James’s post in defense of a la carte makes me think that a big part of what’s going on in this debate is ambiguity and confusion regarding what exactly counts as “a la carte.” As my recent article suggests, most a la carte activists seem to imagine that, if the standard cable tier gives you 50 channels for $50/month, then you should be able to buy 10 channels for $10/month, or one channel for $1/month.
That is, of course, absurd. It would be great for consumers if it were possible, but the problem is that the cable companies would go bankrupt. It costs a lot more than $1 to deliver that one channel to the customer’s home. That’s why, if forced to adopt a “pure” a la carte model, channels would have to set the per-channel cost much higher than $1–probably more like $5-10 per channel. It should be obvious that consumers wouldn’t benefit from that.
But if we relax our definition of “a la carte,” it’s possible to imagine a model that could work. Consider a world in which every subscriber pays a $40 access fee, and then chooses channels “a la carte” for 25 cents apiece. This is, technically speaking, an a la carte system, and it would probably work just fine: at 25 cents apiece, most consumers would probably take 30 or 40 channels, roughly approximating the status quo. This could plausibly be called an “a la carte system,” and it might work just fine.
Now consider a third system, with one minor change: the cable company decides to throw C-SPAN into the basic package for free, and tacks on 6 cents to cover the subscriber fee. (If I remember correctly, this is what C-SPAN charges per subscriber) My question is: has this ceased to be an a la carte system? After all, consumers are now being “forced” to buy C-SPAN in order to get other cable channels. But it’s hard to imagine cable customer being outraged at a 6-cent hike in their bills.
What’s going on is that your monthly cable bill is actually paying for two things: the programming and the infrastrcture necessary to deliver the programming. What people don’t seem to understand is that the infrastructure is by far the largest fraction of the bill. According to this article, the average cable bill is $45 for 64 channels. Of that, $45, only $14 goes to cable networks for the cost of content. The remainder, $31, goes to cover the cable company’s own costs.
To bring this back to James’s article, I suspect the systems the Baby Bells are rolling out will be “a la carte” only in the third sense described above. There will doubtless be a basic access fee that will apply to everyone who gets the service. There’s also likely to be some content, such as C-SPAN and PBS, included for free with the basic IPTV service.
But the fact is, the current cable industry is already a la carte in this sense. There’s some content available with the basic package, and then there is other content–”premium” channels, pay-per-view content, on demand movies–that is offered “a la carte.” The only difference is a matter of degree: the Baby Bells might be putting less content in the “basic” bundle, while the cable companies are putting more.
If that’s how we’re defining the terms, it’s not clear what’s being argued about. Of course a la carte, defined in this loose sense, “works.” No sane person would claim otherwise. The debate is whether “pure” a la carte, in which there is no “basic” bundle, can “work.” I think the answer to that is clearly no, and I’ll be shocked if the Baby Bells ever offer such a pricing structure.