The U.S. cable television market is based on a bundling system where customers buy a package deal with a pre-determined selection of channels from cable companies like Comcast, Time Warner, and AT&T. Recent disputes, including the retransmission blackout between Time Warner Cable and CBS, and rising costs (for example, basic cable fees rose from about $25 a month in 1995 to over $54 in 2013) continue to generate interest in “a la carte” cable service, where customers can subscribe to only those channels they want. However, given the advent of digital streaming, continuing legislative efforts to require a la carte are unnecessary and short-sighted.
A la Carte Cable: A Good Idea?
In May 2013, U.S. Senator John McCain (R-AZ) introduced a bill designed to provide regulatory incentives to programmers and distributors to provide a la carte cable. Another bill, introduced in September 2013, the Consumers Have Options in Choosing Entertainment (“CHOICE”) Act of 2013, would more forcefully require cable distributors to offer customers the right to buy only those channels they want to pay to watch. Both pieces of legislation are designed to allow greater flexibility and consumer choice, lower cable costs, and dispense with a bundling system that forces viewers and non-viewers alike to subsidize the cost of programming.
Viewers also want change. According to the U.S. Video Content Consumption report from PriceWaterhouseCoopers, almost 44% of people would prefer a la carte pricing. 29% would prefer customizing their own cable package, and 8% would prefer a small bundle of “essential” channels.
Meanwhile, cable companies argue that a la carte option would kill diversity in programming by eliminating niche channels and making it impossible for new networks to launch. Bundling works to the cable companies’ benefit on both quantity and quality of programming; by bundling less popular channels with more popular ones, the less popular ones are more likely to survive and networks can use the profits to take risks on extravagant productions like The Sopranos and Breaking Bad.
Digital Streaming Complicates the Issue
Digital streaming services are making the idea of a la carte cable largely obsolete. Netflix and similar services are successful precisely because cable providers refuse to go the a la carte route. High costs of cable packages and bundling create large margins for cable companies that allow Netflix and Amazon Prime to get content cheap. Netflix currently spends about $2 billion per year on content. That price is low compared to cable providers because Netflix isn’t paying for first-window exclusivity but rather negotiating licenses after that window closes on the networks—put simply, its costs are subsidized by cable subscribers. And because it gets content for much less than traditional TV providers, its subscriber costs are low and its original content (for example, House of Cards and Orange Is the New Black) is risky.
There are also options for consumers to implement their own version of a la carte without any actual industry change. Abroad, Netflix has entered into deals with cable providers to bring Netflix to TV box-tops, allowing users to watch their regular cable programming then seamlessly switch to watching what they want via Netflix. Netflix is looking to make similar deals with U.S. cable providers. Additionally, every major cable operators now has a “TV Everywhere” app that allows subscribers to watch some channels live on their computers, phones, or tablets. And some cable operators compete directly with Netflix, for example Comcast Streampix, a service which allows users to watch movies and TV episodes on demand for $4.99 a month.
Because of these alternatives, and because of how digital streaming operates, a la carte is an inefficient idea. There are no guarantees that a la carte would truly be cheaper and cable companies’ fears regarding the quantity and quality of programming are legitimate. Bundled cable television is here to stay as-is, at least for now. More than 90% of TV-owning households still subscribe to some form of paid TV service and while cord-cutting seems like a growing trend, only 1% of subscribers have canceled their traditional cable package in favor of internet options. Instead of unnecessary legislative reform, consumers can use Netflix, Hulu Plus, TV Everywhere apps, and other digital platforms at their disposal to recreate the main idea behind the a la carte system—pay for what you want.