McCain bill would create 'a la carte' cable pricing

Dan Nowicki | The Arizona Republic

Online music retailers usually don't force consumers to buy an entire album to get a favorite song.

Many consumers wonder why satellite and cable operators can't do something similar and allow them to purchase TV service by the channel instead of a bundle of dozens or even hundreds of networks, many of which they'll never watch.

The idea of "a la carte" cable and satellite television has been around for years. But Sen. John McCain, R-Ariz., has jump-started a new national conversation with a bill he introduced in Congress this month that would use regulatory incentives to encourage programmers and distributors to unbundle their channels and offer a la carte programming.

McCain immediately picked up support from watchdog groups such as the Consumers Union and others who see his legislation as a way to shake up the status quo while technological innovations such as Internet TV break into the mainstream video market.

Ever-rising cable prices also are fueling the calls for a la carte. According to a Federal Communications Commission survey, rates for expanded basic cable, a popular cable tier, grew an average of 6.1 percent a year between 1995 and 2011. The average monthly price for the service is $54.46.

"I believe the consumers are at a tipping point when it comes to their monthly pay-TV bill," McCain told a Senate subcommittee last week. "In my view, the a la carte option is a non-regulatory and consumer-friendly way to provide consumers with the freedom to lower their bills and pay only for what they watch."

But while the concept is popular with many cable customers, and technology and other market forces appear headed in that direction, most observers doubt that even a senator with the national stature of McCain, a one-time presidential nominee, can bend the entrenched Washington lobbies of the cable industry, the broadcasters and the programmers to his will.

Cable lobbyists argue that a la carte pricing is not financially feasible, likely would mean the end of many channels that are not popular enough to survive without it, and probably wouldn't even save viewers much money, either. Hilary Shelton, director of the NAACP's Washington bureau, has blasted the a la carte cable idea on the grounds it would economically hurt minorities and "kill diversity in programming."

Industry leaders also argue that such issues might be better left to the free market to sort out, pointing to the ongoing revolution in video technology that gives consumers a variety of new viewing options — such as online video, Netflix, Hulu, iTunes and digital video recorders — and allows them to watch their favorite shows and movies on their schedules. A traditional TV set no longer is even necessary. Many young people are increasingly relying on their iPads, smartphones and laptop computers to watch video.

"These are big issues, but is anything going to happen? No," said A. Michael Noll, a University of Southern California professor emeritus and expert on telecommunications policy and TV technology. "The cable companies have tremendous lobbying power — more power than John McCain."

Long shot to become law

In a recent interview with The Arizona Republic, even McCain acknowledged that his bill is a long shot to become law this year.

"I'd be surprised (if it passes), because the cable companies and the satellite companies are such a powerful special interest," McCain said. "But we'll keep trying."

It's unclear whether the Senate Commerce, Science and Transportation Committee, which has jurisdiction over telecommunications issues, even intends to return to the a la carte programming issue in a serious way.

But McCain, a longtime champion of a la carte cable, was allowed to make his case last Tuesday before its Subcommittee on Communications, Technology and the Internet during a hearing on the "State of Video." In his remarks, McCain compared the bundling of programming in cable and satellite packages to forcing customers to pay for the entire menu at a restaurant in order to get what they want to eat.

"Basically, I support a la carte, and I believe most Americans do, for the basic reason that consumers shouldn't have to pay for television channels they don't watch and have no interest in watching," said McCain, a former Commerce Committee chairman who no longer sits on the panel.

Savings questioned

Michael Powell, president and CEO of the National Cable and Telecommunications Association, countered that several independent studies have raised questions about whether shifting to an a la carte system would actually save customers money.

The audience size for each channel would shrink dramatically, and prices likely would increase "quite substantially" in order to make up for the revenue loss that would accompany a smaller advertising base, Powell said. Some of the less popular—but still culturally significant and diverse— channels might not survive a transition to a la carte pricing and would be lost to their viewers.

"It doesn't take long for consumers, putting those pieces together, to quickly get to a package that costs something very similar to what they were paying before, if not more," Powell, a former FCC chairman, told the subcommittee.

The cable industry also realizes that the market is changing and younger customers expect personalized options.

"As the video model evolves, expect to see channel lineups that are personalized and recommendation engines that modify content choices to your preferences," Powell said.

Gordon Smith, a former Republican senator from Oregon who now heads the National Association of Broadcasters, echoed that in response to a question about a la carte: "There are tremendous market forces anyway that are creating kinds of adjustments."

Despite expanding choices, some consumers who like the a la carte idea say they're discouraged by what they still view as a lack of real competition and options in pay TV, which frequently is packaged with phone and Internet service.

"When they bundle it, you've got to have this in order to get this, and if you drop this, then you lose out on the rest of the stuff," said David Blare, 48, a utility-company electrician in Mesa. "I just don't think that's right."

Supporters want to try it

Consumer groups have tended to appreciate McCain's willingness to tackle the pay-TV issues.

"A lot of people today feel like they're getting ripped off," said John Bergmayer, senior staff attorney with Public Knowledge, a Washington, D.C.-based public-interest organization that focuses on Internet and other technology issues. "So I support Senator McCain's bill because it's aimed at giving consumers a lot more choice and flexibility."

Online video is making encouraging progress, but so far seems to be providing more competition to the traditional video-rental store than to cable companies, which haven't yet had to respond with lower prices, Bergmayer told the subcommittee.

"For most users, it is a supplement to cable, not a replacement," he said.