EI Special Consultant Bruce M. Owen finds flaws with FCC report on Cable a La Carte.

A new study conducted by Dr. Bruce M. Owen, working with Economists Incorporated staff, challenges the methodology and conclusions of the February 2006 Further Report on the Packaging and Sale of Video Programming Services to the Public (“The Further Report”) by the Federal Communications Commission. In an earlier 2004 study, the FCC found the average household would pay between 14 percent and 30 percent more to receive the same channels under an a la carte system. The Further Report argues that it “may” be in consumers’ interest to force a la carte.

According to Dr. Owen’s analysis, however, the Further Report’s findings are flawed. According to Dr. Owen, “It would be a mistake for regulators to use that document to guide policy. Bundling of goods or services is a universal marketing practice. Nothing that the FCC has presented in the report leads me to believe that their initial 2004 recommendation against a la carte should be reversed. In fact, the report does not even consider the impact of a la carte on the diversity of programming and viewpoints available to consumers. Mandatory unbundling of video services will reduce the diversity of programming available to viewers, undermining a policy goal that has been critical to the FCC and Congress for the past half-century.”

Dr. Owen concludes that the Further Report cherry picks selective hypothetical examples to merely assert that some consumers may be better off with a la carte, but does not analyze the likely effects on consumers as a whole, which he believes would almost certainly be negative, or the fact that many consumers would have to pay more.

The study found that the FCC’s potential reversal of its position invites disastrous increases in the costs of producing and distributing video programming, threatens to reduce the global competitiveness of the television and motion picture production business — one of America’s strongest export industries — and virtually guarantees price increases and reduced program diversity for millions of American television viewers.

The study also found that a la carte will create a massive new set of market interventions with effects in a broad swath of the American economy. Such intervention is certain to produce all the usual attendant bureaucracy, inefficiency and market distortion that attend price controls and regulatory systems, including in this case the likelihood of federal regulation of network and program content. The Commission’s report does this without analysis of the costs of such a regime or the impact on any part of the economy.