Eisenach and Thierer Find That A La Carte Regulation for Cable Programming Would Make Consumers Worse Off

July 14, 2008

Criterion chairman Jeffrey Eisenach and Adam Thierer of the Progress & Freedom Foundation find that despite lawmakers' good intentions, a la carte regulation of cable programming would likely leave consumers and families worse off than they are today in their new article, "A La Carte Regulation of Pay TV: Good Intentions vs. Good Economics," which was published in the Federalist Society's journal, Engage.

Competition in today's pay TV marketplace is growing, resulting in more choice and increased quality for consumers. Given this observation, what is the case for regulation?

Proponents of an a la carte mandate suggest that they can improve on the market in two primary ways. First, since people would no longer be forced to pay for channels they do not watch, they would pay less for cable television. Second, since people could choose not to buy certain channels, they would no longer be forced to subsidize programming (particularly "racy" programming) of which they disapprove. Neither claim withstands scrutiny.

First, bundling, as opposed to a la carte, provides a means for cable channels to expand their distribution, thereby increasing advertising revenues (and defraying costs that would otherwise be passed on to consumers in the form of higher subscription fees); it allows consumers to sample cable channels, thereby reducing marketing costs; and, it reduces transactions costs by avoiding the need for cable operators to constantly add and subtract channels from individual consumers' feeds.

Second, the "good stuff" that proponents wish to promote with a la carte regulation is not likely to survive under such a system. Most family-focused/children's networks, female-oriented channels, and religious programmers oppose a la carte for this reason. They understand that their programs attract only a small subset of the overall universe of viewers. If their networks are not bundled alongside other channels, they might disappear entirely. Additionally, many of the channels lawmakers want driven off basic cable, such as MTV, are among the Top 20 cable networks and will likely continue to do just fine.

From a policy perspective, a la carte regulation is worse than a solution in search of a problem; it is a problem waiting to happen. As prices rose and programming became less diverse in the wake of an a la carte mandate, policymakers would find themselves besieged by consumers and interest groups demanding yet another "solution." Perhaps they would frankly admit error and reverse course, repealing the misguided policy they had so recently put in place. On the other hand, it is just as possible that they would proffer still more regulatory solutions—price controls, for example—which would be politically attractive on the surface, but equally flawed in their underlying economics. No doubt the new rules would also be motivated by the best of intentions.

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