WASHINGTON -- Staffers at the Federal Communications Commission grilled cable industry reps Thursday about their opposition to letting viewers pick their channels individually, or "a la carte," expressing skepticism that it would destroy the economics of the industry.
Thursday's FCC symposium was part of the agency's research as it prepares to issue a report to Congress on the controversial a la carte model by Nov. 18. The House Commerce Committee requested the report earlier this year. Consumer advocacy groups have been asking Congress to look into why cable companies won't let subscribers pick the channels they want in their subscription packages instead of being forced into accepting dozens of channels they may never watch while still paying for them.
The FCC won't make recommendations to Congress, but its findings could determine whether Congress passes a bill to force cable companies to offer channel menus.
At Thursday's hearing, FCC staffers pounced when officials from consulting firm Booz Allen Hamilton presented a study (PDF), funded by the cable industry, that warned that a la carte would hurt cable networks.
"How rigorously have you tested the assumption that ad rates would go down?" asked FCC Media Bureau Chief Kenneth Ferree. "It seems like a somewhat irrational result."
Matthew Egol, a principal at Booz Allen Hamilton, told Ferree that "cable would be a much less attractive buy compared to other outlets."
Ben Golant, a senior attorney in the Media Bureau, pointed out that some start-up programmers and even some small cable operators seem to support a la carte pricing.
"I'm not too convinced that voluntary a la carte or themed tiers would be bad," he said. "How is it that your study does not reflect ... the feelings of very smart and astute business people?"
Indeed, Bennett Hooks, chief executive of Buford Media Group, a company that's buying tiny cable companies, said small rural cable systems would be willing to test a la carte if Congress would prevent programmers from requiring bundling of their content. Under these bundling arrangements, large media companies like Viacom and Walt Disney force cable operators to broadcast their less popular channels in exchange for the rights to broadcast their top properties, like MTV or ESPN.
"Let's give it a try," Hooks said. "Tying and bundling is killing this whole system. It's putting everything out of balance."
But Geraldine Laybourne, co-founder of the Oxygen cable channel, called a la carte "one of the worst ideas I have ever heard" that "would lead to more consolidation and fewer voices."
Michael Willner, chief executive of cable company Insight Communications, said he wouldn't have considered carrying Laybourne's network had she tried to launch in an a la carte world. "I would have thrown her out of my office," he said.
Consumer advocates, however, said other channels have been unable to get carriage.
"Ms. Laybourne is a drop of success in an ocean of utter failure," said Mark Cooper, director of research at the Consumer Federation of America.
The Booz Allen Hamilton study projected it would cost $17 billion to $34 billion to outfit cable homes with new digital boxes to enable an a la carte system. But Hooks said that's nonsense. Traps -- small electronic devices installed at customers' homes -- would suffice to enable a la carte pricing, he said. Traps are in wide use currently to block premium channels like HBO from basic cable subscribers.
"I heard comments that you need a box," he said. "That's ridiculous. You don't need a box. We can buy a trap."
But Willner said traps applied to so many channels would cause signal leakage and other problems.
"The more of these devices we put in line, they more capability there is for the system to break down," he said.
Consumer groups insist that simple digital routers similar to those already used for home networking would be a cheaper option.
"What we have here is a $500 solution to a $50 problem," Cooper said.
In its report, the FCC could highlight possible compromises such as test markets or "themed tiers" -- grouping of similar programming -- rather than full a la carte.
"The cable industry may have to select a compromise," said Margaret Smyth, a managing partner at consulting company Deloitte & Touche. "There would be some cost to it, but it would be a compromise solution in the political environment we're in right now."
