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Unbundling US channels will change the face of TV

À la carte pricing push

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Comment US Presidential hopeful John McCain is pushing the idea of à la carte pricing to the US Senate.

À la carte is buying one cable TV channel at a time, rather than dealing in pre-set bundles, which often includes channels nobody wants. McCain says cable companies and the new breed of IPTV operators could have relief from national franchise agreements if they agree to the idea, which has already secured support from new FCC chairman Kevin Martin.

Previous studies of cable TV costs have suggested that à la carte pricing would mean "more" charges, not less for US cable TV customers, but this is now being seen as unlikely, or at least unproven.

In fact, the FCC has now commissioned a study that says cable costs would come down by 13 per cent if such choice was available to existing cable viewers.

Faultline believes that à la carte pricing is inevitable and, furthermore, that a shift towards it will eventually change the face of US TV as we know it, killing off hundreds of existing cable TV channels, and forcing them onto the internet, which can support services with far fewer viewers.

And if the US did not carry such a prolific number of TV channels, they could no longer be offered to the rest of the world, a move which would drive down the total number of TV channels dramatically.

Eventually this would shift the balance of revenue in US TV markets away from advertising and towards paid TV content with the likely result that more TV would become advertising driven by going onto the internet.

McCain is apparently even prepared to discount the five per cent local franchise fees which operators pay to cities and towns for the right to offer TV services.

This idea is not new, but this time it has a chance of coming into effect. The previous FCC chairman Michael Powell, was opposed to forcing the cable industry to unbundle its channels and chose to believe the research that presents it as money saving for the public.

The truth is that channel owners force cable and IPTV companies to carry channels they don't want, in the hope of reaching a wider audience and justifying higher advertising revenues on unpopular channels. The public has to pay for lots of channels it doesn't want because popular channels are deliberately bundled with weaker channels, which are often only watched by viewers flipping through channels.

It is likely that the RBOCs, which have a particularly powerful lobbying voice in the US Senate, not only want to get around the local franchise agreements, but also want legislation that takes the effort out of negotiating for the channel packages they want with content owners.

If this bill goes through it will kill two birds with one stone and dramatically differentiate IPTV services from cable.

McCain is expected to introduce the wording for this new legislation as early as this week.

Copyright © 2006, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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