Some Heresy on A La Carte: Could it Work After All?

by on December 22, 2005 · 2 comments

The idea of a la carte pricing for cable television has taken a beating since Kevin Martin suggested it in a congressional forum a few weeks ago. (For some good pieces by my TLF colleagues, look here, here, and here. It’s clear that a la carte pricing is no free lunch for consumers (no pun), and that there have long been good business reasons for maintaining a system of packaging channels. But nothing ever stays the same in fast-changing tech markets, and that may apply to cable pricing as well. In a just-released Heritage Foundation paper, I argue that while regulation to force a la carte would be unwise, there’s a good possibility that the markeplace–without regulation–may soon provide it. Specifically, new competition by former phone companies Verizon and AT&T could upset the cable pricing applecart, and perhaps lead to a la carte pricing–or something close to it. As explained in the paper:

The good news for parents and other consumers is that a set of new competitors to traditional cable providers is now emerging and is well positioned to offer enhanced control of content to consumers. This competition comes primarily from two firms that formerly offered only telephone services, Verizon and AT&T.[8] In recent months, Verizon has begun to offer video service to consumers in several cities, and AT&T will do so shortly. Both employ an Internet-based technology known as “Internet Protocol Television,” or “IPTV,” that allows consumers great control over what they see on television. Users can pause and playback video and order video on demand, which is programming selected individually from a menu.

This technology also promises to further enhance parents’ ability to protect their children. AT&T’s service, for instance, would allow parents to block or filter programs using their cell phones, even if they are far from home.[9] More broadly, the service could make a la carte pricing more feasible by reducing the cost of offering individualized channel lineups. In addition, the technology may be able to provide more and better information to advertisers as to which shows are being watched, thereby reducing the advantages of channel packaging.

Although neither firm now offers a la carte service or a family tier, both are considering these options. A spokeswoman for AT&T recently stated that if “consumers want a la carte programming, we will be happy to offer it, so long as we are able to obtain access to the programming in that manner.”[10] AT&T’s marketing strategy, in fact, seems to be to win over customers by providing more choice. As the spokeswoman explained, “Our goal is to provide more choices to our customers when they want it, in the way they want it.”[11] This would set up a clear marketplace contest between different ways of providing video service–to the benefit of cable viewers.

Such a market-driven switch to a la carte pricing is of course still speculative, neither firm has yet even decided whether to pursue it. But the ingredients are there. For policymakers, the action item is clear: instead of imposing new regulations, the best way to foster consumer choice may be to reduce regulations–specifically those that are slowing the entry of these new competitors. Then watch consumers choose.

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