Question

Most cable television companies currently require customers to subscribe to packages of channels, but consumer groups have recently proposed legislation that would force the companies to offer a la carte pricing. Subscribers would pay less, argue the consumer groups, because they could purchase only the desired channels. However, the cable industry argues that under the current package pricing, popular channels subsidize less-popular ones, providing more options for viewers. For this reason, the industry claims that it is always cheaper for the consumer to purchase many bundled channels than to buy them individually.

Which of the following would be most important for the government to determine before deciding whether to require cable television companies to offer a la carte pricing in order to reduce consumer costs?

• A. Whether the total number of channels offered to consumers would decrease, along with programming diversity, as a result of the a la carte pricing structure
• B. Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure
• C. Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually
• D. Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers
• E. Whether a la carte subscribers would be required to have new television set-top boxes

Answer 1

The correct option is C Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually

Yes: If the consumers reduce the number of channels purchased, then it makes sense to unbundle the channels.
No: Then it will only hurt the customers as they now have to pay more in the absence of the subsidy. Gov has to consider this.