Provide an Efficient Market for Pay TV

I’ve been following the News Corp vs. Time Warner Cable standoff over retransmission pricing, not because it affects us (we are longtime DirecTV satellite subscribers) but because it calls out how inefficient the market for pay TV is. The basis of the conflict is that News Corp (the content provider) is trying to shake down Time Warner (the delivery system) for a huge increase in the fees it pays, far more than any other delivery system pays. Time Warner is threatening to kick Fox stations off its system unless they’re priced more reasonably. They’re in a standoff at the moment, with the retransmission contract being extended hour-by-hour while the negotiators negotiate. A number of New Year’s football bowl games hang in the balance for anxious New Yorkers who are into that kind of thing.

News outlets like the NY Times are focusing on the standoff drama of the whole thing and barely touching on the consumer choice angle. To me, it seems absolutely crazy that the channels that appear on my TV are being randomly turned on and off by teams of lawyers meeting in a conference room somewhere in New York. The whole reason why this is happening is because of content providers’ insistence on acting like a cartel. Right now pay TV customers have very limited choices in terms of pricing and selection — cable and satellite providers price channels in bundled packages as a way to sell you more than you need. For example, we never, ever watch ESPN, yet its retransmission cost has been tacked on to our monthly DirecTV fee since the beginning of time. Why are we forced to pay for something that we never use?

It’s clear that left to their own devices, content providers and delivery systems will never work this out themselves — quality of product will become poorer and the number of choices will become smaller over time. So this situation should be dismantled, using the FCC’s regulatory authority (or federal antitrust statutes), if necessary.

Rather than forcing customers to choose from two or three expensive programming bundles containing mostly stations they don’t watch, it would make way more sense to give customers the ability to pick and choose the individual channels they want. This isn’t a new idea; it’s called a la carte pricing and it’s been batted around for more than five years, although it doesn’t seem to have gotten anywhere during that time, possibly because the idea came about during an administration that was all about throwing consumers under the bus in favor of the whims of big business.

But there’s actually something for the big businesses in this if the unbundling is handled fairly (through regulation instead of through a million drawn-out conflicts and back-room negotiations). Some chaotic evil delivery systems such as Comcast seem opposed to unbundling, while the neutral good systems such as Cablevision see the potential and are in favor. Using our family’s viewing habits as an example again: We probably wouldn’t spend an extra $10 a month upgrade to a premium satellite package with 100 extra useless channels just to get the two or three kids’ channels we don’t get today, but we might spend $0.50 a month per additional channel if channels were offered that way. That way, DirecTV would make an extra $12 a year from us that they wouldn’t otherwise see. And at the end of the day, if the content providers went crazy and decided to charge $97 a month for QVC, they could, with the understanding that the cost will passed directly on to customers, who will then have the choice to cancel the channel or not.

Content delivery systems (cable and satellite providers) have argued that they don’t have the technology to enable each customer to create their own custom package of channels. This is nonsense. All they need to do is extend custom pricing today, and then figure out how to restrict content when they get around to it.