McCain Working on Cable a la Carte Legislation, Sources Tell BNA

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By Paul Barbagallo  


Sen. John McCain (R-Ariz.) is working on legislation that would encourage cable operators and satellite TV providers to offer their customers the option of paying only for individual channels, rather than a pre-set package, Senate and industry sources told BNA May 7.

While details about the bill are sparse, it aims to pressure the pay-TV industry into testing the a la carte pricing model, which is seen by some advocates as cheaper and far more desirable to subscribers.

According to sources, McCain staffers met with cable and satellite industry lobbyists on May 6 to brief them on the legislation, though the timing for introduction was still unclear as of late May 7.

When McCain does formally unveil the bill, however, it will undoubtedly be met with fierce opposition from the cable operators and satellite TV providers, who have argued for years that without the bundled model, programmers would charge substantially more money per subscriber per month, which would increase monthly cable bills.

Under the current system, cable and satellite companies such as Comcast Corp. and Dish Network Corp. pay programmers such as ESPN for carriage, and ESPN charges on the basis of total subscribers, whether those Comcast and Dish subscribers actually watch ESPN video content or not. If, for example, ESPN now charges Comcast and Dish $7 per subscriber per month to carry its programming, in an a la carte system that fee could end up being much higher. (If only 25 to 30 percent elect to watch ESPN a la carte, ESPN could decide to increase the cost charged per subscriber to an estimated $16 or $17 per subscriber per month to keep their revenue levels the same. The cable and satellite companies would then, in turn, pass on that increased cost to customers in the form of higher monthly bills.)

Meanwhile, many national advertisers are opposed to the a la carte pricing model because they would reach fewer potential viewers. If a subscriber only takes three or four channels, they would not be able to “flip around” the dial, scrolling through hundreds of channels, and thus they would not be exposed to some advertising campaigns. Currently, networks and programmers charge more for advertising on the basis of a big pool of subscribers, even if only some subscribers happen to be channel flippers.

From the programmers' perspective, the current system also provides wider exposure. In an a la carte system, some smaller, niche channels might be forced off the air; if only 5 percent of subscribers or less elect to subscribe, the monthly cost per subscriber would be too high to sustain.

But supporters of the concept of a la carte pricing point to the success of “over-the-top” video providers, such as Netflix Inc. and Hulu, which use the internet to bypass traditional pay-for-TV control points and deliver programming “over the top,” i.e., generically via a consumer's broadband connection, rather than on existing cable or satellite systems.

Online video has changed TV watching habits; increasingly consumers want to watch what they want, when they want it, and where they want it. The traditional pay-TV industry should work to accommodate consumers, advocates say.

Still others view a la carte as a way to loosen the stranglehold that programmers have over the broader entertainment industry.

McCain's bill will come nearly seven years after the senator introduced a measure titled the “Consumers Having Options in Cable Entertainment (CHOICE) Act of 2006” as an amendment to an omnibus telecommunications bill (S. 2686), which failed to advance. Under that 2006 proposal, cable operators offering a la carte service would have been afforded a national cable franchise, reduced right of way fees, and a streamlined, more tax-friendly definition of “gross video revenue.”

His new proposal is expected to offer different incentives, according to sources.

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