Rafi Mohammed

John McCain's A La Carte Cable TV Bill is Anti-Capitalist

Posted on August 26th, 2013 (0 Comments)

Reprinted from the Harvard Business Review website. 

My cable television needs are simple — give me the four staple network stations and a few business channels (for professional reasons) and I’m happy. When I called my local cable provider, a rep cheerfully informed me that the price for a basic network package is roughly $9 a month. Not bad, I thought. But when I explained my interest in adding Bloomberg TV and CNBC, the rep replied that I’d have to upgrade to the “Digital Starter” package, which would run me about $70 a month. Whoa — an extra $61 for two key channels plus a slew of others that I’ll never watch? At that moment, I completely understood Senator John McCain’s opinion of cable companies offering “consumers all the ‘choice’ of a North Korean election ballot.”

McCain recently sponsored a bill — the Television Consumer Freedom Act — which would require cable, satellite, and phone companies to offer channels a la carte. This would allow consumers to hand pick (and pay for) only the channels they are interested in. Under current law, local municipalities sometimes have the right to regulate prices for basic channels but companies can charge whatever they want for other (non-basic) channels. Mr. McCain’s bill would not regulate prices, but it would mandate a specific type of pricing strategy (a la carte).

This presumes a) that the offerings of that industry are so essential to the American people that they ought to be protected by government regulation and b) that there’s not enough competition in the current video-information-entertainment industry to ensure the public has access to those essential goods and services.

First, I think we can all recognize that cable TV is not an absolute necessity product. The FCC regulating access to Duck Dynasty is not exactly like the Food and Drug Administration regulating artificial heart valves.

But the second issue is more contentious. While it’s common to complain about cable behemoths, I’d argue that there is actually healthy competition in the MVPD (multi-channel video programming distributor) market. Almost every home in the U.S., for instance, has the option of ordering satellite television service (the Federal Communications Commission requires all buildings to allow satellite dishes), which tends to be cheaper and offer more channels than cable. In fact, satellite companies are the second and third largest U.S. MVPD providers. Direct Television and the Dish Network respectively have 20M and 14M subscribers (Comcast is the largest provider with 24M subscribers). Sure, there may be drawbacks to satellite television, but it is a reasonable cable substitute. Telephone companies such as Verizon and AT&T also offer television service.

The FCC estimates that in 2012, 35.3% of all U.S. homes were eligible for four or more television alternatives (the two satellite services plus at least two other — cable and/or telephone — options). And that doesn’t count the new wave of web-based distributors, including Netflix, Amazon Prime, Apple TV, Hulu, and others who are aggressively promoting the Internet as a prime pipeline to television sets as well as creating original content. Some content providers, such as PBS and Major League Baseball, are starting to stream some of their content directly to consumers, rather than rely on an MVPD alone. Revealing how disruptive the Internet may be to traditional distributors, it’s rumored that Google is in negotiations to broadcast Sunday NFL games.

Still not good enough? Remember that network channels can often be accessed for free with an antenna, games are often broadcast on the radio, and most series are eventually available through a streaming, rental, or retail outlet. While the Internet is not itself free — you do have to pay for the service, and for the computer you used to access it — much of the information on it is. Still too expensive? A single issue of a newspaper can be had for pocket change. Still too pricey? Go to your public library, where internet access, computers, DVDs and more are often available free of charge.

Of course consumers want low prices and a pricing plan that works best for them. This desire, however, is often incongruous with the goal of capitalist companies to set the pricing strategy that reaps the highest profit for them. I’d like, for instance, to only purchase “Boardwalk Empire” from HBO (instead of the monthly subscription service), pay less for shorter rides on Boston’s “one price to anywhere” subway system, buy only certain rides (as opposed to unlimited rides) when I accompany my niece and nephew to Disney World, and to stay at the Ritz Carlton every time I travel. Unfortunately, these entities have chosen to employ prices and strategies that don’t perfectly meet my needs. There’s healthy competition in the MVPD market, and to date no provider has decided that it’s in their best financial interest to offer a la carte pricing.

To be clear, my experience with my local cable provider has been remarkably dismal. Trust me, I’m not happy about paying an extra $730 annually to receive key business channels. So while I’d enjoy needling Comcast about their pricing, the facts don’t support such an argument. The MVPD market is competitive, more competition is on the horizon, there are plenty of non-television alternatives, and we aren’t dealing with a “life or death” product. This hardly qualifies as a situation where injustice is “being inflicted on the American people,” as Mr. McCain recently opined. Let’s allow the market to rule — our government has more far pressing issues to focus its energies on.

Add Comment
Send to Friend
Email Signup
RSS Feed