Tuesday, November 13, 2007 - The Progress & Freedom Foundation Blog

How did the 500-channel TV universe become a reality?

I've written plenty here before about the potential pitfalls associated with a la carte regulation of cable and satellite television. What troubles me most about a la carte regulatory proposals is that proponents make grandiose claims about how it would offer consumers greater "choice" and lower prices without thinking about the long-term consequences of regulation. As I pointed out in a recent editorial in the Los Angeles Daily Journal, the problem with these regulatory activists is that "Their static view of things takes the 500-channel universe for granted; they assume it will always be with us and that it's just a question of dividing up the pie in different (and cheaper) ways." But as I go on to explain, a la carte regulation could bring all that to an end:

To understand why [it will harm consumers], we need to consider how it is that we have gained access to a 500-channel universe of diverse viewing options on cable and satellite. All of these channels didn't just fall like manna from heaven. Companies and investors took risks developing unique networks to suit diverse interests. Thirty years ago, few could have imagined a world of 24-hour channels devoted to cooking, home renovation, travel, weather, religion, women's issues, and golf. Yet, today we have The Food Channel, Home & Garden TV, The Travel Channel, The Weather Channel, EWTN, Oxygen, The Golf Channel, and countless other niche networks devoted to almost every conceivable human interest. How did this happen?

The answer is "bundling." Many niche-oriented cable networks only exist because they are bundled with stronger networks. On their own, the smaller channels can't survive; nor would anyone have risked launching them in the first place. "Bundling" is a means for firms to cover the enormous fixed costs associated with developing TV programming while also satisfying the wide diversity of audience tastes. Bundling channels together allows the niche, specialty networks to remain viable alongside popular networks such as CNN, ESPN and TBS. Bundles, therefore, are not anticonsumer but proconsumer.

I also point out why it's likely a myth that prices for programming will fall much for consumers in the long-run:

it's unlikely that prices will actually fall for the most popular channels that do survive. Channel bundling not only promotes programming diversity, it also keeps the cost of the most popular channels in check by spreading out costs across a bigger group of subscribers.

For example, The Disney Channel, Discovery Channel, ESPN and TBS are received in virtually every cable or satellite subscriber's home today. Because they are on almost every basic cable system, the higher cost of those networks is spread across all subscribers. If such channels lose subscribers in an a la carte environment, the cost per network will increase until, eventually, consumers are stuck paying about the same amount they do today, yet with far fewer channels to show for their money.

Anyway, you can read the entire editorial here.

posted by Adam Thierer @ 10:26 PM | A La Carte