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MSO Lobbyist Group Defeats 'A La Carte' Bill

According to Pyramid Research, "a la carte" TV programming received a major setback in the U.S. market with the defeat of a bill proposed by politicians (led by Senator John McCain). The FCC said previously, a la carte TV will help decency efforts in broadcasting and bring down the high cost of U.S. pay-TV services.

By contrast, cable MSOs argue that a la carte programming would result in less choice and higher prices for consumers -- regardless of the fact that this has not been the case in other parts of the world where many consumers already have an a la carte pay-TV option.

Despite the setback, Pyramid Research Senior Analyst Ozgur Aytar expects a la carte programming to continue to be a major issue as U.S. telcos launch IPTV and seek to differentiate their service through pricing, bundles and content. A la carte programming would lower ARPU and significantly disrupt the cable business, much like mobile and VoIP have done for telcos � and that could level the playing field for telcos seeking to defend their viability.

While the U.S. cable providers have come a long way in diversifying their revenue streams by introducing additional services including broadband and voice, video remains their core business. Today, the cable market leader, Comcast, for example, derives 64 percent of its top-line from video services, primarily driven by monthly subscriber fees.

While its ARPU per basic video subscriber has been flat over the past two years, it was at a healthy $55 in 1Q06. Under the a la carte model (with the assumption that customers would subscribe to fewer than 20 channels on average), video ARPU could dramatically fall from Comcast�s current levels.

Examples from around the world support that assumption: Hong Kong�s PCCW offers Pay TV services on an a la carte basis and its ARPU is only around US$14, half that of its incombent cable rival iCable. Such declines in ARPUs could inflict serious damage to the cable operations� bottom line.

Even if they do not adopt the model, the existence of a la carte pricing in the market will likely lead to smaller and themed bundles that would naturally drive down ARPU levels. Indeed, upon PCCWs significant success with its a la carte pricing model, iCable responded with smaller bundles that led to lower ARPUs.

Telcos could possibly afford to generate such ARPUs to attract and retain customers and capture their data, voice, and mobile business, but cable companies do not enjoy that kind of flexibility with video. At least, not so far.

Offering content on an "pay as you go" basis can help accelerate IPTV adoption. The attraction of the a la carte model lies in its ability to drive market share in a competitive environment. In Hong Kong, a key driver behind the growth of PCCW�s IPTV service and the company�s increasingly successful conversion of its TV subscribers to Pay TV offerings (from 20 percent in 2003 to 60 percent in mid-2005) was PCCW�s per-channel pricing and its a la carte mini-packs.

There are certainly marketing advantages to the model. Most viewers only watch a limited number of channels on a regular basis and may respond well to only paying for those channels. From that standpoint, a la carte could be instrumental in driving growth.

Moral of this story: across the realm of the traditional pay-TV model -- this disruptive shift is imminent. The question is not if, but when it will occur. -- take the money wasted in lobbying, and use it more wisely (i.e. invest to innovate, don't pay to procrastinate).

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