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http://www.cato-at-liberty.org/a-la-carte-cable-and-the-economics-of-abundance/

A La Carte Cable and the Economics of Abundance

Posted By Timothy B. Lee On April 20, 2007 @ 5:24 pm In Telecom, I nternet & Information Policy |

Ars Technica reports [1] that FCC chairman Kevin Martin is once again pledging to force cable

providers to offer “a la carte” cable programming. I’ve found discussing this issue frustrating

because people have surprisingly strong intuitions about it. Indeed, with the possible exception of

“independence from foreign oil,” I can’t think of a single policy idea that is simultaneously so

wrong-headed and so popular across the political spectrum.

But it is wrong-headed. People have this intuition that when they sign up for cable, they’re

“forced” to pay for MTV to get Nickelodeon. Or conversely, that they’re “forced” to pay for

Nickelodeon to get MTV. They seem to imagine that if they could just pick and choose cable

channels individually, they’d be able to get the content they want and lower their overall cable

bill.

The problem with this line of reasoning is that almost none of the cost of providing cable service

to you is dependent on the number of channels you take. In economics jargon, cable channels

have close to zero marginal cost. Once the content has been produced and the coax has been laid,

it costs little or nothing to give every customer access to every channel in the bundle rather than

only certain channels. So if they stop sending you Nickelodeon, it doesn’t reduce the total cost of

providing you with your service. So why would you expect a price break?

Indeed, there are lots and lots of examples of bundled products and services that no one in his or

her right mind would demand be unbundled. For example, why am I forced to buy the sports

section with the business section in my morning paper? Why am I forced to buy evening and

weekend minutes with my cellular phone plan [2]? Why was I forced to buy a variety...