Cable indecency wars: Book III

In today's edition, the Parents Television Council responds. Plus: Why not everyone on the religious right is happy with the PTC's Cable Choice campaign.

You might want to print this one out.

Received on Tuesday:

This letter is in response to the Fortune Magazine article entitled: “Why a la carte cable TV is a nutty idea.” Simply stated, Marc Gunther’s column against Cable a la Carte is the Pot calling the Kettle “nutty.” Please consider a sharply different – but well-informed – opinion.

Mr. Gunther’s column begins with an analogy about the New York Times unbundling its various sections. This analogy is hopelessly flawed and misleading. The overwhelming majority of cable operators do not own or control the content on their system; rather, they are distributors. The Associated Press, Reuters, and Dow Jones do not force the New York Times to carry 100% of its wire stories every day; but this is, in essence, what the cable programmers are doing. If the Times determined that there was no demand for their Sports section, do you think they would continue to invest their resources in publishing one? Of course not. Likening the various newspaper sections of the Times to cable television would only be accurate if comparing it to the TV show lineup on any one particular network. A better cable bundle analogy would be this: If you want to subscribe to the New York Times, you must also subscribe and pay for the Daily News, the Post, the Village Voice, the Wall Street Journal, the Sporting News, Cosmopolitan, National Enquirer, and 40 other publications, most of which you do not want. And if your readers were forced to subscribe to 40 publications in order to access Fortune Magazine, but were told that their remedy is to throw the unwanted magazines in the trash, is that any remedy at all? This is what the cable industry is suggesting when they tell us how to block unwanted channels. We are still forced to pay them every month for the programming we don’t want. How does that serve any marketplace demand?

Mr. Gunther makes credible reference to the cable a la carte study performed by Chairman Michael Powell and its different conclusion, yet he fails to mention that Chairman Powell’s economic analysis was based primarily on research conducted by Booz Allen and funded – yes, funded – by Comcast. Is this the type of public interest effort we seek from our civil servants? You might also consider that Booz Allen has openly admitted to the flaws in its economic analysis. And speaking of disclosure, Mr. Gunther rightly discloses in his article that he writes for Time Warner-owned publications, yet he fails to mention that cable a la carte threatens a billion dollar annual revenue stream to Time-Warner. In the name of journalistic ethics, transparency and full disclosure, this omission is a gross disservice to your readers.

Mr. Gunther suggests that the government has no place inserting itself in the cable unbundling argument. But when huge corporate behemoths are forcing anti-competitive practices down the throats of consumers, how is it not the place of government to insert itself? And Fortune is a highly-respected business publication, yet the article postulates that a competitive marketplace would somehow increase prices. When in the history of open markets has competition resulted in higher, not lower, prices? He also suggests that if cable subscribers are unhappy, they can subscribe to a satellite service. This is logically bankrupt, as the network owners flatly refuse both cable AND satellite distributors from unbundling their networks. I cite Echostar CEO Charlie Ergen’s recent Senate testimony stating precisely this position.

The entire premise of the Cable Choice argument is that media mega-conglomerates force cable and satellite distributors either to carry all of their cable networks or to carry none of them. The corporate parents of the free, over-the-air broadcast networks own the vast majority of basic and expanded basic cable networks carried on most cable systems, and in order for a cable or satellite operator to carry the free broadcast signal they are forced – forced – also to carry the broadcaster’s cable networks. This means that there is no true marketplace at work. Under the current pricing scheme cable/satellite customers must underwrite dozens of networks that they may not want and that they may actually find offensive in order to get a few desirable networks. Yes, families can block unwanted networks, but they should not also be forced to pay a monthly extortion fee for the sexually explicit and heinously violent networks they do not want. That said, it is consumer organizations like the Consumers Union who have been the loudest voices calling for Cable Choice. Does Mr. Gunther suggest their argument is political and not economic? Dish Network (serving more than 10 million US customers) has wanted for years to offer unbundled subscriptions to their subscribers, but the network programmers refuse to allow them to do so. Likewise the CEO of the American Cable Association, representing over 900 cable operators across the United States, told Senator Ted Stevens at a hearing in Washington that they have been prohibited from offering Cable Choice to their customers because of the networks’ stranglehold. And while some conservative groups believe it is extortion for families to be forced to underwrite programming that is morally offensive to them, there are also liberal groups like Free Press who are equally outraged by an industry fleecing the public out of billions of dollars every year. It is unfortunate that your article paints this solely as a red-state issue.

The PTC and other proponents of Cable Choice have never suggested that consumers should be prohibited from purchasing bundled tiers if they want them; nor prohibiting cable operators from selling bundled tiers if they see a market for doing so. We only ask that customers be given a choice at picking and choosing – and paying for – only those networks to which they want to subscribe.

The only real opponents of Cable Choice seem to be those who financially benefit from the current economic structure which prohibits the marketplace from working. The public will come to understand this reality, just as Senator McCain, Congressman Deal, and a growing list of others have. It is unfortunate that – at least thus far – Fortune Magazine is keeping its eyes and its mouth closed to this.

Sincerely,
Tim
Timothy F. Winter
Executive Director
Parents Television Council

My response:

Tim Winter isn’t fooling anyone. He knows that “a la carte cable,” in theory at least, already has broad support among the public. That’s why the Parents Television Council has hitched its wagon to the phrase, along with fellow fringe groups Concerned Women for America and Donald Wildmon’s American Family Association. They, and only they, are the chief backers of FCC chairman Kevin Martin’s unilateral salvo at the cable industry -- which as somebody pointed out, was posted to the FCC Web site on the day the other four commissioners were traveling to Texas for a public meeting.

A la carte is a stretch for these conservative Republican groups, make no mistake. Semantically, it's tough to justify one of the most massive industry realignments in history on free market principles. As the president might say, it's hard work. But the PTC has already tried getting the public to back its indecency crusade through post-Janet Jackson letter writing campaigns. They haven't worked. In fact, thanks to a freedom of information request filed by Jeff Jarvis, we now know that practically every indecency complaint filed with the FCC in the two years since Nipplegate came from PTC members working off the same form letter.

So now, PTC is trying a different tack, and it's succeeded so far, at least in generating press interest and governmental action. But now it has to make Martin's shaky economics and might-could-may evasions stand up to wider scrutiny. Based on this letter from Winter, I wouldn't count on that.

At its college-civics-class heights, Winter’s letter lashes out at the 2004 FCC report that found a la carte would likely raise prices: “Chairman Powell’s economic analysis was based primarily on research conducted by Booz Allen and funded – yes, funded – by Comcast. Is this the type of public interest effort we seek from our civil servants?” OK, fine. Then how about the Government Accountability Office report which reached the same finding? Or the Bear Stearns analysis, paid for by Bear Stearns, finding “that prices would rise for consumers electing more than six channels”? As any diner knows, the only way you save money ordering a la carte is if you’re not that hungry.

There are lots of great ideas that don’t succeed in the political marketplace. A la carte cable is one of them, and yesterday I received another letter reminding me why it hasn't gone anywhere until now. It was written by Jason Wright, who’s president of the Institute for Liberty in Virginia:

Your Feb 10 blog “The Indecency Wars: Book II” is right on several points. However, TV Barn readers might be interested to know that, in fact, Rev. Jerry Falwell and just about every other religious broadcaster is very much OPPOSED to a la carte regulations. The reason is simple: a la carte (or pay-per-channel) regulations would almost certainly put religious broadcasters (and other niche-market broadcasters) out of business. [If you want to know more about the religious broadcasters' opposition to a la carte regulation, visit www.FaithAndFamilyTV.com]

The Law of Unintended Consequences has not been repealed.  A la carte regulation would probably do very little to the popularity or profitability of racier programming like MTV and VH1, but would cut hugely into the audience for wholesome programming like Discovery and religious broadcasts. The FCC, Congress, and indecency advocates should slow down, take a deep breath, and rethink what they are doing before they wipe out the best educational and wholesome programming that’s available today.

Perhaps just as imposing as the opposition of religious broadcasters is that of the top brass at Disney. The owner of ESPN is only able to fork over the big bucks for MLB, NFL and NBA rights because it knows it’s going to collect $2.60 per household per month times 85 million households.  In order to keep its stock price from tanking, Disney would need to raise the per-household rate for ESPN to keep covering its nut as subscriptions plummeted. So, if one morning it has 40 million subscribers instead of 85 million, zip, up goes the price to $6. And that’s in the most cheerfully optimistic scenario. As Bear Stearns analyst Raymond Katz noted in his report in December, it is "doubtful that some of those channels could retain the necessary distribution to preserve all of their equity value." Allowing for price elasticity, we must assume that ESPN would charge $10 to $12 a month in an a la carte world -- that is, what HBO charges. And speaking of HBO, it has only about 33 million subscribers with a much broader mix of programming than ESPN. Given the massive loss of revenues that would ensue, why wouldn't Disney fight a la carte cable as aggressively as it has fought efforts to move Mickey Mouse into the public domain?

And that's just ESPN. Fox Sports Net will hike its prices as well. You could probably still save a buck if you were a guy living alone, or your significant other just happened to enjoy sports as much as you do. But if she happens to like HGTV, Lifetime or SoapNet (another Disney property), I'm betting unbundled cable will be no bargain. And I'm betting Sen. John McCain, who is currently supporting a la carte cable, will diplomatically bow out once Joe Sportswatcher starts to push back.   

FCC chairman Martin’s report is oblivious to these economic and political realities. The report's Economic Appendix is a theoretical exercise conducted inside a hermetic realm of unfluctuating cable prices. For his part, Winter grandly assumes that consumers will be able to buy either tiered or a la carte cable, though there is no reason to think the existing system will hold together once Congress mandates a la carte. They don't call it unbundling for nothing.

Winter’s letter only underscores the weasely mode of discourse under which the backers of a la carte cable insist on engaging their opponents. (Consumers Union, which also backs a la carte, appears clueless to both the political and economic contexts of PTC's campaign. Kind of like a Wal-Mart shopper who couldn't care less where the cheap stuff is coming from.) But it doesn’t work that way in Washington. Unless the PTC, Concerned Women and American Family Association -- all noted fringe players in the public policy arena -- can come up with better material than one FCC commissioner’s tepid white paper, their plan will go nowhere.

The mystery is why a smart guy like Martin would spend the taxpayers’ money and waste his economists’ time ratifying such nonsense.

Comments

[FrankM]

Who says that per-channel prices will skyrocket once the market is forced to adjust?

Supply and demand will determine a channel's price. I think we'd see a rise to "free preview weekends" and "introductory offers" for channels that have suddenly lost their wide distribution.

The price of ZERO helps. Why do you think so many shopping networks are in your guide? They are offered for nothing, or even pay for carriage! Niche channels won't be forced out, they just won't get corporate welfare anymore. If they can't launch on investors' funds, they shouldn't exist!

I look forward to the day when I can just have my broadcast channels, Comedy Central and FoodTV. I'd even consider the corporate 'sister' channels should the bump in price not be too steep.

Once satellite and cable can offer me identical 'cherry picked' line-ups, the choice between the two will be based on access fees (STB rental) and customer service. Isn't this be where their business should be focused anyway?

Decent points all. Why, though, is Mr. Barnhart avoiding more meaty issues such as the utter cowardice and hypocrisy of TV MSMers in not showing the Muhammad Cartoons out of "respect" for Islam, yet routinely cheer on those who would desecrate Judaism or Christianity as "Free Speech".

Oh well, guess you can't get a moonbat to criticize his allies.

(I feel like this comment needs a translator....--AB)

[Tad Sketchy]

While we're unbundling the cable networks, what about the broadcast networks? Will the deregulation extend to allowing the local affiliates to charge for carriage, something they've apparently longed to do?

(On the bright side, if local PBS affiliates start charging a monthly fee maybe they'll stop the periodic beg-a-thons.)

Is there any acceptable middle ground -- how about themed tiers, like the mandated all-local-broadcast-affliates tier? Start with that for the seemingly universal $9.99 per month. Then themed tiers, each for $4.99: sports (ESPN/2/News/Classic/Ocho, Fox Sports), educational (Discovery, TLC, National Geographic), "music" (MTV, VH1, BET), lifestyle (Food, HGTV), women (Lifetime, WE, Oxygen), children (Nick, Cartoon, Disney), news, religion, Espanol, etc.

That way the PTC-ers can subscribe to just the religious and educational tiers, spend $10/month to feel all virtuous, then have their kids go next door to watch what they want. The rest of us can skip the religious channels and have them sink into oblivion. (Aw, too bad -- the market has spoken!)

And then we can stop having to listen to their bitching. That's GOT to be worth at least $5 a month right there.

Perhaps you saw this at

http://arstechnica.com/news.ars/post/20060215-6188.html

(Click on the Discuss link to see more.)

[spira]

I don't think Consumers Union is oblivious; they're just convinced that they're right. They usually are, but not here.

I don't want cable companies to be forced to offer channels a la carter because I know what it will mean for me - less channels for more money. Virtually every commercial cable channel will lose viewers, and thus advertisers, and so the prices of the channels that viewers pay - directly or indirectly - will have to go up. Some channels won't be able to find a price point at which they get enough subscription and ad revenue, and they will fold. The only benefits of a la carte will be over-the-air stations, which will regain some of their lost audience, and pay channels like HBO, which will attract the dollars of viewers unwilling to pay more for TBS, CNN, and Discovery.

What people don't understand is that nobody - well, very few people - are actually paying for channels they don't want. In reality, cable customers are actually getting rebates from the cable companies to take channels they wouldn't ordinarily pay for.

[Mark Jeffries]

And it should be pointed that in many cases, when cable channels are launched, the owner *pays* the cable system for carriage. Fox paid cable systems to carry Fox News Channel initially--I imagine that if they hadn't, it would've ultimately had been as successful as National Empowerment Television, aka America's Voice, the previous attempt at a conservative news-talk channel.