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Democracy and Technology Blog The Internet IS “a la carte”

Yesterday at a Senate hearing on media decency FCC Chairman Kevin Martin announced his support for “a la carte” cable TV pricing. In other words, pay for and receive only those channels you watch. Don’t waste money on unwatched content. Choose only family-friendly channels and block violence and sex. Or vice versa, for some, I suppose. Who could oppose such common sense?
Martin’s a la carte endorsement reverses former chairman Michael Powell’s view that a la carte pricing economics wouldn’t work for cable TV companies and that it might actually hurt consumers by raising their cable bills. Martin, previewing a new, revised FCC study, offers some compelling evidence that last year’s FCC study was wrong about the economics and the impact on consumer bills.
But all of this is beside the point. In a market moving as fast as communications in general (and video in particular), is there really any reason to believe one set of FCC economists who say consumer bills will rise 2% versus other FCC economists who say bills will fall 2%?
At least two surging forces moot this debate: First, the Bell telephone companies have begun offering video services over new fiber networks and over the next five years will invest many tens of billions of dollars to stretch optical nets into homes and businesses across the country. A third major video service provider will thus have entered the market, adding further competitive pressure to the already fierce battle between cable and satellite. Prices will go down. Performance and value will increase.
The second major shift affecting this debate is a little thing called the Internet. Chairman Martin and other policymakers say they want consumers to have choice. The Internet has more choices than any medium in history. You get what you want, when you want it. There aren’t 500 channels, but millions of content options, which increasingly will be not just words but rich video entertainment, sports, news, and education. Anything you can dream up. The Internet is a la carte.
Moreover, because of the Net’s digital nature, blocking technologies used to keep children from the Net’s admittedly large pool of rot and filth will continue to advance in sophistication and effectiveness, and will be far more dynamic in adapting to the Net than a rigid mandate from Washington.
The cable industry has reacted with predictable hesitation, saying Martin’s new study is wrong. The cable industry is right to oppose any government efforts to mandate new business models or technologies in this arena. Congressional “fixes” are only likely to cement in place cable’s current dedicated channel line-up and retard new business models based on the explosion of digital content and the new reality of abundant, rather than scarce, bandwidth. Cable is wrong, however, to take a reactionary stance in some naive view that they can perpetuate the current business plan for too much longer. The Internet and the new Bell optical nets are going to force major change on the cable business model long before Congress or the FCC get around to legislative or regulatory mandates. Cable should get ahead of the curve and leverage (1) its massive lead in broadband infrastructure (a gigabit running into 85% of American homes, today) and (2) its customer relationships, before it is bowled over by Yahoo!, GoogleVideo, Movielink, NFL.com, tens of thousands of digital content producers around the globe, and big new Bell bandwidth.
One more point: Just because the Internet is in general a la carte does not mean there won’t be all sorts of bundled services on the Net. Whether old economy or new, bundling and unbundling products and features, and deciding what and how to price those offerings, are some of the most fundamental decisions any business makes. They are complex choices and not always obvious. Maybe I would like to pay only for the sports section of the newspaper, but Washington does not mandate that option. Similarly, I pay for a whole subscription to The Wall Street Journal online edition, even though I might not use all its features or read all its stories. The Internet will increase the possibilities for more granular transactions, but there will still be many bundles. Business executives have enough trouble deciding what their actual products and prices are. Policymakers who pretend they can do it better are in way over their heads.
-Bret Swanson

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.