CAGW Sends Cable a la Carte Back to the Kitchen.

WASHINGTON -- Citizens Against Government Waste (CAGW) today urged the Federal Communications Commission (FCC) not to mandate "a la carte," the sale of individual channels, in the cable television industry. On September 11, the FCC began considering a proposal to ban programmers from bundling channels together in the current tiered system.

"Just as dining a la carte is more expensive than a three-course prix fix meal, a la carte in the cable industry will be more expensive than the current tiered or bundled programming system for subscribers," said CAGW President Tom Schatz.

A la carte pricing would drastically change television advertising, ultimately making such a system more expensive than a tiered system for consumers. For example, a company might run an ad on ESPN hoping to reach primarily sports fans, but also reach others who might have a casual interest in the channel or those who might be surfing through channels. Reaching such a broad audience would be nearly impossible through a la carte TV as casual observers and channel surfers would be lost. Instead, advertising would be based on channels' take-rates (the percentage of cable subscribers who subscribe to one particular channel). Advertisers will be unwilling to pay the prices they currently pay for their advertising to get on the air if it is going to reach a smaller audience.

With reduced funding from advertisements, in order to maintain a profitable business, cable companies will have no choice but to obtain a larger portion of their funding from consumers by increasing the price of channel subscriptions. With a 25 percent take-rate, for example, investment banking firm Bear Stearns projects that a monthly subscription to the Disney Channel would increase from $1.48 to $5.90. MTV would jump from $0.43 to $2.32, and most notably a subscription to ESPN would skyrocket from $3.78 to $15.82.

An a la carte system would also impair consumer choice. It would be more difficult for smaller independent and niche channels to stay afloat financially with an a la carte pricing structure. While large, popular channels such as CNN or ESPN could still be viable in this new business climate, channels like the Food Network or Lifetime could go off the air if they did not get enough subscribers to make them profitable.

"The cable television industry has thrived, diverse networks have grown, and consumers have benefited from the tiered system. Now is not the time for the FCC to mandate a la carte and take a step backward for all," concluded Schatz.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.