Would A La Carte Cable Plans Reduce Cable Bills?

Next to gasoline, cable is the one thing whose price increases I most often hear people complain about. Maybe I hear about it more often because my husband works for Comcast or because cable rates go up even more frequently than postage rates, but with the average monthly cable bill hovering near $50, people with cable have a good reason to be concerned about more increases.

Some cable subscribers have switched to satellite, an option which is not without faults of its own, while others have suggested a la carte, or per-channel, pricing. This idea sounds quite appealing to those who would like to receive, for example, the Disney Channel but not the Golf Channel (or vice versa). Parents could choose family-friendly channels so that they would not have to worry about learning how to use parental controls, while those without children in the home could opt not to receive Nickelodeon and related channels. No one would have to pay for channels they don’t watch.

In reality, many consumers would be able to receive far fewer channels than they might expect for the price they want to pay. How could a la carte programming be more expensive than the package deals most cable companies currently offer? You might blame it on corporate greed, but if you do, don’t blame only the local cable provider. For each channel you receive, your cable company pays a per-customer subscription rate each month. Some channels, such as ESPN, cost more than $2.00 per subscriber. (High salaries for professional athletes are one factor in this high rate.) Many of the larger cable companies require cable providers to show their less popular channels in order to get lower prices for their popular channels.

The telecommunication industry is currently in heated debates over whether the government should forcibly break up these “bundled” deals so that cable providers can offer a la carte pricing. The FCC has conducted several studies on the topic and has come to opposing conclusions as to whether a la carte pricing would benefit consumers. (Most recently, it says that it would.) Some say that such government intervention would result in the demise of smaller channels and fewer viewpoints to be broadcast, while others say that the current dominance of the large cable companies already prevents alternative, independent channels from having their voices heard.

Debates over the appropriate extent of government regulation aside, a la carte pricing would bring fewer subscribers for each channel, which would mean fewer people to share the cable provider’s total cost and, as a result, higher per-subscriber rates for each channel. In addition, cable providers would have additional costs associated with initiating and maintaining the technology and administrative processes required for offering an additional service plan, while cable channels would spend more on marketing in order to induce customers to purchase their channels. These costs would be passed on to cable subscribers.

Families who truly watch only a few channels, including one or two from the higher-level tiers of current cable packages, would probably save some money with a la carte pricing. However, those families whose favorite shows are scattered over many channels or who are interested in specialty channels that appeal to only a few people could actually receive fewer channels on an a la carte plan than they receive for a similar price on a current package deal. (As with a la carte menus in a restaurant, those small items can quickly add up to more than what you’d pay for the buffet!)

Incidentally, despite the frequent increases in cable bills, the cable industry’s Spring 2007 GRIP (Grassroots Information Program) newsletter circulated among Comcast employees argues that the company’s prices shouldn’t be judged solely on basic subscription rates. “With more customers taking cable’s triple play [cable, telephone, and Internet services bought from the same provider],” the newsletter reads, “the actual price for these products is more than 23 percent lower than it was ten years ago, adjusted for inflation. And the quality of the product is dramatically superior.

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7 Responses to Would A La Carte Cable Plans Reduce Cable Bills?

  1. Alex says:

    This article does a good job of unquestioningly adopting the cable companies’ claims.

    The cable companies are wrong however. There is an economic theory called price discrimination, wherein the more a company can differentiate between consumers and charge them according to their demand, the better the equilibrium point will be between supply and demand and the greater the surplus will be enjoyed by both suppliers and consumers.

    What this means is this: there are people right now who enjoy tv, but are unwilling to pay $50 for it. What do they do? They don’t buy it. This is a market inefficiency: these people are willing to pay something for some lesser package, but the market is not serving their needs. Now say that ala carte cable comes along: suddenly these people can pay $30 and watch 4 channels, voila! the suppliers have captured the surplus which would have otherwise not been capture.

    But what about the people who were paying the $50? They will be able to pay for the cable channels they actually want, and the market will more efficiently offer them a product priced towards their demand. Both the cable companies and the consumer will profit, because the cable companies can charge more per service (channel) offered since only people who watch the channel will buy it, and the consumer will pay only for those services he wants. The more efficient market outcome will make both groups more happy.

  2. Mike D. says:

    I don’t think you needed to tell us your husband works for Comcast…we could have figured that out 😉

  3. I don’t see the problem with offering both a la carte and a package. Let’s extend the concept and suggest that Comcast gets rid of it’s cable offering and only offers it’s Triple Play (phone and internet bundle) at $99+. Suddenly anyone who wants to watch a game of football on ESPN has to pay $99 and get services they don’t want or possibly don’t need.

    The best model (at least for consumers) is something like what McDonald’s has. If you just want a burger, you can order that. If you want more, they’ll offer a better overall price than if you ordered separately. Unfortunately, the cable operators are going with a pricing plan that you have to order everything on the menu if you want to have anything.

    The lower adjusted price for all three services is a result of the adoptation of VOIP, not something affiliated with cable. They didn’t even offer that 10 years ago, so they are erroneously doing comparisons of two unlike things. Comcast’s Triple Play is still more expensive for most people than buying cable, Internet, and VOIP (through something like Vonage or even Skype) through a third party.

    I have heard more people complain about the cost of college than the cost of cable, but your circle may vary.

  4. Brad says:

    ESPN is notoriously expensive for cable providers to carry– if their per-subscriber fee is just $2, I can’t possibly imagine why in the world a la carte programming would be as expensive as some suggest. Many people would remain as package subscribers to get more bang for their buck, and for the a la carte crowd you could easily charge 2x-3x what your marginal cost is for that channel and the customer would be thrilled. I’d pay $7 per month for the ESPN family, and that’s the most expensive channel set to provide. If the rest are $5 or less, then my 7-channel habit would run me less than $37– and I currently pay twice that for a bunch of channels I don’t watch.

    I think there is merit to both sides– a la carte would truly raise the price per channel dramatically, for various reasons. On the other hand, it would not be as expensive as cable providers tend to claim it is. A la carte would fill a previously untapped market niche, bringing less cable to some, more cable to some, and the same service to most. I think it ought to be an option.

  5. Tati says:

    the plugin Show Top Commentators doens’t work in 2.2.1 version of wordpress. DOens’t apear the link/name of Commentators

  6. stan says:

    This sounds like it has been written by a cable employee. Of course Comcast argues that the company’s prices shouldn’t be judged solely on basic subscription rates…because when they are it shows how bad they are. That bundled savings doesn’t come from a reduction in cable TV prices, but reduction in the prices of the Internet and phone services which hides the increase in cable prices. One of the poorer articles I have seen on this site and quite disappointing.

  7. Shannon Christman says:

    A few notes of response to these comments:

    I am not arguing that cable companies should not offer a la carte programming, simply that this plan would be more expensive for customers than many might expect. I agree with most of your arguments.

    Even if my husband did not work for the cable company (a fact I included because I believe in full disclosure), I would stand by what I said in this article.

    Also, before we got cable as a job perk, we were some of those people Alex mentioned who went without cable because we were unwilling to pay $50 (at that time, less) for it. We still do not subscribe to the triple play.

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