The Federal Communications Commission recently confirmed what many consumers regard as obvious: Cable-TV prices have been climbing relentlessly, much faster than the rate of inflation - an average of 6.1 percent a year between 1995 and 2010. Cable companies like to talk about the "per channel" price as a better benchmark, but last I checked they hadn't managed to increase the number of viewing hours available in anyone's day.
Sen. John McCain (R., Ariz.) has a plan to fix the problem by forcing cable companies to offer a-la-carte pricing. He testified this morning about the proposal, which he calls the Television Consumer Freedom Act of 2013, before the Senate Commerce Committee. (Use promo code W72C to access Bob Fernandez's story at Inquirer.com about McCain's appearance.) His bill would also bar blackouts of local sports events held in publicly financed facilities, and seek to ensure the future of over-the-air television.
McCain says his plan to force a-la-carte pricing is "entirely voluntary," and free of mandates and regulations. In that respect, he's being at least a bit disingenuous and playing to his conservative base. Instead, the plan builds on some basic quirks in the way we already regulate broadcast and pay television - in particular, the so-called "compulsory license" that guarantees a cable company's access to local broadcast channels - and aims to use them to the advantage of cable-TV customers.
The basic leverage: If a cable provider wants to take advantage of the compulsory license, it has to offer that channel - and any other channel offered by the same content provider - on an a-la-carte basis.
Here's how McCain described the issue, and his plan, in a Senate speech last week:
Mr. President, today I am introducing the Television Consumer Freedom Act of 2013. This legislation has three principal objectives: (1) encourage the wholesale and retail ‘unbundling’ of programming by distributors and programmers; (2) establish consequences if broadcasters choose to ‘downgrade’ their over-the-air service; and (3) eliminate the sports blackout rule for events held in publicly-financed stadiums.
For over 15 years I have supported giving consumers the ability to buy cable channels individually, also known as ‘a la carte’ – to provide consumers more control over viewing options in their home and, as a result, their monthly cable bill.
The video industry, principally cable companies and satellite companies and the programmers that sell channels, like NBC and Disney-ABC, continue to give consumers two options when buying TV programming: First, to purchase a package of channels whether you watch them all or not; or, second, not purchase any cable programming at all.
This is unfair and wrong – especially when you consider how the regulatory deck is stacked in favor of industry and against the American consumer. This is clear when one looks at how cable prices have gone up over the last 15 years, which is brought to light by the most recent Federal Communications Commission pricing survey.
In this FCC survey, the average monthly price of expanded basic service for all communities surveyed increased 5.4 percent over 12 months ending January 1, 2011, to $54.46 compared to an increase of 1.6 percent in the Consumer Price Index. Over the last 15 years, this rise in costs becomes even more evident. According to the FCC, the price of expanded basic cable has gone up at a compound average annual growth rate of 6.1 percent during the period from 1995 to 2011. This means the average annual cable price has gone up from about $25 a month in 1995, to over $54 today.
That’s a 100 percent price increase.
But, those who provide video directly to consumers, like cable and satellite companies, are not solely to blame for the high prices consumers face today. Many articles have been written about the packages of channels, commonly called ‘bundles,’ sold to cable and satellite companies by video programmers like Comcast-NBC, Time Warner, Viacom and The Walt Disney Company, which owns 80 percent of ESPN. The ‘Worldwide Leader in Sports,’ as ESPN calls itself, thrives because of the advertising revenue it is able to generate and large subscriber fees.
According to a January 2012 Newsweek article, ESPN charges roughly $4.69 per household per month citing research from SNL Kagan. By comparison, the next costliest national network, TNT, takes in $1.16 from about as many homes. So whether you watch ESPN or not, and admittedly I do all the time, all cable subscribers are forced to absorb this cost. For instance, because these channels are bundled into packages, all cable consumers, whether they watch sports or not, are paying for them anyway. Cable and satellite carriers that consider dropping ESPN must also contemplate losing other channels in the bundle, like the Disney Channel.
Some have described this as a ‘a tax on every American household.’ Others, like the CEO of the American Cable Association, have said, ‘My next-door neighbor is 74, a widow. She says to me, “Why do I have to get all that sports programming?” She has no idea that in the course of a year, for just ESPN and ESPN2, she is sending a check to Disney for about $70. She would be apoplectic if she knew ... Ultimately, there’s going to be a revolt over the cost. Or policymakers will get involved, because the costs of these things are so out of line with cost of living that someone’s going to put up a stop sign.’
Today, we’re putting up a stop sign.
My legislation would eliminate regulatory barriers to a la carte by freeing-up multichannel video programming distributors (MVPDs) – like, cable, satellite and others offering video services – to offer any video programming service on an a la carte basis.
Notably, my bill offers no mandates, regulations and is entirely voluntary.
In order to give MVPDs an incentive to offer programming on an a la carte basis, the legislation links the availability of the compulsory copyright license to the voluntary offering of a la carte service by the MVPD. In other words, if the MVPD does not offer a broadcast station – and any other channels owned by the broadcaster – on an a la carte basis, the MVPD cannot rely on the compulsory license to carry those broadcast stations. The compulsory license is a benefit conferred on MVPDs. So, it’s reasonable to ask the recipients of that benefit to provide consumers with an a la carte option.
To address the notion that a la carte options are being denied distributors, the legislation conditions important regulatory benefits (like, network non-duplication, syndicated exclusivity, blackout rights and retransmission consent option) on the programmer’s allowing MVPDs to sell their channels on an a la carte basis.
It’s time consumers get something in return other than a higher bill at the end of the month.
Furthermore, because not all programmers also own broadcast stations, the bill contains a provision that would create a ‘wholesale’ a la carte market by allowing programmers to bundle their services in a package only if they also offer those services for MVPDs to purchase on an individual channel basis. Thus, if a cable operator doesn’t want to carry channels like MTV, it would have the option of not doing so and only buying, and carrying, the channels it thinks its consumers want to watch.
Finally, the bill provides that if the parties cannot agree to the terms of a carriage agreement, the final offer made by each side must be disclosed to the FCC.
The second section of my bill responds to statements by broadcast executives that they may ‘downgrade’ the content on their over-the-air signals, or pull them altogether, so that the programming received by MVPD customers is preferable to that available over-the-air. Our country is facing a spectrum crunch, and if broadcasters who are using the public airwaves in return for meeting certain public interest obligations are going to deviate from those obligations, it is my view that we should consider if that is the most efficient use of our country’s spectrum. It would be a distortion of this basic social compact if over-the-air viewers were treated as second-class citizens. This bill provides a legislative response if broadcasters either downgrade their signal or pull it altogether. The bill provides that a broadcaster will lose its spectrum allocation, and that spectrum will be auction by the FCC, if the broadcaster does not provide the same content over the air as it provides through MVPDS.
Finally, my bill touches on ‘sports blackout’ rules that can limit the ability of subscribers to see sporting events when they take place in their local community but are not broadcast on a local station. When the venues in which these sporting events take place has been the beneficiary of taxpayer funding, it is unconscionable to deny those taxpayers who paid for it the ability to watch the games on television when they would otherwise be available. Therefore, the bill proposes to repeal the sports blackout rules insofar as they apply to events taking place in publicly financed venues and/or involve a publicly financed local sports team.
In the end, the Television Consumer Freedom Act is about giving the consumer more choices when watching television. It’s time for us to help shift the landscape to benefit television consumers. Now I know the broadcasters and cable companies are likely to suggest that the government should not micromanage how they offer their product to customers and that bundling can promote diverse offerings. What those interests will fail to mention, is that the government has already entered the marketplace, and conferred certain rights and privileges like the compulsory license, network nonduplication, syndicated exclusivity and retransmission consent, which stack the deck in the favor of everyone but the American consumer.
I hope the introduction of the Television Consumer Freedom Act furthers the debate on issues like a la carte channel selection and I look forward to the Senate’s consideration of the bill.
McCain's aim is to deflate a pricing bubble that has been driven by a mix of dominant companies that own near-monopoly cable systems or hugely popular sports or entertainment content - or both, in the case of Philadelphia's Comcast Corp., which two years ago took control of NBC Universal. His proposal won a quick endorsement today from Consumers Union, which has long urged an a-la-carte option for cable customers.
As analyst Jeff Kagan puts it, cable customers pay for hundreds of channels but typically watch about five to 15 of them. With so little competition, the market hasn't evolved to give consumers more choice. If the cable companies don't do it voluntarily, perhaps the government finally will.