The FCC has made waves by strongly suggesting that cable companies offer a la carte packages. On first reading this, I was quite glad. On further reflection, however, I have serious doubts as to the viability of this plan and the impact that it will have on consumers.

The first question, which hasn't been answered (and that itself may answer the question) is "What about satellite?"

Whenever I read cable, I also read satellite beside it in my mind because I have yet to actually be a regular cable company customer. The closest that I've come is the crappy cable apartment complexes have provided me. On the other hand, my folks have had satellite for some time, I've answered phones for a satellite company, and when and if the time comes for premium television, I'm going with the dish. So I may go back and forth between the two in this post.

When you go to a fast-food restaurant, most give you access to the fountains so you can refill your cup as many times as you would like. A person that refills his 20oz cup four times pays the same as one who takes his cup to go. This is, to be technically unfair. The one-cupper can walk away with the feeling like he paid for five cups of cola that he didn't drink.

But don't expect that structure to change any time soon. Truth be told, the restaurants pay a fraction of the $1.39 the customers do per ounce. The price difference between 20oz and 120oz is negligable enough that giving people the ability to refill is worth more important than the theoretical lost revenue involved. The key is not how much they spend on cola, but getting them into the restaurant to begin with. 100oz of cola isn't nearly as bad as the customer who goes to the next place over so he doesn't have to worry about saving his drink. Restaurants have such high fixed costs that often the most important thing is just to get people in there, not worry about making a profit for every ounce of cola consumed.

The point of the above paragraph is that different places use different models, and though they may seem counterintuitive at points, they are often the best option all-around. If it weren't, some competitor somewhere would likely offer a different model to make its customers happier. Cable companies don't have other cable companies to compete with, but they do have satellite companies to compete with (and the sats compete against one another) and they all follow the same model because it makes the most sense for them.

For them. But does it make the most sense for us?

To be honest, I really don't know. But I am extremely reluctant to push them into a business model they are uncomfortable with cause I think it will yield me better prices. The more I think about it, the less sure I am that it will. In fact, I'm inclined to believe that it in the end it will cost most people more.

As with the cola fountain, cable and satellite companies have very high fixed costs and low marginal costs. The fast food place spends very little on the coke and lots on the real estate, electricity, and so on. All cable companies have to do to give people more channels is decline to block the signal (and presumably pay the extra channels a fraction of what they get). But the problem is that they have to maintain the infrastructure which is costing them money whether it's used or not. There is an incentive, then, to use as much of it as possible by selling as many channels as possible.

It's not about selling people what they don't need. It's about efficiency.

I think that a lot of people have tricked themselves into believing that since they pay $40 a month for 70 channels, they will be able to pay $25 a month for 40. From the cable company's standpoint, however, they have to pay for the lines whether they have 40 channels or 70. It's not a matter of dividing the number of channels per dollar spent. It's more like buying 15 channels and getting the other 55 for free. I cannot imagine a la carte channels going for less than $2-3 a pop. The satellite company that I used to work for actually did offer a couple of channels a la carte... for the same price as it would take to upgrade from the 90-channel plan to the 120-plan. Thirty channels or one... same price. Interestingly, we were discouraged from mentioning the a la carte channels to customers that didn't explicitly ask for them. They preferred to sell them in a bundle with 25 or so other channels for $7-12 rather than a single channel for $2.95. To stress: it was a better deal for the company to give 25 channels at at <$.50 than set up a single channel for six times that.)

At $2-3 a pop, you don't even get 20 channels before you're paying as much as you presently pay for 70. That's not even accounting for a basic connection cost. Some people may benefit from this. One of my former roommates wanted cable solely so he could watch professional wrestling. Since he only wanted TNN/Spike, he would have benefitted. According to an informal Wall Street Journal poll, nearly a quarter say they only want 10 or fewer channels. I expect that most of them are not including local channels in that total (I don't recall a single customer call I took for the satellite company with someone that had the option of getting local channels but chose the rabbit ears to save money. I recall many complaining that they didn't have the option to forego the rabbit ears and pay more to get local channels. Presumably the local channels would not be as expensive as the cable ones cause they would be bundled as satellite did with local channels... oh wait, I forgot, bundling is bad). Half would be between 10-24, which sounds more reasonable, except that they would be paying roughly the same that they do now. Even those that would benefit, however, would be costing the company money and one doubts that those costs won't be passed right back to the customers (both those wanting more channels and less).

Of course, saving the customers money isn't the only reason for this. In fact, it's not even listed as the primary one. The primary reason is supposed to be to give families more choice over what goes in to their homes. It's not a bad goal, actually. However, it's usually possible to get certain channels and shows blocked. The company I used to work for had a host of features with which you could turn your big, bad satellite television into a rated-G playground if that's what you wanted to do (without additional cost). If cutting channels out of the lineup is the goal, it's not that difficult to do. Chances are it's one of the 55 free channels and you're not paying for it anyway.

Now cable TV is granted something of a monopoly due to reasons logistical, and as such government does have some right to make demands of them. However, I believe the above demand is a mistake for both company and consumer alike. I am much more amenable to the idea of forcing cable companies to offer different kinds of packages rather than just a different sum of channels. I could even be convinced in requiring that consumers be allowed to pick out which channels to get (say 50 picked channels or a 70 channel package). Maybe.

In sum, this strikes me as yet another example of consumers (and government) telling an industry "You don't have to do things the way you do them" or "you don't have to charge so much" or whatever with no risk to their own financial safety. It's easy to be a cavalier economist when you don't have to live with the consequences of a poor decision.