Legal challenge aimed at a la carte dismissed by federal judge

Comcast, DirecTV Win Dismissal of Consumers’ ‘Bundling’ Lawsuit [Bloomberg]

A group of cable operators and programmers have won dismissal of a lawsuit filed in Los Angeles that alleged antitrust violations in the method that multichannel video distributors packaged video content. U.S. District Judge Christina Snyder ruled last week that a group of plaintiffs had not proved that cable and satellite operators had prevented competition by not offering programming on an a la carte basis.

While Judge Snyder's ruling focused on the legal issue of whether bundling programming as cable operators currently offer video packages was actually anti-competitive - which it isn't - and will likely be appealed by the plaintiffs, this lawsuit raises the question about whether it's actually more desirable from a consumer standpoint to have the ability to purchase channels on an a la carte basis.

As I've written here before, the diversity and breadth of cable programming that exists today is a result of the video packages that cable operators have made available to customers. An important percentage of revenue for programming networks like CNN, ESPN, A&E and Discovery comes from advertisers and advertisers rely on ratings which are enhanced significantly by "incidental" viewing or the by-chance landing on a network by channel surfers.  Take those viewers out of the mix, and, poof, viewership decreases and advertising revenue that supports program creation and development evaporates.  And the cost viewers have to pay for those networks would skyrocket. 

So, while a la carte video may sound good at first, many cable channels that exist today and are relatively popular among viewers couldn't survive in an a la carte world. Ultimately, consumers would pay more for less content if a la carte were mandated by law, regulation or a legal ruling.  Indeed studies have indicated that consumers would "break even" or pay about as much as they pay now for classic cable but would only receive around 17 channels for their money in an a la carte world. 

No doubt, this legal challenge will continue to proceed through the system on appeal.

Comments

[mike lazfsh]

I think you are definitely correct about certain channels being able to survive because of "by chance landing." On the other side I do think that as TV evolves you will see the end of the "channel" as we know it. Instead of scrolling through the dial like TV and radio have always done, I feel that eventually we will discover shows through some kind of a suggestion engine, like on Tivo and netflix. How do you think people discover videos on your tube? Well I see a future where there is no limit on channels but instead we are all plugged into a network where we could view any episode of any show. We should be able to search by category, show name, genre, and topics, as well as "see what other people near you are watching." I think as true two way rolls out and TV become more interactive we will begin to see these types of things and although revenue will go down for the major networks, cost will too. Furthermore I think that this model (like youtube) will be able to cater to a broader audience, because every tiny niche interest will have programming. An side effect will be that shows that don't get the fan-base will not get broadcast like they do now.

[DM]

Michael,

I am a supporter of a-la-carte channel distribution. I feel that the arguments that you and other industry representatives use are not very logical and can easily be dismissed. However, a few months ago my view on a-la-carte changed. I realize that the industry probably won’t accept an argument for individual channel distribution. On the other hand, a lot of pay TV subscribers feel that they are unfairly paying for channels that they do not watch and do not want to subscribe to. I now advocate for a middle-ground that I like to call the bundled a-la-carte system.

The bundled a-la-carte system could exist so that it satisfies the consumer’s demand to lower pay TV service bills while also satisfying the content industries with their advertising rates. This also may lower the amount that channel providers (cable companies) have to pay to content creators in carriage fees.

In this system, smaller channel bundles exist that are linked by the content distributors. For example, ESPN could have a channel bundle that includes ESPN, ESPN2, ESPNews, ESPNU, and ESPN Classic. ABC/Disney could have a channel bundle that includes ABC Family, The Disney Channel, and Disney XD. NBC Universal could have a channel bundle that includes USA, SyFy, CNBC, and MSNBC….etc.

This would give consumers more choice and selection for what they want to pay to watch. There are people that do not watch sports programming, so why should they have to pay for ESPN if they don’t want to? Maybe someone doesn’t watch children’s programming, so why should they have to pay for it?

I feel that this would also be supported by the content creators as well. If “incidental viewing” is limited to only the channels that you have a financial interest in, then that means potentially higher ratings and advertising revenue for your company, and potentially lower ratings and advertising revenue for your competitors.

The best part is that all parties in the pay TV industry remain satisfied – advertisers, channel distributors, channel providers, and consumers.

However, I would like to point out that I believe in this idea because of the resistance that an individual channel distribution system has from the TV industry. Could we get a citation on the studies that explored a potential a-la-carte system? The arguments always seem to revolve around paying the same amount for lesser channels, but I don’t believe that would be the case because a-la-carte would create a free market on channel pricing. Distributors would have to market based on “demand of product” pricing, which could facilitate lower prices and therefore, lower bills for the channels that are currently actually watched now by customers with a bundled system.

And niche channels going away happens with a bundled system as well. Remember TNN? They changed programming and became Spike TV. What about G4 – they used to feature technology-oriented programming and now seem to be focused more on variety entertainment programming. And don’t forget about Fox Reality, which will be turning into a National Geographic channel next year.

[Consumer]

Mike Lazfsh could be on to something. His idea is similar to what online video streaming website Hulu.com already does. Even they have commercials incorporated to produce the ever-so-needed ad revenue which makes online streaming of shows produced by the major networks possible.

A new converter box which makes use of all of these things would be revolutionary. It would no longer be the traditional TV where what you watch is decided for you, instead it is decided by you whenever you want. On Demand only scratches the surface, the next key step as always is getting the content producers on the same page as the content distributors and in order to do that (as always) you have to first settle the financial side of things to come.

One thing I personally love about the commercials on Hulu is the option to watch them up front for several minutes and then enjoy your selected programming commercial free in its entirety. It's all about freedom of choices, some professionals have said that when consumers are presented with too many choices they become depressed and shy away from a product but I believe in this industry in particular it's the exact opposite.