IP Democracy: FCC Reports Shreds A La Carte Study

In a blistering critique more characteristic of a bare-knuckles political campaign rather than a dispassionate regulatory pronouncement, the FCC today issued a report on the a la carte sale of cable programming. As part of Chairman Kevin Martin’s push to get cable operators to sell channels on a network-by-network basis rather than in bundles, the report concludes that consumers are better off if they can buy channels on a one-off basis.

The conclusion is no surprise given Martin’s indecency-driven campaign to get cable to restructure its program offerings so that only family-rated programming ever makes it into the home. (For more on Martin’s indecency campaign see here and here). What is surprising is the unusual language the FCC uses in disparaging a study conducted by Booz Allen on behalf of the cable industry. This study was the cornerstone of the FCC’s earlier decision, under a Michael Powell-led Commission, that consumers would be made worse off under a mandatory a la carte regime.

In the press release announcing its report, the Commission accuses Booz Allen of errors, “bias” and unrealistic assumptions and uses locutions that are…well, downright nasty for this sort of thing.

The Further Report reexamines the conclusions and underlying assumptions of the earlier Media Bureau report on a la carte submitted to Congress in November 2004 (“2004 Report”). In particular, the Further Report describes a number of errors in the Booz Allen Hamilton (“Booz Allen”) Study that the Media Bureau relied upon to support the conclusion of the earlier report that a la carte is not economical. The Further Report finds that the 2004 report also relied upon unrealistic assumptions and presented biased analysis in concluding that a la carte “would not produce the desired result of lower MVPD rates for most pay-television households.” The Further Report identifies mistaken calculations in the Booz Allen Study, which was originally submitted by the cable industry for Commission consideration. Booz Allen itself acknowledges the errors, which other economists also have confirmed. The Further Report explains that the Booz Allen Study failed to net out the cost of broadcast stations when calculating the average cost per cable channel under a la carte. As a result, the Booz Allen Study overstated the average price per cable channel by more than 50 percent.

To the average reader the preceding passage may not seem out-of-the-ordinary, but having participated as a research analyst (admittedly on behalf of the cable industry) in countless FCC rulemakings and regulatory reviews, I know from deep experience that the Commission doesn’t usually throw this kind of mud at anyone, much less an independent research outfit.

The question is: why get so nasty? The FCC could have arrived at its conclusions that consumers are better off with a la carte networks without being so mean.

While Martin’s motivation for a la carte is spurred on by “family values” advocates, many of which hold religious objections to some networks that come bundled in cable packages, at least one religious network has already derided the FCC’s conclusions and contends that Martin’s underlying “values-based” objective won’t be achieved with a la carte.

In a press release, the Inspiration Network’s EVP of Sales Rod Tapp said:

A pay-per-channel system would not accomplish the removal of obscenity from television. It won’t even help sift out unsuitable programming for our families. On the contrary, it could represent the death knell for much of the wholesome programming available today from smaller independent channels like The Inspiration Networks.

Posted by Cynthia Brumfield on February 9, 2006 11:56 AM to IP Democracy