In the 1992 Cable Act, Congress carved out special protections for traditional broadcast television networks in which pay TV and cable companies were either forced to negotiate compensation with broadcasters to retransmit what those broadcasters were transmitting free “over the air,” or, the broadcaster could opt for a “must carry” option in which the pay TV provider would be forced to carry the broadcaster’s signal.
While, in theory, this could be considered a “win-win” because the cable companies get programming and the broadcast channels get either compensation or exposure, the reality is that in a truly free market system, the cable company wouldn’t be mandated to carry any particular channels. Instead, they could choose to negotiate with whomever they wanted, and the consumer would simply be able to choose which channels he or she wanted to have delivered.
In creating the original “retransmission consent” structure, Congress intended to protect television broadcasters when negotiating with a monopoly cable provider in many markets. But much has changed since 1992. More than twenty years later, broadcasters have the monopoly while each television market is jam-packed with a diverse range of pay TV providers such as cable, satellite, and fiber — as well as streaming services such as Netflix and Hulu.
Despite all of these changes in the marketplace, television broadcasters continue to enjoy the same government protections. Broadcasters have become a de facto public utility where each pay TV provider is forced to negotiate in a marketplace distorted by government rules. Consumers are harmed with higher prices and blackouts while crony capitalist broadcasters enjoy the benefits of a system rigged in their favor.
Currently, there is a “Local Choice” proposal being considered in the Senate Commerce Committee. In it, there would still be opportunity for local stations to be carried on cable systems — but consumers themselves would be the ones opting to receive the channels (and the local television stations would be compensated accordingly). Finally, individual consumers could decide which local broadcast television stations they wish to include in their cable subscriptions. This proposal should be seriously considered, since consumer demand ought to be what drives the marketplace overall. Local Choice would inject real competition and consumer choice into a broadcast industry that is currently dominated by crony capitalism. This is a major step in the right direction as real competition could lower cable prices; not to mention end the combative negotiation structure that currently harms consumers with blackouts.
Free-market economists, when talking about the impact of subsidizing industries whose technologies are being eclipsed by the natural evolution of technology over time, like to talk about the proverbial buggy-whip industry of yesteryear.
The concept is straightforward — as the horseless carriage became the predominant mode of transportation in America, it wasn’t the buggy makers alone whose industry fell into decline. An ancillary impact was felt on those who made the whips that carriage or buggy drivers used to “encourage” the horses pulling those carriages.
If this were to happen today, it’s a safe bet to assume that the buggy whip lobby would be at full froth in the U.S. Capitol, touting the importance of maintaining this industry whose wares were obsolete, thus necessitating vast concessions from Congress in the form of either direct subsidy or legislative favor (probably both). Thus, an industry that the market is suggesting ought to fall into a place in the history books would be artificially propped up by the American people — and an entitlement is born.
Broadcast television obviously isn’t quite the modern horse-and-buggy. But televised entertainment (and television, generally) is constantly changing, constantly facing new technologies, and is facing tremendous pressures to adapt.
In certain regards, they have — producing programming that can compete with the HBOs, AMCs, and the streamed content of providers like Netflix. Yet broadcast television enjoys huge advantages created by government intervention in the marketplace (not having to pay for incredibly valuable broadcast “spectrum” for instance), and one of those advantages is up for debate right now.
One of the arguments used to perpetuate this situation is the concept of “localism” – the idea that the carriage of local television is essential to the ability of local residents to get news, alerts, and so on.
While that may have been true in 1992, much as the same way that buggy whips are obsolete, so is the concept of getting local news and emergency alerts from your local television station. Since the 1992 Cable Act’s passage, people have shifted toward getting their local news from the internet and social media, emergency alerts via their smartphones, and announcements from their schools via automated phone trees and emails.
Nobody was forced to buy buggy whips in order to prop up an industry that was being eclipsed by the automobile. Buggy whip makers were left to find new work, perhaps as leather upholsterers for car makers. Likewise, if networks and their local broadcasters want to compete with all of the other news, information, and entertainment sources out there in the marketplace, it is incumbent upon them to make their programming compelling enough for people to demand them — and not rely on arcane and outmoded government market engineering in order to make it happen.
Local choice is the right reform for 2014.
Andrew Langer is President of the Institute for Liberty.