Unbundling Seen Hurting Cable

Television Digest with Consumer Electronics, July 27, 1998

Senate Commerce Committee holds hearing July 28 on increase in cable rates, and House Telecom Subcommittee Chmn. Tauzin (R- La.) is expected to outline legislation requiring cable operators to offer more choices of service and to expand program access rules. Study, "Unbundling Cable Programming Services and Cable Television Rates," by Economists Inc. of Washington, concluded that current bundling of program networks in tiers is efficient method of delivering services to consumers because it provides choice for viewers and saves money for advertisers and cable operators. Bundling also provides support for launch of new networks, contributing to program diversity, study said, saying that new services "benefit greatly from their association on the bundled tier with well-established networks. It is through that association that new services have the greatest opportunity to be sampled and hence to find an audience." Study said that program services that are part of bundled tier have highest success rate, noting that many formerly premium services have migrated onto basic tier, such as Disney, Bravo, Encore.

On other hand, unbundling would raise costs to consumers while cable operators could be faced with higher costs and lower revenues, study said. Any service offered individually probably would cost more than cable operators currently charge, it said, because cable network must take into account probable demand. Unbundled ESPN, for example, would generate less advertising revenue because casual viewers might drop off, leading to decisions to stop covering niche programming, report said. Costs for consumers probably would go up because of charges for adding and dropping networks and for additional pieces of equipment, such as set-top boxes or descramblers.

Report said that cable rates haven't increased sufficiently to justify more regulation. Cable operators subject to competition raised rates 8.7% between 1995 and 1996 and 9.6% between 1996 and 1997, study said -- roughly same percentage as cable systems that don't have effective competition. It also found that cable networks have increased spending for new programming, including rights to sports events and high-priced reruns of broadcast network shows.