FCC Sees 'A La Carte’ at Wholesale

Major suppliers of pay TV programming would need to let cable and satellite operators opt out of packages and buy channels on an individual or a la carte basis, under a proposed regulation endorsed by Federal Communications Commission chairman Kevin Martin.

Martin, a Republican, is backing an approach that he claims will take pressure off cable rates. Consumers are paying more and more for cable, Martin said, because cable and satellite providers are forced by programming providers to purchase more channels than they actually want.

“I believe that if a cable operator only wants one channel, it should not have to take 10 or 20 channels in order to get that one,” Martin said in a Sept. 11 statement.

The FCC launched the rulemaking just a few weeks ago, meaning the agency is still many months away from adopting formal rules.

Spurred on by longstanding complaints by small cable operators, the FCC is taking direct aim at the program-marketing practices of NBC Universal, The Walt Disney Co., News Corp., Time Warner Inc. and Viacom.

The rulemaking is expected to involve not just the bundling of cable programming. It also will look at whether the Big Four networks demand carriage of too many cable networks before they agree to allow retransmission of their local TV stations.

Martin’s proposed rule takes the FCC in a new direction in the cable a la carte debate. Until recently, Martin focused on ways to empower consumers who wanted to purchase channels individually in lieu of bundles. The emphasis now is on the wholesale market, where contract terms regarding price, tier placement and an assortment of tradeoffs are kept firmly under wraps.

“I want to make clear at the outset that I am concerned about the [FCC] venturing into what has long been squarely within the realm of the private sector,” said FCC member Robert McDowell, a Republican who has tried to curb some of Martin’s interventionist tendencies.

National Cable & Telecommunications Association president Kyle McSlarrow said he didn’t expect dramatic change from the FCC, in part because the FCC has little authority to force wholesale unbundling.

“I am confident that we can make the case that the system we have today works very well for the customers,” McSlarrow said.

The scope of the rulemaking won’t be known until the agency releases the official document. For example, it’s not clear whether cable operators would need to retail programming a la carte in order to license it in that fashion.

FCC regulation may not be necessary or even fulfill the goal of restraining retail cable rates, some experts said.

Robert Crandall, an economist with the Brookings Institution, said competition to incumbent cable operators was growing and competition among program suppliers was robust.

“Now, the telephone companies are getting in the game,” Crandall said. “I don’t see any reason for the government to get involved.”

James Gattuso, a regulatory analyst at the Heritage Foundation, said wholesale unbundling would fail without FCC regulation of a la carte rates. Programmers could nullify the effects of an a la carte mandate by ensuring that their per-channel prices yield the same revenue as their bundles, he said.

To stop that from happening, the FCC would need to impose “a sort of common-carrier regime for Hollywood,” Gattuso said. “The FCC suddenly would be comprehensively regulating an entirely new field.”