations customers actually want.
That's great for the cable companies and their stockholders, because it increases the amount they can squeeze out of subscribers every month.
It stinks for the subscribers, who will get squeezed, and it stinks for the Public Interest, which cable companies have always sworn (literally, under oath before Congress) that they are doing by forcing everyone to buy a package of channels that's more expensive than the one they wanted.
"We're in an environment where programing costs are rising at well above inflation and well above what I think consumers are willing to pay," added DirecTV CEO Mike White. "I think content costs are a challenge for the entire industry."
That's probably true, but only within very specific limits; some content is getting much more expensive. Most is still plenty cheap.
Among the most expensive and most popular is sports. The eight-year deal ESPN just signed with the NFL cost 73 percent more than their previous agreement.
Bandwidth is at a premium, too. Netflix streaming media may not be crushing the Internet, but it does compete with carriers' services and does put some strain on their backbones – though not so much that the upgrades carriers are doing to let them sell their own video-on-demand services more readily would be stressed much.
Cable companies aren't hurting for cash, for the most part. Comcast reported in August quarterly profits16 percent higher than a year before, even as it spent more money to buy NBC Universal and had to write off some lost customers.
Verizon's profit margins are actually down, from 7 percent in 2006 to 2.4 percent by the end of 2010, but gross profit for its cellular business, Verizon Wireless, were above 59 percent.
A lot of the drooping profits for Verizon are the result of so many Americans dropping their landline phone service in favor of cell phones. Verizon Wireless owns 59 percent of that market.
For consumers, that's like being a Hobbit who just snuck out of one troll camp without being eaten, only to wander into a bigger one with much hungrier, more active trolls.
A la Carte is French for 'More cable company profits'
The way carriers are pitching the plans now, a la carte pricing really would put a load of icing on the cake carriers are trying to have and eat, too, while reaching out to swipe a bigger chunk of the consumer's cake at the same time.
I sure am glad the FCC isn't so cowed by the big cable companies it will do basically whatever they want.
If it weren't, someone other than Verizon, Comcast and other big players would have written and submitted the proposed rules the FCC basically signed off on that looks as if it regulates ISPs to keep them from competing unfairly with other Internet content providers, but actually lets them off the hook for nearly all those restrictions.
Most consumers who have thought about it (everyone who has ever paid for cable service) would like some kind of a la carte pricing.
No one wants it on the kind of terms the carriers appear to be pursuing.
It wouldn't make plans or pricing more flexible, it would let us pay the same for parts of a service we don't want, and pay extra for those we do. Like buying a whole Phish CD because you like just one song on it, but having to download it from iTunes for an extra $9.99 after you got home.
It sounds refreshing to hear the cable industry argue for a la carte rather than against it; it just sounds repetitive when you hear why they want it now and how they want to deliver it.
The tricks are in the small print, just like on their contracts.
They're willing to give customers a la carte pricing to give them better control over what they buy, but only if they can do it in a way that increases profits and strengthens the leverage they already hold over consumers, many of whom have only one choice for cable TV, Internet or phone service.
Call this one a bad show.
Read more of Kevin Fogarty's CoreIT blog and follow the latest IT news at ITworld. Follow Kevin on Twitter at @KevinFogarty. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.