TV Channel Bundles and A La Carte

Multichannel video programming distributors (MVPDs) such as cable and telephone video providers acquire the rights to distribute TV programs they obtain from broadcasters under a set of regulations called retransmission consent. MVPDs and broadcasters negotiate the fees for the retransmission and the fees are recouped in the MVPD monthly charges to consumers.

The more popular channels a broadcaster provides, the higher the fees. The more subscribers entitled to see the channels, the higher the fees. Unfortunately, many of the broadcaster’s channels are of interest to very few consumers, but retransmission regulations do not limit the overburden of unpopular channels that broadcasters can bundle into the negotiations.

At this time, Dish TV and Tribune are in a very public scuffle over the price of retransmission consent. A lack of agreement led Tribune to pull its 42 local channels from Dish’s channel lineup. As an irritant, Tribune insists that WGN be bundled in with its channels. Dish does not want WGN included because it has fallen in ratings.

The loss of Tribune channels caused consumer dissatisfaction to rise, forcing Dish to offer Tribune binding arbitration and to pay in arrears for the retransmission fees that arbitration would identify. Tribune refused. During the back and forth insults that ensued, Dish found language that might degrade the reputation of its brand (i.e. “dishgusting” and “dishturbing”). Dish also accused Tribune of encouraging Dish customers to leave Dish and go to any other MVPD that has access to Tribune programming. Now Dish wants the matters settled in court.

Retransmission consent disputes are not new, but they are usually settled before the channels are pulled from subscriber’s access, and sending the matter to court begs for a protracted blackout for the channels. Others disputes have been handled better. For example, AT&T and its newly acquired DirecTV quibbled with Viacom which did not blackout channels before reaching a relatively long term agreement for terrestrial, satellite, and mobile retransmission access for its consumers.

Charter Cable and Univision are in a current retransmission consent dispute. Charter claims that an existing low-fee contract between Univision and Time Warner (which Charter recently bought) applies to Charter as well. Univision says the contract evaporates at the end of the year and Charter needs to negotiate for an ongoing contract. To settle the issue, Univision and Charter are going to court. Again the resolution may be protracted and could involve a channel blackout.

Aside from these ugly disputes and the occasional loss of access to channels, retransmission regulations are so lucrative for broadcasters that they undermine broadcaster’s willingness to give up spectrum for mobile wireless auctions – that increases the cost of spectrum by as much as one half trillion dollars and harms mobile cellular consumers.

When channels go off-air during retransmission disputes, consumers are short changed by the disappearance of channels they have paid to see. The practice of bundling channels also leads to consumer losses insofar as they are forced to pay for channels they don’t want. Many households would prefer to buy access to 5-10 channels. They might gladly dump consumer shopping channels, children’s cartoon channels, channels carrying 40-year old sitcoms, and yes, some would even dump channels dedicated to professional sports – in return for a lower monthly bundle charge.

MVPD operators usually resist a la carte offerings for consumers, claiming that negotiating once for a block of channels reduces the total fees that would be charged if the channels were negotiated separately. Likewise, they will claim that the fee per subscribed customer will be lower if all of the customers are subscribers. Those factors may be true, but they describe the average consumer, not the individual consumer. Technology and new competitors such as streaming providers will upend rigidity in the minimum block size of channels that consumers are permitted to buy.

Cable consumers are sometimes allowed to discriminate between what they want and don’t want for decades. Cable pricing differentiates themed premium tiers such as Showtime, HBO, Starz, and DirecTV’s Sunday Ticket. Cable operators also offer tiers of programming that differ by volume of channels. For example, ATT offers Digital Starter, Digital Preferred, and Digital Premier tiers with 140, 220, or 260 channels respectively. Each bushel of channels has the full mix of themes – sports, news, comedy, children’s, and drama programming. Consumers rarely face a genuine choice of a la carte channels.

The closest to a la carte choice comes in the streaming packages offered by CBS and by HBO. Their offerings are tight in theme – a handful of news and sports from CBS and HBO’s usual movies, a few personality-driven talk shows and occasional documentaries. Streaming packages such as Netflix, Acorn, HULU and Amazon offer a lineup of movies and already aired TV programs, along with a few original programs from Netflix and Amazon.

More streaming operators are expected, and in effect many will offer a single channel (e.g. PBS, or ESPN). That competitive pressure will encourage a la carte competition from cable operators. The process may be slowed by retransmission contracts already in place that forbid a la carte. The consumer’s role in this mission is to embrace the singleton channels they really want and to be unimpressed by large blocks of channels that are not worth watching.

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin