Television for the 21st century

By the early 1960s cable TV systems saw an opportunity to expand viewer choice. They began constructing a “Wired Nation.” That project abruptly ended, as the Federal Communications Commission moved aggressively to block cable TV. The rationale: the new competitors would “siphon” broadcast audiences, harming TV stations.

The “deregulation wave” of the 1970s reversed many of these rules. Wired conduits soon delivered popular new programs, and entire networks were created devoted to news, sports, movies, music or documentaries. By 1988,  most U.S. households subscribed to cable TV. By 1996, two national satellite TV systems operated. By 2000, telephone carriers had begun building video networks. Today, broadband data networks, fixed and mobile, offer additional delivery pathways bringing video to viewers.

With these emerging choices, just 9% of households rely on over-the-air TV to receive their video signals. Meanwhile, the radio spectrum walled off for terrestrial TV has become extremely valuable in alternative uses, like mobile voice and data applications. With the great majority of Americans opting out of terrestrial broadcasts, the last 10 million “broadcast-only” homes could be easily served, at extremely modest cost, by existing (non-broadcast) video delivery platforms.

Hence, while broadcast TV networks produce popular programs, and many stations feature valuable local news, over-the-air broadcasts are today a needless expense. Innovative advances would be unleashed by allowing the 1952 TV Allocation Table to go the way of Cavemen.

Consider three powerful factors driving changes in underlying economic realities.

First, the emergence of wireless broadband services and the “smart phone wars” have triggered a mobile data tsunami. Enormous social gains could be had by allowing stations to use (or sell) the bandwidth allocated to their TV licenses for higher valued wireless services. 

Second, competition between video platforms, following the emergence of satellite and telco TV, has intensified. This propels content providers into an enviable space. Cable program network revenues are flowing fast, growing from just 10% of cable system sales in 1990 to over 50% by 2005. Content may or may not be king, but it surely benefits from the new downstream rivalry. By itself, this is not a social problem, but simply reflects changing market conditions.

Yet, the sector continues to operate in a box constructed by regulators decades ago to house a particular business model. That terrestrial TV, ad-supported broadcasting structure is now obsolete. But key protections remain. “Must-carry” gives a TV station the option of free carriage on local cable TV systems; “retrans” allows a broadcaster to, conversely, withhold its off-air signal until payment is obtained from a cable system wanting to carry it on its basic menu. The orginal idea, that cable or satellite platforms could snuff out a popular local TV station, was Bad Science when proposed.   

Today, it is absurd. Video platforms now compete vigorously. Excluding valuable programming sends subscribers to rivals. The market protects consumers far better than regulation.

Third, a new revolution is underway. Linear network TV line-ups – broadcast or cable – are being challenged by “over the top” video delivered via the Internet. Comcast, Time Warner Cable, Verizon, AT&T or DirecTV now vie with Hulu, Netflix, Apple TV and Google TV as they do with broadcast station owners Disney and NewsCorp. The market is in flux, as existing business models give way to more efficient innovations.

Legacy regulations can go gracefully, or put up a fight. The latter path is proving very expensive. Simply the social opportunity cost of the 49 channels set aside for TV broadcasting, netting out the (relatively minor) cost of switching all non-subscriber households to cable or satellite, produces estimates exceeding $1 trillion.

The social evolution that will deliver superior opportunities for video viewers and program producers is now well underway. It is not a gamble to advance our legal framework, syncing it with reality. By removing the remaining impediments to free and open competition in video, the miracle of the 1939 World’s Fair will finally be clear to all.

Thomas W. Hazlett is a professor of law and economics at George Mason University and is a former chief economist at the Federal Communications Commission. This essay is adapted from his recent paper, If a TV Station Broadcasts In the Forest... The study was commissioned by the American TV Alliance, whose members are listed here: http://www.americantelevisionalliance.org/


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