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Where A La Carte Means Less Choice

PCCW Ltd. is the world’s largest provider of Internet protocol-delivered television service. Total IPTV subscribers: 549,900. Total paying subscribers: 391,000.

You might say the Hong Kong telecommunications company is the patron saint for all telephone companies who have rolled out — or wish to launch — television services using the Internet Protocol.

Hong Kong’s PCCW also is viewed as the patron saint for all who believe a la carte is a better business and political proposition than programming packages.

“It’s proving to be the killer application,” said PCCW chief financial officer Alex Arena.

But like beauty, smart business decisions and smart public policy on a la carte are in the eyes of the beholder.

DARK CLOUD LOOMS

PCCW’s a la carte experience, if extrapolated worldwide, would make billions of consumers happy — until many or most of the a la carte program choices they passionately covet simply disappear.

The not-so-great secret behind PCCW’s results is that, in a vacuum, its a la carte model isn’t generating enough video revenue to support the program channels it carries.

With all due respect to FCC Chairman Kevin Martin, you can’t pick one channel from column A and one channel from column B if there are no channels in columns A and B to begin with.

Let’s take a look at the numbers. PCCW is generating $14.59 per month in video revenue after nearly three years of offering a la carte service (see Technology, page 38) — one-third of what their U.S. counterparts take in.

Over time, more subscribers are choosing several channels at once, grouping cable networks in self-selected packages.

But while subscriber numbers rose 100% in the past year, video revenue from that subscriber base rose a modest 8.5%. And revenue growth, by percentage, is actually going down, not up, over that period.

ESPN alone costs $11 per month (in U.S. dollars) in Hong Kong. So if you subscribe to ESPN, you’re pretty close to the average amount any subscriber pays each month by subscribing to just one network.

An ESPN subscriber probably only purchases one other channel, if the average of $14.59 a month is any guide.

PCCW, though, offers about 80 networks. They must split that $14.59 a month in revenue — which equates to 18 cents per channel, per month, per subscriber. Say 33% of that 18 cents goes to PCCW. Each network gets 12 cents a month or $1.44 a year, on average.

There are only 2.2 million households in Hong Kong. But move the numbers here, multiply the $1.44 by 70 million homes — just for grins — and you get about $100 million a year in revenue for each network to work with.

Ask George Bodenheimer to run ESPN on that. Ask Judy McGrath to run Nickelodeon or MTV: Music Television on that. Ask Betty Cohen to run Lifetime Television on that. Ask Chris Albrecht to run Home Box Office on that. It isn’t going to happen.

Look, as a consumer, I’d like to pay less for a lot of things. That’s a no-brainer. And, it’s apparent that a la carte serves an important purpose for PCCW.

For the first time in three years, the telco has stemmed wireline phone losses as consumers sign up for its high-speed data service that delivers a la carte TV channels.

“Even if they don’t take any premium channels, the revenue we get from broadband lines has not gone down,” PCCW’s Arena said. “So they pay us something.”

A LOSS LEADER

Translation: a la carte, for now, is a loss leader.

And the company is now actively marketing program packages, including an all-you-can-eat 84-channel package for about $50 a month in U.S. dollars. Even for PCCW, a la carte may just be a moment in time, a starting point on the road to condensed, higher revenue program packages.

While politicians continue the a la carte debate in Washington, D.C., there’s a real-world example 8,147 miles away in Hong Kong. It’s an actual case study, not some a la carte analysis based on dueling sets of academic data reshaped like Play-Doh by bureaucrats to meet a separate political agenda.

And that case study reveals a pure a la carte world would ultimately result in less choice, not more.