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The Time Has Come for A La Carte Pricing

Cable companies still refuse to budge on the issue


The fight between CBS (CBS) and Time Warner Cable (TWC) that led to millions of viewers being without the Tiffany Network is really a prelude to a larger battle over a la carte pricing.

Cable and satellite providers make people sign up for blocks of channels or tiers, most of which they probably never watch. The industry has long argued that offering groups of channels keeps their costs low and saves the consumer money as well. Consumer groups, however, have long championed the idea of letting people pick the channels they want — and their voices are growing louder.

“A lot of people today feel like they’re getting ripped off,” John Bergmayer, senior staff attorney with Public Knowledge — a Washington, D.C.-based public-interest organization that focuses on Internet and other technology issues — recently told USA Today.

Thanks to the CBS-Time Warner dispute, the case for a la carte pricing is back in the spotlight. Earlier this month, Time Warner Cable CEO Glenn Britt offered to allow subscribers access to CBS on an a la carte basis to allow “customers to decide for themselves how much value they ascribe to CBS programming.” CBS’ loquacious head Les Moonves flatly rejected the idea.

“We both know that a true a la carte universe is not one that Time Warner Cable welcomes,” the onetime actor wrote to Britt.

Moonves then accused Britt of being hypocritical, making a fair point by noting that Time Warner Cable didn’t allow its customers a say in whether they wanted its new sports channel in Los Angeles and just started charging them for it.

Sports are the new battleground in the war for the nation’s television sets. Not surprisingly, ESPN, the worldwide leader in sports is against a la carte saying in a recent statement that it “would cost consumers significantly more money for dramatically less choice.”

CBS and its rivals such a s 21st Century Fox (FOXA) and Disney (DIS) have spent years paying double-digit increases for the rights to pro and college sports. Some in the industry have had enough, saying the small audience for sports doesn’t justify the large fees they need to pay. Both DirecTV (DTV) and AT&T (T) made the unusual and gutsy call not to carry Comcast’s (CMCSA) regional sports network in Houston, saying the costs were too high.

I’m in the middle of a similar situation in the Philadelphia area — a satellite customer without access to Comcast’s Philadelphia sports channel — and I’d certainly take advantage of a la carte pricing if it was available.

Legislation backed by Sens. John McCain, R-Ariz., and Richard Blumenthal, D-Conn., to mandate that cable companies offer a la carte pricing has given me some faint hope for relief. Of course, the National Cable Television Association and others have lined up against the bill.

“In today’s video marketplace, consumers enjoy more choice than ever before,” according to the NCTA. “In the face of such innovation and expansion, attempting to force retail models on private providers is unnecessary and counterproductive.”

CBS, which is the most watched television network, for its part, isn’t worried about being offered a la carte because millions of viewers would likely pay an extra fee to watch hits such as Big Bang Theory.

The same, though, can’t be said for its former corporate sibling Viacom (VIAB). Earlier this year, Cablevision, a New York-based cable provider, sued Viacom on antitrust grounds over its demands to carry its less popular channels to have access to popular ones such as Comedy Central and MTV. Viacom has denied wrongdoing, but it’s in a tougher position than CBS.

Audiences for cable shows tend to be smaller than those on broadcast networks, though the numbers of exceptions continues to grow. But generally speaking, cable shows can get away with attracting much smaller audiences than those on broadcast television. Cable networks can make up for this because their audiences for shows such as The Daily Show tend to be young and well-heeled — two adjectives that warm the hearts of advertisers.

The problem, though, would come in an a la carte world. CBS would have an easier time getting people to pay for its network because more people watch it. Big Bang Theory attracted more than 14 million viewers for its latest season finale in May, beating American Idol. Shows such as Hardcore Pawn and Dance Moms usually attract audiences of about 1 million or 2 million, making them much tougher sells.

When the smoke clears from the CBS-Time Warner dispute, consumers will wind up losing — as always — in the form of higher cable bills. If the industry isn’t willing to give consumers real choice, perhaps it’s time for the government to step in.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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