The Satellite Television Extension and Localism Act (STELA) is up for reauthorization before the end of the year. First, the Senate Commerce Committee needs to consider what the reauthorization of STELA is going to cover. Are they going to update the policy or just pass it through untouched? Choosing cronyism over innovation or investment, broadcasters are pushing for a quick reauthorization that does nothing to update this woefully outdated policy.
There are two strategies to stay ahead in a market. An entrepreneur can run a good company and develop a product that everyone wants to buy, sell their product at a reasonable price, and continue to innovate that product to stay ahead of competitors. Or, a corporate crony can use the government to change the rules of the market, hold down competitors using policy instead of competition, and use the increased leverage to force price decisions that a normal market wouldn’t bare.
Unfortunately, broadcasters decided in the 1990’s that cronyism was going to be their strategy when the broadcasters successfully lobbied for Congress to treat cable providers as monopolies.
From the 1992 Cable Act:
“Without the presence of another multichannel video programming distributor, a cable system faces no local competition. The result is undue market power for the cable operator as compared to that of consumers and video programmers.”
While more true in 1992 than today, cable providers were never monopolies. In fact, contrary to what the 1992 Cable Act stated, the cable or video distribution market is actually a good example of a competitive market in 2014. Since 1992 distribution is now happening over the air, from satellites, through cables, and over the internet. The recent innovations have been big, but cable providers have been on the frontier of entrepreneurship since the middle of the 20th Century. Starting as early as 1948, cable companies started to distribute broadcast content to households that couldn’t receive broadcast signals. From that point cable started proliferating and by 1992 over 60 percent of TV owning households used a cable provider.
Broadcasters were quickly losing control of the distribution of their product. Clinging to their dying distribution model the broadcasters made their deal with the devil. Broadcasters helped shape the 1992 Cable Act, which was later reauthorized by STELA, to benefit themselves over their competitors. While the problems with the 1992 Act weren’t clear in the beginning, over the last 22 years the power has led to corruption of the broadcasting market. Broadcasters are now abusing their advantage. As an example of this increased abuse is that broadcasters have increased their use of programming blackouts — the public sign of a failed negotiation between a broadcaster and cable provider — dramatically in just the last three years from 12 blackouts in 2010 up to 127 in 2013.
The policy answer to this outdated system is simple, deregulate the broadcast and distribution market.
Government regulation is the leverage that broadcasters are using to keep their advantage. Broadcasters need to change their strategy, they need to push for deregulation of the distribution market. They should unleash the power of the free market. When people have choices, innovators win.
When innovators win, jobs are created. When jobs are created, the economy grows and more innovators can build a business — and then the process can repeat. However, broadcasters reversing their direction to prompt innovation in next couple of days is unlikely.
Since full deregulation of the market is a long shot, in the next couple of weeks the best available option is a proposal called “Local Choice.”
Senators John Thune (R-SD) and Jay Rockefeller (D-WV) have worked together to come up with the bipartisan “Local Choice” proposal which lets cables providers give their customers choices and removes many of the advantages that broadcasters were handed in 1992. “Local Choice” isn’t the perfect option, but it helps put broadcasters and cable providers on the same footing while also benefitting the consumers. Video distribution and information dissemination isn’t the same as it was in 1992. We all get our information in different ways, and we need to stop treating cable providers as monopolies and start promoting innovation.
However, Senate leaders have already decided to kick the can down the road another five years and have pulled “Local Choice” provisions from the reauthorization bill. Instead of doing nothing like the broadcasters want, Congress needs to figure out how to let the market grow and innovate. “Local Choice” could be a step in the right direction.
Charles Sauer is president of The Market Institute