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Thursday, January 31, 2008

A La Carte Mandates & Price Controls
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FCC Chairman Kevin Martin's desire to impose a la carte mandates on cable operators is well-known. But his advocacy has always lacked specifics regarding how such regulation of the multi-channel video world would work in practice.

Ted Hearn of Multichannel News points to this fact in his article today, "FCC Chairman Vague On Capping A La Carte Prices: Martin Has Yet To Spell Out How Mandate Would Work." Ted notes that, "At least in theory, programmers could set a la carte prices so high that the only rational option would be the purchase of the bundle." Thus, Ted wants to know "how so-called wholesale a la carte mandates would be effective if the FCC won’t police the per-channel rates being sought"?

Excellent question, Ted, and one that all analysts who follow this issue want the Chairman to answer. After all, almost all the serious economists and Wall Street analysts who have studied this issue have reached a consistent conclusion: Unless you only subscribe to a few channels, your bill will likely go UP, not down, under a la carte regulation. [Here's a concise explanation of why that will be the case.] So, what's the FCC going to do if those prices start going up once their plan backfires?

Hearn notes that, at least so far, Chairman Martin has not answered that question. "Martin did not indicate how wholesale a la carte mandates could be effective if the agency would let programmers use pricing strategies to defend the bundle," Hearn reports.

And that's probably for good reason since the only logical regulatory response would be good 'ol fashion price controls. But...

Martin danced around the issue of a la carte price controls on Thursday, telling reporters that he is relying on assertions by members of the American Cable Association that unbundling mandates on the Walt Dinsey Co., Viacom, News Corp. and NBC Universal would take pressure off retail cable rates. ACA represents hundreds of small cable companies.

“I thought [wholesale a la carte] was an idea that some members of the cable industry -- small cable operators -- had of having to address high cable rates,” Martin said. “I think that’s an idea for the commission to consider and I think it could end up helping addressing it – at least small cable operators have all said it would help them try to address it and lower cable rates.”

Martin is being evasive, of course, because moving beyond the theory and into the messy potential unintended consequences of a la carte regulation is just no fun! But make no doubt about it, there is no avoiding the ugly truth that a la carte regulation will likely have a negative impact on either the quantity, quality, or price of video services. When government seeks to control one of those variables, the others react. It's the old game of regulatory Whack-o-Mole in action.

posted by Adam Thierer @ 10:41 PM | A La Carte

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