Most cable television companies currently require customers to subscri

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

samusa · Accepted Answer

Between choice A and C , choice C looks correct.

This is an evaluate question.- Whether the la carte menu  will reduce costs ?

The correct choice should pass the variance analysis test.

Analysis of option A-
Extreme 1 -the total number of channels offered to consumers  would decrease , along with programming diversity, as a result of the a la carte pricing structure-
 
But will the costs come down? cannot say....may be the channels offered are expensive or cheaper...

Extreme 2- the total number of channels offered to consumers  would NOT decrease , along with programming diversity, as a result of the a la carte pricing structure

Again the cost may come down because we do not know what channels will the subscribers choose-whether they will choose the expensive ones or the cheap ones...

So A is not the answer.

Analysis of option C-

Extreme 1-the vast majority of consumers  would greatly reduce  the number of channels purchased if given the option of purchasing them individually

So the consumers may choose channels to reduce the costs.- -  Cost may come down.

Extreme 2-the vast majority of consumers  would NOT greatly reduce  the number of channels purchased if given the option of purchasing them individually

So the costs may go up because they may have to pay more because under current package popular channels subsidize less-popular ones.-  Cost may go up

Hence , C should be the correct answer.

subrataroy0210 · Answer

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?

Government has to decide whether to require cable television companies to offer a la carte pricing in order to reduce consumer costs <- The Move

Fact presented:  under the current package pricing, popular channels subsidize less-popular ones, providing more options for viewers.

Therefore, if the customers subscribe to more channels than the number of channels they are presently subscribed to, then The Move will only hurt the customers because 
they will have to pay more as the channels will be offered in unbundled fashion, nullifying the subsidy.

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
 Yes: Not a strong evaluation point. Also, programming diversity looks like OFS. Therefore, won't look at the other extreme - No 
B. Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure
 Yes: Even if the revenue of the cable television companies increases, it won't matter as this point doesn't address the behavior of the cost to the consumer. 
 No: Even if the revenue of the cable television companies doesn't increase, it won't matter as this point doesn't address the behavior of the cost to the consumer. 
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. 
D. Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers
 Yes: Doesn't address the behavior of the cost to the consumer 
 No: Doesn't address the behavior of the cost to the consumer 
E. Whether a la carte subscribers would be required to have new television set-top boxes
 Yes: In case they have to, no information is provided how much the set-top box would cost. Maybe the amount saved from purchasing only the channels the consumers watch will cover the cost of the set-top box. Also, the set-top box is a one-time installation. So not a very strong evaluation point. Since this extreme is not strong enough, we won't go to the second extreme.

KarishmaB · Answer

Cable TV companies - Buy a package of channels (say one of 3 packages of 100 diff channels each). Cost of each package is $120
Consumer group - Allow us to buy channels individually. We will only pay for the channel we want to watch.
Cable TV companies - Popular channels subsidise less-popular ones so you have more channels to watch.

The question asks us this - what will help us evaluate whether buying channels individually will be cheaper?
So we have to specifically evaluate the cost angle.

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

We don't have to evaluate the diversity angle. We have to focus on whether a la carte will make it cheaper.

B. Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure

Advertising revenue is irrelevant.

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

If most people will greatly reduce the number of channels, they will end up paying less. If most people buy almost 100 channels (as in the package), they may end up actually paying more if popular channels do not subsidise the less popular ones. Hence, a la carte may not serve the purpose the consumer group expects it to serve. We do need to evaluate this point to find out whether a la carte pricing will reduce costs.

D. Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers

We need that which will help us evaluate the cost angle for consumers.

E. Whether a la carte subscribers would be required to have new television set-top boxes

A one time cost, until and unless it is very high, may not be very relevant if we get monthly savings.

Answer (C)

Bunuel · Answer

OFFICIAL EXPLANATION

Two points of view are expressed in the argument: consumer groups claim that a la carte pricing will reduce consumer costs, while the cable television industry claims that the current package pricing structure is most cost effective for consumers. If the goal of the government is to reduce the cost of cable television for consumers, it is critical for the government to determine which point of view is correct. The cable television industry favorably compares the cost of buying bundled channels to the cost of buying those same channels individually, but what if most consumers would choose to greatly reduce the number of channels purchased? That could mean that a la carte pricing would result in lower cable bills for those consumers.

(A) The government's decision is based only on the costs to consumers, not the number of channels available to them.

(B) The government's decision is based only on the costs to consumers, not the advertising profits of the cable television companies.

(C) CORRECT.  If consumers would not choose to order all of the channels they currently buy as part of a package subscription, then the cable television industries' claim that a la carte costs always would increase is faulty. If most consumers only watch and wish to pay for a few of their favorite channels, a la carte pricing could very well result in lower cable bills for those consumers. Consumers who want to purchase more channels could still choose the package subscriptions, so a la carte pricing would not harm them.

(D) The government's decision is based on only the costs to consumers, not the current purchasing agreements that exist between the cable television companies and content providers.

(E) The government's decision is based on only the costs to consumers, not the technical equipment requirements a change in cost structure would require.

TommyWallach · Answer

Hey All,

Lots of good conversation going on here, and the OA is already posted, so I thought I'd weigh in and do a comprehensive run through of this baby. It's an evaluate the conclusion question, which means we have to pay very close attention to just what we're being asked to evaluate.

Premises: A la carte = buy individ. channels. Bundled = more choices.

Evaluate: Should government force cable to offer a la carte  in order to reduce consumer costs ?

That question is very specific, and very different from what you might have expected (i.e. which of these options is cheaper?). Let's look through the answer choices through the lens of the evaluate question.

• 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
PROBLEM: We're supposed to evaluate whether this system will reduce costs, so we don't care about programming diversity.

• Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure
PROBLEM: We care about costs for consumers, not cable companies' revenues.

• Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually
ANSWER: If people didn't reduce the number of channels purchased, they couldn't possibly save money (and might even lose some).

• Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers
PROBLEM: Maybe if this information gave us some insight into costs, it could be useful. As is, we don't care.

• Whether a la carte subscribers would be required to have new television settop boxes
PROBLEM: This might not affect consumer costs (Comcast gives its boxes away free), so is useless.

Word up.

Hope that helps!

gmatexam439 · Answer

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 
 The argument doesn't talk about the reduction in the number of channels. Besides, channels won't shut down if a la carte pricing comes into picture. 
 
(B) Whether advertising revenue for the cable television companies would decrease as a result of the a la carte pricing structure 
 Advertising revenue is out of scope

(C) Whether the vast majority of consumers would greatly reduce the number of channels purchased if given the option of purchasing them individually 
 Correct. If the consumers do purchase fewer channels then the plan will be a hit else it will be a miss.

(D) Whether cable and satellite companies currently have the ability to buy channels individually from programmers and content providers 
 Ability of cable and satellite companies is out of scope.

(E) Whether a la carte subscribers would be required to have new television set-top boxes
 It is one time of cost that people shouldn't mind. Besides, it is out of scope

saman283 · Answer

VeritasKarishma

In option C, what if the consumers who are reducing channels in a-la-carte pack remove only less-popular channels? In that case we can't say that the cost will go down.

Shouldn't type of channels selected matter more than merely the number of channels?

KarishmaB · Answer

Note that type of channels do matter but the question is "Whether the vast majority of consumers would  greatly reduce  the number of channels bought..."
If one greatly reduces the number of channels, some variation in their pricing may not have much impact in any case. If instead of 100, you buy only 10 channels that you use, doesn't matter which channels you pick and which you drop. It is certainly unlikely that the cost of each of those 10 channels is 10 times the cost of each of the other 90 channels.
The wording of the option clarifies the intent.

VerbalBot · Answer

Automated notice from GMAT Club VerbalBot:

A member just gave Kudos to this thread, showing it’s still useful. I’ve bumped it to the top so more people can benefit. Feel free to add your own questions or solutions.

This post was generated automatically.

Most cable television companies currently require customers to subscri

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Critical Reasoning (CR) Questions

Most cable television companies currently require customers to subscri

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards