Sunday, July 22, 2012

New Competition, Old Rules, and the Unfree Marketplace

The Senate Committee on Commerce, Science, and Transportation will hold a hearing July 24 titled “The Cable Act at 20.” According to the press notice, "the Committee will consider the impact of the Cable Television and Consumer Protection Act of 1992 on the television marketplace and consumers twenty years after its passage."
This is all well and good. Hearings are fine.
But if you want to know how much the video marketplace has changed since the Cable Act was enacted 20 years ago, you could just take a walk with me around my neighborhood. You would see both DirecTV and Dish satellite antennas perched on many rooftops, and, on almost any day, there is a good chance you would see either, or both, Comcast or Verizon FiOS trucks as well. Both FiOS and high-speed cable services are available, and I know neighbors that have switched back and forth. And, of course, if you were invited inside a home or two, or sat down at the neighborhood Starbucks, you might catch a glimpse of the latest TV episodes online on all the iPads or other tablets, and even on what we use to call "cell phones." Or you might see Starbucksters streaming videos from the gazillions available on YouTube and other online sites.
If you prefer not to take a stroll in my neighborhood, you can review the FCC's Fourteenth Video Competition Report, just released this past Friday. I have only had a chance to read the executive summary and introduction at this point, but this much is clear. The report documents that marketplace has changed radically since the Cable Act was adopted in 1992. Then, the focus was on preventing cable operators from abusing what was seen as their dominant market power in what we call the multi-channel video programming distribution ("MVPD") market.
Whereas in 1992, the cable operator often was the only MVPD choice a consumer had available, the FCC reports that, at the end of 2010, 65.7% of American homes had access to three MVPDs, and 32.8% had access to at least four different MVPDs. In other words, over 98% of American homes had access to at least three or more MVPDs, each offering hundreds of channels.
Simply put, this is a far cry from the marketplace environment that existed when the Cable Act was adopted 20 years ago.
I'm sure the hearing will feature much back-and-forth regarding the must carry/retransmission consent regime which was an important element of the 1992 Cable Act, probably with rhetoric from both broadcasters and MVPDs concerning who is to blame for certain recent blackouts during which consumers were denied access to certain programs.
I don't want to rehash here my own views on this subject, except to say this: I find the broadcasters' oft-repeated claim that retransmission consent negotiations take place in a "free marketplace," or that these are "free market" negotiations, highly problematic. The truth is the negotiations take place in a context with a decades-old regulatory overlay that obviously impacts the bargaining that otherwise would take place in a truly free market.
In advance of tomorrow's hearing, I am happy to refer you to a blog, "A Truly Free Market TV Marketplace," I published in March of this year which I have pasted in below. And the blog has a link to a still earlier Perspectives piece, "Broadcast Retransmission Negotiations and Free Markets," I published in October 2010.
In closing, two closely related points worth emphasizing: I am not suggesting that more FCC regulation is needed to remedy whatever problems may exist with respect to the present must carry/retransmission consent regime. Quite the contrary. What is needed, as explained below, is for Congress to adopt legislation along the lines of the  the deregulatory "Next Generation Television Marketplace Act" introduced in the Senate by Sen. Jim DeMint and in the House of Representatives by Rep. Steve Scalise.
The DeMint/Scalise bill woud get rid of all the protectionist video regulations enacted during a now bygone era. Whatever consumer protection justification these regulations may have had when adopted no longer exists. Indeed, consumers would be far better served by allowing the now demonstrably competitive video marketplace to function without government intervention.

This is the direction that ought to be the focus of the Congress. 

Friday, March 30, 2012

The American Conservative Union is perfectly free, of course, to take whatever public policy positions it wishes to take. But it should not feel free to suggest a marketplace is free when, in fact, it is heavily regulated. That is what the ACU has done in a letter opposing the deregulatory "Next Generation Television Marketplace Act" introduced in the Senate by Sen. Jim DeMint and in the House of Representatives by Rep. Steve Scalise.

As I said in a blog shortly after its introduction, the Next Generation Act would "eliminate the obsolete regulatory regime in which the government requires that multichannel video operators 'must carry' certain kinds of channels with particular kinds of program content, restricts the number and kinds of media outlets that may be commonly owned, and establishes a compulsory license regarding retransmission of certain kinds programming by cable operators, all the while offending free market and free speech principles."

Indeed, the DeMint-Scalise bill, premised on the fact that the video marketplace now is indisputably competitive, is so consistent with free market principles that the blog in which I singled it out for special mention was lovingly entitled: "Hayek, Liberty, and the Communications Policy Reform Agenda."
The ACU objects to the fact that the Next Generation Act would eliminate the "retransmission consent" regime in which cable companies and broadcasters negotiate over the right of the pay-TV providers to use the local broadcaster's signal – assuming the broadcaster has not exercised its statutory "must carry" right to elect to have the cable operator carry its signal without compensation. It is true that there is an element of a market negotiation in the current retransmission consent regime, which is why, I suppose, that the ACU calls it a "marketplace." But in 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.

I explained all this back in October 2010 in a Perspectives piece entitled, "Broadcast Retransmission Negotiations and Free Markets," and the Mercatus Center's Adam Thierer also did a very nice job of doing so in his blog posted yesterday.

One statement in the ACU letter bears particular mention because it gets to the heart of the matter. The ACU says, "[b]y stripping away the right to compensation for the use of the signal the government would be tipping the scales heavily to the side of the pay-tv companies." This is not true, of course. If the Next Generation Act were to be adopted, all of the legacy – and, now, hopelessly outdated – regulations, including the compulsory license that benefits cable companies, would be eliminated. Broadcasters and pay-TV providers then would negotiate for carriage rights in a true free marketplace. Broadcasters would, of course, continue to be paid for carriage of their signals – unless they choose to withhold the carriage rights because they don't like the amount of compensation offered.
In my October 2010 Perspectives piece I said this:

"At the Free State Foundation, we aspire to play second-fiddle to no one in favoring unfettered bargaining between private parties in a true competitive, free market context. Private bargaining, in which the parties know their own interests, and can contract freely to place a market value on their interests, benefits consumers more than a regime in which government substitutes its judgment for that of the private parties and handicaps the negotiations. But, at FSF, we know a free market when we see one. And under the existing legal and regulatory regime, retransmission consent negotiations simply don't take place in a free market setting."

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.