Regulatory Reform

A La Carte Video Requirement Not Necessary in a Vibrant Market

If I told you the government was considering a policy change that would essentially require USA Today to sell you the sports and entertainment sections separately from the news section instead of as a whole paper, you might think I was crazy. But that is exactly what is being proposed for the video marketplace.

The idea that cable, satellite, and other multichannel video providers should offer consumers an “a la carte” programming option – where consumers get to pick and choose the individual channels – as an alternative to bundling – where the channels are sold as a package deal – has been around for some time. Although it sounds great in theory, in reality it doesn’t work.

In 2003, the U.S. Government Accountability Office found that going from bundling to an a la carte model could cost video providers advertising revenues that would result in an increase in subscriber fees. Brent Skorup at the Mercatus Center explains why bundling works: “Bundling is efficient because in a high fixed-cost industry, like cable, cable channel bundles provide cost savings that outweigh the costs of providing ‘wasted’ channels consumers don’t watch.”

Even economic thinkers on the left dispute the notion that an a la carte model is a solution. Matty Yglesias at Slate notes that a la carte “starts with a fundamental misunderstanding: the delusion that if your basic package contains plenty of channels you never watch, you’re paying for many channels you don’t watch. It’s understandable that people would think in those terms, but it’s wrong.”

It’s also difficult to see how an a la carte requirement is necessary given the state of the marketplace today. The Federal Communications Commission has observed that the video marketplace is marked by several important trends including: “increased deployment of digital technology, consumers’ rising demands for access to video programming anywhere and anytime, and the evolution of online video from a niche service into a thriving industry.

Consumers have a constantly growing number of choices for watching video nowadays. Cable, satellite, and telephone providers compete against each other for the same consumers and offer hundreds of channels along with other services. Traditional providers now also give consumers the option to watch individual shows, movies, and other entertainment on demand and almost anywhere thanks to things like digital video recorders and mobile devices with apps like HBOGo and WatchESPN. Online options like Netflix, Hulu, and iTunes also allow consumers to download and watch individual shows and movies; even live broadcast television is becoming an online option.

Over the past few weeks, a lot of ink has been spilled and bits consumed in an ongoing conversation about competition in the marketplace for video. The conversation has gotten so loud that policymakers have now turned their attention to the topic, complete with Congressional hearings. Legislation has also been introduced that aims to “encourage cable providers and broadcasters to offer a la carte video to consumers.”

Given the fact that so many options exist to serve consumers video, it does not appear necessary for the government to either intervene or to encourage a particular model for offering video in the marketplace. The state of competition in the video marketplace is strong and getting even better. It is clear that the marketplace is offering consumers what they want and will continue to do so.

If anything, the government should focus its investigations on examining whether laws and regulations on the books that were written long before the advent of broadband and digital television might hinder continued growth and innovation in the video marketplace.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth