No Savings Here

Cable a la carte is an older issue, but, thanks to folks like Kevin Martin and the PTC, it keeps popping up.  And guess what: A la carte advocates, who seem to think that there are cost savings to unbundling cable packages, still don’t seem to know what they’re talking about.  Not only is the idea a silly one — why can’t people just change the channel if they don’t like what’s going on? — it rests on a fundamental misunderstanding of the economics of cable TV delivery.

Over at TechDirt, Timothy Lee explains:

People imagine that an a la carte mandate would mean that if they’re currently paying $50 per month for 50 channels, then they should be able to pay $1 per month for one channel. But that doesn’t make any sense. Switching a given customer from 50 channels to 1 channel doesn’t reduce costs (the other 49 channels would presumably still be produced for other viewers), so why should the customer expect a lower bill? If anything a switch to a la carte actually makes things more expensive because in some cases cable companies have to install new equipment and set up a more complicated ordering and billing system to keep track of who had signed up for which channels. In reality, what would happen is that the cost of each channel would go up a lot. Instead of $1/channel, cable companies might charge something like $8/channel, with each customer choosing 6 channels on average. The result would be that most people would pay about the same for a lot fewer channels.

As I’ve noted before, some studies actually indicate that over costs could go as much as 20% up under an a la carte regime. It’s not only that there’d be little in the way of savings. It’s that it’s actually less efficient to deal with personalizing service that way.  It’s much more efficient to simply allow consumers what they want to watch on the  delivery end rather than try to sort it out on the provider side.