FCC Continues Claiming Benefits Of A La Carte Program Choices, Criticizes Consulting Firm

The Media Bureau of the Federal Communications Commission (FCC) today issued a Further Report on the Packaging and Sale of Video Programming Services to the Public (the “Further Report”) on the issue of an “a la carte” model for delivery of video services. The Further Report finds consumers could be better off under a la carte and explores several a la carte options that could provide substantial benefits to subscribers by increasing their choices in purchasing programming.

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.

The Booz Allen Study significantly underestimated the number of programming channels that a subscriber could enjoy under a la carte while still achieving savings compared to the subscriber’s current multichannel video programming distributor (“MVPD”) fees. Indeed, correcting for this mathematical error, consumers’ bills decreased by anywhere from 3 to 13 percent in three out of the four scenarios considered in the Booz Allen Study.

In addition, the Further Report notes that, through the use of questionable assumptions, the Booz Allen Study may have further overestimated the costs of a la carte. The Booz Allen Study (accepted in the Media Bureau’s 2004 report) assumed that a shift to a la carte would cause consumers to watch nearly 25 percent less television, or over two fewer hours of television per day. The Further Report finds that there is no reason to believe that viewers would watch less video programming than they do today simply because they could choose the channels they find most interesting.

Finally, the 2004 report fails to mention that the Booz Allen Study shows that, even with the math error noted above, if a la carte were only implemented on digital cable systems with appropriate set top boxes in place, then a la carte could result in a 1.97 percent decrease in consumers’ bills.

The report can be found online at www.fcc.gov/mb.

posted by Consumer Help Web Editorial Team at 10:03 AM |