By AMY SCHATZ in Washington and JOE FLINT in New York
Staff Reporters of THE WALL STREET JOURNAL
November 29, 2005; Page A3

Federal regulators are on the verge of suggesting that cable companies could best serve consumers by letting them subscribe to individual channels instead of offering only prepackaged bundles.

Federal Communications Commission Chairman Kevin Martin is expected to announce today at a Senate forum on indecency that the FCC will soon reissue its review of cable industry "à la carte" pricing with a wholly different conclusion. While the original report concluded that consumers would pay more for individual channels, the new one concludes they could pay less.

"This report will conclude that à la carte could be in the best interest of consumers," said an FCC official familiar with the revised report's contents. The report also finds that "themed tiers" of channels could be "economically feasible," the official said.

This is of concern for the cable industry, partly because it opens a new front in the government's efforts to impose indecency standards on cable and satellite providers. Until now, the cable industry has resisted suggestions from Mr. Martin and some lawmakers to voluntarily offer à la carte choices or set up a "family-friendly tier" of channels suitable for children. By suggesting that consumers won't necessarily pay more for individual channels, the report calls into question the cable industry's revenue model.

While the FCC can't force the cable industry to change its business model, its voice will add considerable weight to the debate and could embolden lawmakers eager to give consumers, particularly parents, more control over which television programming enters their homes

Aside from the technical challenge of offering hundreds of channels on an individual basis, cable programmers and operators say such a switch would raise costs and reduce choices for consumers. That's because, they say, pooling a group of channels into one cable package effectively lowers the cost of offering all of the channels.

Cable and satellite operators pay a monthly license fee to carry channels and pass along those costs to subscribers. The fees vary tremendously. Walt Disney Co.'s ESPN costs more than $2.50 a month per subscriber, while Time Warner Inc.'s Cartoon Network costs only about 15 cents.

Many subscribers without children might drop such offerings as Viacom Inc.'s Nickelodeon and Cartoon Network. To make up that lost revenue, channels aimed at children could have higher subscriber fees. And since advertising dollars depend on potential viewership, the end result would be that many channels would have less money to spend on programming.

In large part, the high costs of sports channels have led regulators to push for à la carte. Even some cable operators have taken issue with ESPN's high price. But the fear is that if a separate tier for sports channels is created, then other channels soon could be put on tiers. Mr. Martin has in the past been an advocate of a so-called family-friendly tier that would package such fare as Nickelodeon and the Hallmark Channel.

Earlier this year, Mr. Martin expressed concerns about the earlier report and asked the FCC staff to review it. The staff concluded that the original report relied in part on faulty analysis of data, according to one FCC official.

A year ago, an initial report concluded that consumers would save money on an à la carte plan only if they subscribed to fewer than nine channels. The average cable subscriber watches 17 channels, the FCC staff found, suggesting a rate increase of anywhere from 14% to 30%.

A spokesman for the National Cable & Telecommunications Association said the cable-industry lobbying group would have no comment until it had time to review the new report.

Mr. Martin's testimony today will likely find a receptive audience on Capitol Hill, where lawmakers have expressed interest in expanding indecency regulations to cover the cable and satellite industries.

Over the summer, the cable industry floated a proposal acquiescing to the federal government's interest in imposing indecency regulations on cable and satellite programming. It was the first time the industry had opened the door to such regulation, but a caveat included in the proposal -- that the industry would agree to indecency legislation only if the law didn't take effect until after the courts ruled on its constitutionality -- bombed on Capitol Hill.

A committee aide for Senate Commerce Chairman Ted Stevens (R., Alaska) said he "doesn't feel a legislative solution predicated on a court decision is the way to go."

Earlier, Sen. Mark Pryor went off on how he's "scared to death" for his kids to turn on the boob tube if he's not there to cover their eyes. A woman from the Christian Coalition just wrapped up comments about how she shudders for her country when she reflects that God loves only the Disney Channel.

And now Frank Wright, head of the National Religious Broadcasters, is running down exceptions to the First Amendment with a smile to his face. And when it comes to broadcast and media, "We're only talking about restrictions on indecency from 6AM to 10PM," he explains helpfully, adding that the rationale for the indecency standards in broadcast apply to cable and satellite.