The current pay television structure has always been an artificial construct designed to benefit the cable companies at the expense of consumers. Now that the landscape has changed and technology has opened up options for consumers, the industry has turned to government to protect its dwindling franchise.
Congress has seemed eager to go along, protecting big business, sometimes ensuring your cable bill remains high. The Senate Commerce Committee passed the Satellite Television Access and Viewer Rights Act last Thursday. The act allows the major broadcast networks to be sent via satellite to about 1.5 million rural residents who can't pick up the stations with an antenna, The Hill reported.
That's good for those remote folks, but the passing of STAVRA was more notable for what it did not include.
The version of the act that passed dropped an amendment proposed by Committee Chairman Jay Rockefeller (D-W.Va.) and ranking member Sen. John Thune (R-S.D.) that would have allowed cable and satellite customers to purchase channels on an a la carte basis. The amendment would have ended the practice through which companies bundle channels, forcing you to pay for ones you don't want in order to get the ones you do.
It was a blow for consumers and a resounding victory for cable companies. Comcast (NASDAQ:CMCSA) was an especially big winner, as the company not only sells cable, it also owns channels that benefit from the current package pricing.
How does cable work now?
Under the current system, cable companies pay channel owners a fee to rebroadcast their channels. That fee can be substantial for channels that consumers really want, such as Walt Disney's (NYSE:DIS) ESPN, or it can come to just a few cents for niche channels. Under this arrangement, a company like Disney can leverage its popular channels to make the cable company carry, and pay for, the less popular ones.
Though there are sometimes battles between channel owners and pay TV providers over the terms of these deals, in general they have been good for both. Content companies get paid for channels very few people watch, and the cable and satellite services simply pass on additional costs, with a hefty markup, to consumers.
This system essentially creates a subsidy network in which certain channels survive because of so-called rights fees. That adds to the diversity of the channel lineup everyone gets, but it's starkly different from how most business operates in the United States. Most products, whether they be a grocery item or a creative endeavor, survive on their own merits. Otherwise we would have a music system where Beyonce records cost $30 so everyone who buys one also gets sent a copy of her sister Solange's latest, even though only a tiny percentage actually want it.
What did Congress do?
The Senate Commerce Committee elected to not even consider the proposal, which would have allowed customers to choose exactly what channels they want to pay for. The new rules would have let people have full a la carte pricing, including the right to not select the major broadcast networks, ABC (which Disney owns), CBS (NYSE:CBS), NBC (a Comcast property), and Fox (NASDAQ:FOX).
The rules would have paved a path to lower cable bills, as customers could have selected only the channels they watch. The reasons given for not including, or at least considering, the a la carte proposal were a little thin.
"It's too big a change to be swallowed," Rockefeller said, according to The Hill.
Rockefeller acknowledged to The Hill that cable industry lobbyists "just went crazy" at the idea of a la carte pricing, and he pledged to bring it up again.
For now, though, pay TV providers get to do whatever they want, and Congress remains a not-so-subtle ally in forcing higher prices on the American people.
Too many holes in the dam
While Congress holds back on pressing reforms because it's hard and it might anger cable companies, which presumably could cost them some campaign contributions, technology will soon make this legislation less necessary. The number of Americans who pay for cable or satellite services fell for the first time ever in 2013, according to research firm SNL Kagan.
That trend is likely to accelerate as millennials, who grew up using digital streaming services, elect to not pay for cable. It will also be aided by the increasing number of ways to watch properties, including live sports, through digital streaming services.
The pay TV companies know this future is coming, and a number are working on digital a la carte services. Until those products arrive or so many people cut the cord that the cable and satellite companies have to change on their own, it seems Congress is going to keep doing its part to keep your cable bill high and drive profits for cable companies.
Daniel Kline owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.