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Here's Why You Don't Want A La Carte Cable

By Daniel B. Kline – Updated Aug 22, 2018 at 6:18AM

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What seems likes a blessing may actually be a curse.

Sometimes the worst thing that can happen is getting what you want.

That's because on a lot of occasions it's the chase that matters -- the idea that you're pursuing something. When you actually have it, hidden downsides pop up, and you learn why it was hard to get in the first place.

That's the reason why kids wish they could eat all the candy they want and adults -- people who can actually do that -- choose not to (or at least don't do it very often). But as a child being allowed to eat only candy seems like something you really want. What you don't see is that after a meal or two, a chicken nugget or some mac and cheese would really be good.

A TV remote aimed at a flat-screen TV

Image source: Getty Images.

A la carte cable, or the ability to only pay for the channels you want to watch, seems like a good idea that's being denied to us by Comcast (CMCSA 1.34%) and Time Warner Cable (NYSE: TWC) and the rest of big cable. It is, but like getting to eat all the candy you want, a la carte cable packages may be better as an idea than a reality. Because, if we actually got the ability to make our packages of pay-TV channels only paying for exactly the ones we want, the unintended consequences would be enormous.

It's a system that supports itself
One of the hidden realities of the current cable world is that you paying for stations you don't want supports channels I may actually like and vice versa. From the smallest cable channel to the largest, stations make some of their money from carriage fees. This is money paid by cable companies including Comcast and TWC for each subscriber that gets a channel.

These fees can be huge for top-tier networks like ESPN, which in 2014 got about $6.04 per subscriber, according to The Wall Street Journal, down to fractions of a cent for obscure stations. This money props up the entire cable universe and it's a system built on the back of forced bundling.

In nearly all cases cable subscribers must choose from broad packages of stations. They may not want MTV2 or USA, but in order to get Spike and ESPN, they have to take them. This practice continues on higher tiers where I may want to pay more in order to get MSG Network so I can watch New York Rangers games, but I'm forced to buy a package which includes YES Network (New York Yankees) which I most certainly don't watch. (Go Red Sox!)

It may not be perfect and it most certainly makes cable bills bigger, which is good for cable providers, but it's also keeping a lot of channels alive. It also may make it so even though your cable package comes with a lot you don't want, it also may deliver more of what you do than a la carte plans would.

Why is choice going to hurt me?
Currently Walt Disney's (DIS 1.64%), which includes ESPN, costs the most money per channel and nearly all cable subscribers are forced to pay for it. If that became a choice, you would have to assume that some people would drop it, many because they don't watch sports, and others simply because of the price.

If half the cable universe opted out of ESPN then in order to make up its lost revenue the station would have to charge $12.08 per subscriber who stays or cut costs accordingly. Either scenario would cause a ripple effect that would lead to even more departing subscribers.

On a smaller scale the same would happen for every channel. A station like VH1 Classic often has less then 100,000 people watching, even a well-known channel, MSNBC, often has under a million. The people viewing those stations may be big fans, but would they be willing to make up the deficit caused by most of the cable universe opting out?

If forced channel bundling ends then many channels would simply disappear and others would either cost a lot more or have to slash programming costs.

Be careful what you wish for
While companies like Comcast, Time Warner Cable, and the rest, may be forced by the looming threat of cord cutting to offer more choice, complete a la carte cable would be a disaster. If we end a system where what I like and what you like mutually support each other, we're going to have a much smaller channel universe.

Yes, the current system is artificial, but it does lead to a much more diverse station lineup. Cable is already undergoing a shakeout due to falling subscriber numbers. That was why DIsney recently laid people off at ESPN and it will likely eventually cause some lesser networks to go dark.

More choice -- maybe in the form of skinny bundles -- would cause the same problems listed above but in a manageable way that would not cause dozens, if not hundreds of stations to go out of business.

Free choice and only paying for what you want would be great if only you had it. When it extends to everyone it causes more problems than it's worth. I want more choice, but I don't want you making choices that cause my favorites to go away. The current system is flawed, but it's probably better for most of us than a la carte would be.

Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. 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.

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