Cable Comes Undone

The great television unbundling is happening-without government help.

Here's what the Federal Communications Commission (FCC) thought of cable television under the Bush administration: It was too expensive, too vulgar, and too limited in terms of service and choice—and the only solution was to change the way its product was sold, forcibly, if necessary.

From 2005 through 2009, FCC Chairman Kevin Martin waged a small war against the cable industry, arguing that increasingly expensive channel bundles restricted consumer choice and made it difficult for parents to police their kids' viewing habits. Cable TV packages were growing more expensive every year, and consumers had no options except to buy the whole bundle or nothing at all. Parents, meanwhile, had to either decline cable altogether or allow the increasingly violent and smutty cable lineup into their homes.

Cable, in other words, was buffet only. The way to fix it was to require cable companies to sell tiered packages geared toward families, or even individual channels; instead of a bundle, it would be cable a la carte.

From 2005 through 2009, Martin made the issue a priority. One of his first acts as FCC Chair was to order a report that reversed a conclusion by his predecessor at the agency which found that cable a la carte would increase cable costs for most consumers. Martin's report made the case for a la carte pricing, arguing that it would be cheaper and help smaller networks. For the next four years, he continued to voice support for a la carte pricing, and while he often framed his stance as mere encouragement, he also made it clear that he favored making a la carte pricing mandatory..

Under Martin's watch, cable packages and prices became an issue of pressing national importance, with multiple congressional hearings and interest group pressure campaigns. When Martin left the agency in 2009, an FCC brag sheet listed the Chairman's efforts to spur "greater choice in packaging and sale of video programming services" in his top eight achievements.

Thing is, Martin didn't have much success. When he left the FCC post, cable packages were bigger and more expensive than ever. Four years of agency agony had no discernable effect.

Six years later, the issue has been back-burnered at the FCC, if not dropped altogether. And yet the great cable unbundling is finally happening—without any help or prodding from the FCC.

Instead, the Internet has made it possible for individual channels to break away from the cable bundle, and for smaller, less expensive packages of channels and programming to be offered over the web.

In March, for example, HBO announced that it would make a standalone version of its popular streaming app, HBO GO, which is currently offered only to the channel's cable subscribers, available for a fee of $14.99 per month, even to those who don't have cable.

A month earlier, Dish Network, the satellite TV provider, started offering a low-cost package of channels, featuring ESPN and AMC, for online viewing for just $20 a month.

These new services may not seem like big deals, and at least in the short term, the impact will probably be limited. But they are likely to represent a turning point in the delivery of television programming. HBO, with its lineup of high-quality original programming, has for years been the single most desired channel on an individual basis, but has resisted calls for a standalone offering in order to preserve its lucrative deals with cable companies. ESPN, meanwhile, is in some sense the foundation of the cable bundle—a media behemoth that extracted $5 a month from every cable customer. 

With both ESPN and HBO striking out on their own, much of the rest of cable is sure to follow. The traditional cable bundle won't completely disintegrate, at least not for a while, but it will look more and more like one choice among many rather than the only game in town.

Meanwhile, more streaming video services and options are already on the way—most notably a 25-channel offering from Apple, expected to debut later this year. At the same time, original TV shows, which not long ago were the exclusive domain of traditional cable channels, will continue to pop up in unexpected places—like, for example, Sony's Playstation Network, which recently launched high-quality adaptation of the superhero crime comic Powers. These sorts of options, in combination with existing services like Hulu and Netflix, will, as The Atlantic's Derek Thompson recently wrote, allow people to cobble together their own little bundles, built to their own specifications, tastes, and price points.

The great unbundling didn't need government prodding to happen; what it needed was market demand and new technology. Indeed, if Martin had succeeded in his quest to mandate a la carte service, the most likely immediate outcome would have been higher prices for almost everyone.

The initial report that Martin ordered on cable bundling—the one reversing his FCC predecessor's conclusion that prices would rise, and the one which launched Martin's a la carte crusade—was eventually found to have been manipulated in order to reach a predetermined conclusion.

Internal agency emails uncovered during a 2008 investigation by the House Energy and Commerce Committee revealed that, although the economist in charge of the report initially concluded that cable prices would have been higher and small-network viewership lower under a la carte, he was explicitly directed by Martin's office not to reach that conclusion. As an email from Martin's senior legal counsel put it, "The conclusion of this report is supposed to be that a la carte could be cheaper for consumer." The agency's entire push, in other words, was based on a deliberately bogus report.

The saga provides a neat lesson about the difference between industry innovation and regulatory intervention. Given a chance, the market will give consumers what consumers want. Given the same chance, regulators will attempt to give consumers what regulators want.