FCC Media Bureau Releases Further Report On A La Carte Distribution Of Video Programming Services
Yesterday, the Media Bureau of the Federal Communications Commission released a “Further Report on the Packaging and Sale of Video Programming Services to the Public”, addressing the issue of a la carte delivery of multichannel video services. The “Further Report,” in finding substantial consumer benefits from the a la carte delivery of video programming, makes a remarkable 180 degree departure from the analysis and conclusions presented by the Media Bureau in a prior report submitted to Congress little over one year ago (“First Report”).
In the FCC’s First Report on a la carte, submitted to Congress in November 2004, the Commission addressed the efficacy of legislative and/or regulatory proposals that would require the a la carte distribution of satellite-delivered multichannel programming. The report recommended against any kind of a government-imposed a la carte mandate, and even expressed the view that such a mandate would harm cable operators, program networks and consumers. However, the First Report was prepared under the auspices of Ken Ferree, then-Chief of the Media Bureau, and Michael Powell, then-Chairman of the Commission, both of whom since have departed the Commission. The Further Report was issued by the Media Bureau at the direction of the current FCC Chairman, Kevin Martin, who has long been an advocate of “family tiers” of cable- and satellite-delivered programming, and who often has voiced his disagreement with the findings and conclusions of the First Report. Chairman Martin announced in November 2004 that he had instructed the Media Bureau “to take a more thorough look at the issue.” Not surprisingly, the Further Report supports Chairman’s Martin’s view that a la carte distribution “could provide substantial benefits to consumers by increasing their choices in video programming.”
Release of the Further Report has been greatly anticipated for months. Press reports have indicated that its release was delayed while attorneys in the Media Bureau explored the question of whether the FCC itself (rather than Congress) has the legal authority under federal law to require multichannel program distributors and/or program networks to offer services to the public on an a la carte basis. Tellingly, the Further Report is completely silent on this legal issue, suggesting that the Commission was unable to develop a defensible rationale that it has such authority under federal law.
II. SUMMARY OF THE FURTHER REPORT’S FINDINGS
The Further Report disavows the findings and conclusions of the First Report, deriding it as “an incomplete and flawed analysis.” More than half of the Further Report is devoted to criticism of the First Report and newly identified “errors” in a study prepared by Booz Allen Hamilton on behalf of NCTA (“Booz Allen Study”), on which the First Report relied heavily to support its conclusions. Some of the major findings of the Further Report include the following:
- The First Report and the Booz Allen Study relied upon unrealistic assumptions and presented biased analysis, including the assumption 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 Booz Allen Study failed to net out the cost of broadcast stations when calculating the average cost per cable channel under an a la carte distribution model. 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 purchase under an a la carte system while still achieving savings compared to the subscriber’s current bundled retail fees.
- The current industry practice of bundling programming services may drive up retail prices, making video programming less affordable and keeping some consumers from subscribing to multichannel video programming distributor services.
- For many popular networks, advertising and subscription fees might rise as viewers shift to those programming options.
- Some type of a la carte option could prove better than today’s bundling practices in fostering diverse programming responsive to consumer demand.
- A la carte could make it easier for programming networks valued by a minority of viewers to enter the marketplace.
The Further Report concludes that consumers could be better off under an a la carte regime, and identifies three “options” for a la carte distribution devised by the Commission that the Commission claims “merit further consideration.” The Commission stated that these “options are limited to channels currently offered in digital format.” These “options” include (1) “mixed bundling,” wherein MVPDs provide all digital networks on an a la carte basis in addition to bundles; (2) “themed tiers,” in which MVPDs offer tiers of related digital programming, such as children’s programming or sports programming; and (3) “subscriber-selected tiers,” in which subscribers have the option of purchasing smaller bundles than are currently offered and choosing all of the channels that go into the bundle.
The Further Report makes no specific legislative or regulatory proposals and, as discussed above, the anticipated discussion of the FCC’s legal authority to unilaterally impose such a mandate is glaringly absent. It is questionable how persuasive the Further Report will be given (1) the Commission’s abrupt 180 degree departure from its previous report issued little more than a year earlier, and (2) the failure of the Further Report to meaningfully address, or rebut, the findings of a 2003 report prepared by the independent U.S. General Accounting Office, which came to substantially the same conclusions as did the First Report.
Indeed, there is scant evidence in the record for many of the Commission’s new conclusions. The Further Report contains virtually no citations to, or analysis of, the voluminous comments that were filed by cable operators and program networks during the summer of 2004. The Commission made no attempt to “refresh the record,” nor was there even an open docket to allow further industry comment. While criticizing the First Report for its reliance on some of the assumptions contained in the Booz Allen Report, the Further Report itself is replete with unsupported assumptions, many of which in fact are contradicted by the realities of the multichannel video programming industry. Similarly, while proposing a la carte “options”, the Further Report provides no explanation of how such options could be implemented without causing chaos in the existing contractual relationships among program networks, multichannel program distributors and program producers.
Moreover, some of the Commission’s conclusions are flatly contradicted by the overwhelming weight of the comments in the earlier proceeding. For instance, program networks serving minority, niche audiences almost universally opposed any kind of an a la carte mandate in their comments, warning that an a la carte regime would strike a terrible blow to diversity in multichannel video services. Yet, the Media Bureau seized upon a single set of comments filed by a fledgling network to support its conclusion that such networks would benefit from a la carte distribution.
The Commission’s recommended “options” for a la carte distribution appear to have been devised in a vacuum by FCC staff and economists, without regard to the substantial testimony and evidence submitted to the FCC by actual industry participants. The Further Report fails to explain why multichannel distributors currently do not offer any of the Commission’s proposed a la carte options, despite their supposed “substantial benefits” to consumers, program networks and distributors alike, particularly in light of the vigorous competition among cable operators, DBS providers and rapidly-emerging telephone company providers.
It is doubtful that the a la carte issue will have any near-term traction in Congress, particularly since several major cable operators recently introduced “family tiers” of programming. Indeed, the MSOs’ recent inauguration of family tiers may have stolen much of the FCC’s thunder on a la carte. Nonetheless, proponents of an a la carte mandate surely will use the Further Report to attempt to advance their agenda on Capitol Hill, with the Parents Television Council and others continuing to argue for an a la carte mandate as the antidote to “indecent” television programming, and groups such as the Consumer Federation of America promoting a la carte as an answer to rising rates for multichannel services. The a la carte issue has shown surprising resiliency in Washington, and the Further Report has the potential to breathe new life into proposals that previously had been soundly refuted.
* * *
The 61 page Further Report can be found on the FCC’s website at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-263740A1.pdf.
Please contact us if you have any questions about the Further Report or about the a la carte issue generally.