Friday, April 13, 2012

A Truly Free Market TV Marketplace - Part II

On March 30, I published a blog entitled "A Truly Free Market TV Marketplace." The piece essentially made two fundamental points in response to a letter from the American Conservative Union asserting that the current retransmission regime represents a "functioning market" for bargaining over the rights for carriage of video programming.

First, I said: "[I]n light of all the various legacy laws and regulations that together overlay the video marketplace – must carry, network non-duplication and syndicated exclusivity, compulsory licensing, and others -- the retransmission regime operates in the overall context of an 'unfree' market."

And the second point I made was this: "Because I know a free market when I see one, I commend Senator DeMint and Rep. Scalise for introducing the 'Next Generation Television Marketplace Act.' The bill certainly represents the direction in which policy needs to go."

A few days ago, the Competitive Enterprise Institute's Ryan Radia published a long and thoughtful blog entitled "A Free Market Defense of Retransmission Consent." In it, Ryan responds to my piece and to a similar one by my friend, Adam Thierer. Adam's essay is entitled "Towards a True Free Market in Television."

I don't want to repeat here, on a Friday afternoon no less, all the substance of the three pieces. If you haven't read them, and if you are interested in the debate about the current retransmission consent regime and the issues surrounding the "Next Generation Television Marketplace Act" bill introduced by Sen. DeMint and Rep. Scalise, you should read the pieces as background for what follows.

Here I want to respond to Ryan's post by making just a few points. They show that, in reality, he essentially agrees with much of what I say (and Adam Thierer as well.)

Before addressing the substantive points, it would be an exhibition of false modesty if I didn't acknowledge that I appreciate Ryan calling my piece "superb" and calling me "venerable." And, best of all, a "free market policy icon." Thanks, Ryan, for the kind words.

So, on to the two essential points.

Ryan states that he wholeheartedly agrees with me "that ACU’s characterization of the current regime as a 'functioning market' is inaccurate." This is a very fundamental point to acknowledge in any discussion of the current retransmission regime.

And he agrees with me that "[i]t’s high time for Congress to liberalize the television marketplace to bring it into the 21st century. Sen. DeMint and Rep. Scalise’s bill would, if enacted, mark a major step toward a freer video market." I appreciate acknowledgement of this point as well. Recall I concluded my blog by stating the DeMint-Scalise bill "represents the direction in which policy needs to go." I didn't say the bill was perfect in every respect. Few bills are, at least as introduced.

At bottom, though, Ryan concludes that the bill "could be improved by leaving retransmission consent intact." In between his acknowledgment that the current retransmission consent regime is not a "functioning market" and his acknowledgement that the DeMint-Scalise bill constitutes a "major step" forward, he goes through a lengthy and useful exposition of the major regulatory overlays in today's video marketplace.

The sheer length of the exposition pretty much proves the point concerning the extent to which the current video marketplace is burdened with a real mish-mash of protectionist-inspired legacy regulation which is ill-suited for today's competitive video marketplace. Ryan himself seems to agree that the must carry, network non-duplication, and syndicated exclusivity regulations which confer upon broadcasters certain statutory protectionist privileges should be repealed. And I think he would say the same with respect to the protectionist compulsory license benefitting cable operators.

Out of the current regime, the only regulation that Ryan suggests possibly should remain on the books is retransmission consent, albeit in an altered form so that the FCC's role in supervision and enforcement is eliminated in favor of a judicial private right of action. He recognizes that, for the vast majority of video programming, it is not necessary to preserve retransmission consent in order to ensure program owners are compensated, by virtue of a private bargaining process, by pay-TV providers. Pay-TV providers would have to negotiate for the right to carry copyrighted programming with the rights holders, whether they are local broadcasters, national or regional networks, syndicators, or whomever.

In the end, when you cut through it all, Ryan is concerned that if the DeMint-Scalise bill were adopted as is, local broadcasters "would hold far fewer cards, losing the regulations that benefit them." He acknowledges that the "disintermediation of broadcasters might benefit consumers, especially if it translates into lower fees (and, hence, more content choices and/or lower television bills.") This is no small acknowledgement.

But Ryan worries that deregulation possibly may have a "dark side." Without a statutory retransmission consent requirement in place, pay-TV operators may be able to free ride on whatever "incremental value" local broadcasters provide through certain signal enhancements such as display tickers ("crawlers") with sports scores, school closings, election results, and the like. Ryan focuses on this possible "incremental value" of local broadcasters' signals because he acknowledges that almost all their programming is, in fact, copyrighted. Thus, the vast majority of local broadcasters' programming would be subject to private bargaining between the rights holders and pay-TV providers before it could be carried by pay-TV providers.

Ryan acknowledges that the economic value of the local broadcasters' signal enhancements beyond copyrighted programming (and whatever else is left that is not subject to "fair use") is unknown. He suggests that if the signal enhancements have any incremental economic value at all, pay-TV operators' carriage of such signals without negotiated compensation offends the long-standing common law equitable principle of unjust enrichment, which holds that a person who is unjustly enriched at the expense of another is entitled to restitution.

Now the whole notion that local broadcasters are entitled to compensation for the mere retransmission of their local signals is somewhat questionable in any event, because the signals can be picked up for free by anyone within reception range. Ryan acknowledges this was the law prior to 1992 when Congress created the current must-carry/retransmission statutory regime. I think this is an important point.

But putting this point aside for the moment, my sense is that it likely would be preferable to have in place the deregulated marketplace envisioned by the DeMint-Scalise bill than to retain, as the last standing relic of the current regime, a statutory retransmission consent requirement. If there is any justification for compensation for mere retransmission at all, which I don't concede, perhaps it would be preferable to leave the matter of compensation for a pay-TV operator's carriage of a local signal to the courts under the common law theories of unjust enrichment. I doubt if the "incremental value" derived from crawlers and such would amount to much enrichment in the real world marketplace.   

Ryan's contribution to the debate is welcome. To my mind, his acknowledgement that the current retransmission consent regime does not constitute a functioning market and his acknowledgement that the DeMint-Scalise bill represents a major step forward are both significant and important. As I head into the weekend, I am happy to emphasize those key elements of agreement, rather than exaggerate the differences that exist.