In places where convectional antennae could not reliably receive TV signals, cable system technology was developed to transmit local television feeds. Users of this technology receive television programming via coaxial or fiber optic lines. Most television programming are divided into tiers. A tier is a set of television channels or collections of shows that are included in a specific bundle on the local cable network. Basic cable tiers, standard cable tiers, and premium cable tiers are the three main cable tiers that cable providers often offer. Basic tiers entail large number of channels like local network programs, educational programs and government programs that can be obtained free of charge or at a low. Standard tier is more expensive than basic tier since more specialty channels in different genres is added to the package. Some of the channels added are MTV, Nickelodeon, Cinemax, Showtime, Discovery, and Disney Channel. In addition to basic and standard tier programs, there are other channels covered in premier tier that requires additional payment. BBC America, The Science Channel, and ESPN are examples of premier channels. Pay-per-view channel is also part of the premier tier where one pays only for the specific program that he wants to watch.
Network operators use bundled-network approach to build cable packages where consumers have access to numerous programs. This means that one subscribes to a cable tier that includes several channels including programs they watch and those that they do not watch. This has been a cause of disagreement between consumer advocates and cable network providers. Police makers and consumer activists are advocating for ‘à La Carte' approach where consumers have the option of choosing the programs they want and pay for them. Since a large fraction of networks offered by traditional approach is never watched, I think service providers should embrace a more flexible approach like a la carte method where customers receive only programs that they prefer and are ready to pay.
PROBLEM WITH TIER CABLE
In the late 1940s, the need to introduce television services in poor over-the-air reception areas like rural and mountainous arose leading to emergence of cable television. Cable system picked up so well and by 1970s, it stated to compete with free over-the-air television by offering new services such as HBO, Showtime, and ESPN. Today, cable television occupies the biggest percentage of the subscription market, which entails satellite service, cable television, and other methods used to offer video services to citizens. Today, cable network operators must meet certain set rules concerning which broadcast channels they must carry. Additionally, there are set rules that operators must follow before obtaining rights to carry programming that is not necessary. The transmission consent provisions used today were first initiated in the 1992 Television Consumer Protection and Competition Act. The core objective of the cat was to address competitive imbalances issues between cable providers and local broadcast television licensees. Prior to the enactment of the ACT, cable companies were characteristically the main providers of multi-channel video programming distributors (MVPD) service. Congress were concerned that cable providers were penetrating television households at a faster rate and progressively competing with over-the-air broadcasters. Therefore, the Congress implemented a must-carry system that demanded cable system providers to carry all local broadcast stations within their cable television system. Broadcasters were also provided with the choice of discussing retransmission consent compensation with the operators. Therefore, broadcasters who had the capacity to extract compensation from cable operators were allowed to do so. Broadcasters with insufficient advantage were also able to invoke there must-carry rights. The chief aim of these options was to ensure the economic viability and accessibility of local television, and thus be in a position to meet effectively the needs of viewers.
Cable operators are required to obtain rights from various sources before providing programming to their clients. Operators get their revenue by charging their subscribers a fee before receiving cable channels. The approach used by most cable providers to provide service to its subscriber is bundling. According to Gruenwedel (2017), bundling is not a new concept and is applied by different companies around the world. For example, bundling approach is used in restaurants, automobile trim, gym, computer software, and non-TV programming like HULU, and Netflix. When cable providers use bundling approach, subscribers get channels in a package form rather than choosing channels of their choice. Another approach used is a la carte where products or services are sold as individual components.
The subscriber chooses from the various tiers offered by different providers. Cable tiers mostly available are basic tier, standard tier, and premier tier. Basic tier contains local channels and a few networks offered by the service provider (Gross, n.d.). One can obtain get channels that suit their test at an extra cost. These channels are found in a standard tier and include sports, movies to sexually overt programming. Another tier is premier where extra channels with much detail can be accessed at an added cost. Consumer activists and some FCC commissioners have been advocating for a la carte pricing that permits subscribers to pay only for the networks they want to watch.
HOW IS FCC REGULATING THE CABLE COMPANY
Various regulatory regimes existed prior to the Cable Act of 1992. Prior to 1984, prices of cable network were controlled according to policies put in place by regulatory body in a system’s franchise are or local municipality. However, the Cable Communication Policy Act of 1984 freed cable service operators from rate regulation as long as citizens were supplied channels under operatively competitive conditions. Prices of cable network raised more than two times the rate of inflation due to lack of viable competition in most markets. Six years later, Congress re-regulated the industry. The 1992 Cable act demanded that FCC design regulations that will ensure that basic cable network service rates were reasonable. In 1993, the commission implemented a benchmark approach that controlled prices in markets without effective competition that reduced all basic cable rates by 17 percent. The addition of low penetration systems in computing benchmark rates resulted in price inflation since smaller systems charged higher rates and provided fewer sizes than firms facing real competition. Therefore, the commission revised its approach and considered a competitive differential approach for each of the three groups of systems (Trager et al., 2014). The 1996 Telecommunication Act was enacted after realizing that there minimal evidence was available that showed the effectiveness of cable rates regulation. The aim of the act was to reduce the regulatory barriers for telephone companies and cable operators to enter into business of each other. By 1999, all rate regulation had ended except for basic tier in markets that lacked effective competition. By ending price regulations, congress anticipated that most cable operators would experience enough competition from multichannel video programming distributors and telephone companies.
Tier beneficiaries
Cable tier system tends to favor cable service providers. This is because the same tier can be sold to various people saving on time. Likewise, it reduces on the selling and marketing costs. Moreover, less technology is required in bundling as compare to a la Carte approach. On the customer’s side, cable tier leads to price inflation since consumers are forced to pay for the networks that they do not watch. This is based on the assumption that the customer preferences should come first, which promotes competition resulting in an improved customer service. Most customers would like cable operators to introduce unbundled approach in pricing of cable networks due to its flexibility. This will enable subscribers to pay for the channels they are interested in watching. According to GAO (2003), a household getting a cable tier that has 70 channels watch approximately 17 channels only. In addition, small-scale operators may benefit from this approach since it may alleviate the broadcast networks’ ability to obtain carriage agreements for their cable systems. However, cable operators are opposed to this move claiming that the approach requires technological upgrade. Today’s television only needs a cable wire to be connected to it for a subscriber to receive the type of tier she ordered. However, an a la Carte network will require an addressable converter box that facilitates the cable operator to unscramble the channels that the subscriber wants to watch. Cable operators argue that addressable boxes are expensive to install and the subscriber will have to pay a monthly payment. Moreover, more cable specialists and customer care staff were required to implement the approach.
Standards for pricing cable packages and what is included as being basic
According to Federal Communications Commission (2017), they are not in control of most rates charged by cable TV companies. State approved local franchising authorities (LFA) particularly city or county government regulates cable TV services. Cable companies are required to deliver a basic tier service, which includes local broadcast stations, government and educational channels before procuring any additional channels. Any basic tier service increase must be reviewed by LFAs to confirm if it reflects the programming cost. LFAs are not in control of standard and premium tier service rates. The cable company determines the pricing for these services. Likewise, cable companies regulate their pay-per-program services and pay-per-channel services. Moreover, they have the mandate to decide whether to offer a la carte options to its consumers or not.
CURRENT CABLE PACKAGES
What are tiers and what is pay-per-view
Tiers are groupings of programs offered by cable operators classified into basic, standard, and premium. Basic tier entails local broadcast stations like FOX, NBC, and CBS, education programs, and local government programs. Standard and premium tier are accessed at an extra cost and contains variety of programs such as BBC America, ESPN, MTV, and discovery. The tiers can only be accessed when one has paid a specified amount of money to the operator (Spectrum, 2017).
Cable Companies Pricing
There are various reasons cable companies offering the same service have varied prices. The key reason is non-competitive advantage where only few companies are available to provide the services. A community may have a maximum of two to three cable service providers. Lack of competition will not put any pressure on a concerned authority to put in place a standardized price hence cable operators deciding on how they will charge for their services. The length of time the company has been in existence also plays a big role in price determination. A recently established company may charge less for the cable tiers to attract customers while a company that has been in existence for a longer period may charge high since it has gained the customers confidence and loyalty. Furthermore, the number of subscribers or the size of the company will drastically affect the pricing of cable tiers. For example, Comcast Xfinity, which is the largest cable television company in the world and has many subscribers, offers over 140 channels at 49.99 dollars. On the other hand, Cox, which is the third largest cable company with roughly 6.2 million subscribers, offers over 380 channels at 64.99 dollars (Teran, 2017). Programming costs incurred by a particular cable company will also be considered when it comes to pricing of cable tiers. If the cost of purchasing programming from cable networks is high, then the packages will also be high (GAO, 2003).
Pay-per-view
Pay per view commonly known as a la carte, is a subscription approach where a consumer pays for a specific channel. The primary challenge faced by cable operator in offering this kind of service is determining the proper charges for the item ordered. Online music portals like iTunes apply this kind of strategy. Unlike video-on-demand approach where a subscriber at his convenience can access the event, pay per view program is aired to shown to everyone who has ordered it at the same time (Sharma, Tan, & Pereira, 2012). Cable operators use pay per view approach to offer sporting events such as professional wrestling, boxing, combat sports, and mixed martial arts.
Basic cable
In addition to local broadcast signals, cable providers also offer two broad categories of service, which are basic cable networks, and premium service. Basic cable networks are normally offered as part of a tier of services for a single monthly fee. Most basic cable carry advertising, therefore, they contain dual revenue stream. This means that one can get revenue from advertising and per-subscriber fees paid by the cable operators. Some basic cable networks can be packaged with transmitted local broadcast signals. Basic cable networks can also be classified into general interest and specialized. The general interest services may include various movies, series, and sports. USA, TNT, and the Family channel are some of the examples of general interest basic cable networks. This category also includes distant broadcast stations that are available off air locally and independent television broadcast stations that are distributed by satellite. Examples of superstations are WGN from Chicago, WTBS from Atlanta, and WWOR from New York. Specialized programming offered in the basic cable networks are ESPN the provides all sports, CNN and Headline News that offer news for twenty four hours, MTV and VH-1 that offers
An add-ons
An add-ons is an electronic hardware that one needs to receive non-antenna channels. It can be used in the place of cable TV/box. It is more efficient and offers various functionalities like additional channels and voice command. Examples of add-ons are Amazon Fire, Apple TV, Roku, and Chromecast (Koch, 2017).
Amazon Fire
Amazon Fire looks like a discreet stick that is plugged into a TV. It is used to access unique video channels and various gaming options.
Apple TV
The Add-ons contains various streaming options and offers mostly Apple services. It also has a voice control feature.
Roku
Roku contains more than a thousand streaming alternatives that include huge options like Netflix to several smaller options, which are mostly not charged. Some free networks are foreign films, documentaries, classic TV shows, and comedy. The hardware also contains features like headphone port and voice control. Roku has ‘hidden’ channels containing niche stuff and eerie movies that a subscriber can set up and share with other users. The add-on is divided into Roku Express, which can be purchased at roughly 30 dollars and Roku Premiere and is estimated at 100 dollars.
Chromecast
Chromecast is a simple add-on that allows one to share video from a cellphone/notebook to a TV.
CONCLUSION
Cable network came into existence after realization that some remote and mountaineering areas lacked adequate TV signal reception. Today, cable television is a key part of the world’s entertainment industry. It offers programs to its consumers on a weekly, monthly, or yearly basis. The cable industry has gone through a series of regulations and deregulations, and re-regulation after and before the 1992 Cable Act. Lack of competition has made cable tier rates to rise at an alarming rate. Therefore, FCC is required to put in place measures that will force the industry to lower their subscriber changes.
The cable deregulation act launched in 1996 caused cable tier prices to balloon three times faster than the inflation rate. The drastic price increase is attributed to lack of competition in the cable service market. Existing large companies do not compete with one another. Likewise, incumbent companies lack the infrastructure that matches the established companies hence unable to compete head-to-head. Available satellite television also lacks the capacity to put pressure on the cable companies that will aid in reducing cable rates.The Federal Communications Commission (FCC) successfully enforced merger conditions that prevented News Corporation from discerning against satellite and cable providers or bundling their most popular channels unfairly. However, the commission failed to address the issue of prices and all the cable service operators inflated their charges for cable tiers. FCC ignored the apparent problems by not enacting any vertical or horizontal constraints that will hinder these companies from inflating tier prices. If cable companies are still allowed the chance to decide on cable tier prices, they will prefer to offer their customers with basic, standard, or premium tier services since they make a lot of profit from them. On the other hand, the customers will be forced to dig deeper into their packets to meet the operator’s targets. One way of forcing cable service providers to lower their service charges is by empowering consumers by giving them a chance of choosing and paying for only those channels, they watch. By offering pay-per-channel approach or a la carte programming to its customers and combining it with any other tier unleashes the market power of the subscriber’s pocket book which aids in lowering programming costs.in addition, it intensifies incentives for programmers to offer quality fare to users. Moreover, consumers are given the chance not to pay for channels they find too expensive or offensive.
As seen earlier, some cable operators claim that a la carte approach requires them to invest in added technology hence will be expensive. However, while cable companies will be forced to make software upgrades inside the cable network to provide a la carte programming, most upgraded systems for digital cable would not need any new technology in homes of consumers. Another concern raised by cable operators about all a la carte approach is the diminishing advertisement platform where they normally get some of the revenue. They claim that people approach makes one to watch few channels meaning that few advertisements will be aired hence less revenue. Conversely, as people choose from a wider palette of selections of channels that suits their tastes, more TV viewership may be witnessed since they will be paying for the programs they want. Furthermore, a la carte approach gives a chance to advertiser to know in detail about their audiences and preferences. This allows them offer specific services to targeted demographic hence enhancing revenues. In this situation, programmers will be in a position to charge more and advertisers ready to pay more for access to the consumers because of the predilection shown by a willingness to pay for the programming. This result in win-win situation since it will lead to a more efficient advertisement that reaches a targeted audience.
References
Federal Communications Commission. (2011, May 18). Regulation of Cable TV Rates. Retrieved from https://www.fcc.gov/consumers/guides/regulation-cable-tv-rates
Federal Communications Commission. (2011, May 18). Regulation of Cable TV Rates. Retrieved from https://www.fcc.gov/consumers/guides/regulation-cable-tv-rates
GAO. (2003). Telecommunications: Issues related to competition and subscriber rates in the cable television industry. Washington, D.C.: U.S. General Accounting Office.
Gross, L. (n.d.). The Museum of Broadcast Communications - Cable Networks. Retrieved from http://www.museum.tv/eotv/cablenetwork.htm
Gruenwedel, E. (2017, March 27). Consumers Prefer 'à La Carte' TV Networks. Home Media Magazine.
Koch, B. (2017, November 20). Electronic add-ons provide more streaming options than you could ever watch on cable or satellite. Retrieved from https://www.csindy.com/coloradosprings/electronic-add-ons-provide-more-streaming-options-than-you-could-ever-watch-on-cable-or-satellite/Content?oid=5251376
Sharma, R., Tan, M., & Pereira, F. (2012). Understanding the interactive digital media marketplace: Frameworks, platforms, communities and issues. Hershey, PA: Information Science Reference.
Spectrum TV. (2017). What levels of TV service are offered? Retrieved from http://support.brighthouse.com/Article/Basic-Standard-Digital-Service-6809/
Teran, S. (2017, September 25). Best Cable TV Providers of 2017?Compare pricing, channels, and more. Retrieved from https://www.reviews.org/tv-service/best-cable-tv-providers/
Tjan, A. (2010, February 26). The Pros and Cons of Bundled Pricing. Retrieved from https://hbr.org/2010/02/the-pros-and-cons-of-bundled-p
Trager, R., Russomanno, J., Ross, S., & Reynolds, A. (2014). The Law of Journalism and Mass Communication (4th ed.). SAGE Publications.
