Retransmission consent regulation: A far cry from the free market

In his Nov. 22 guest column on the Congress Blog, former FCC Commissioner Robert McDowell defends the current “retransmission consent” system as indicative of a healthy free marketplace.  All signs point to “consumers winning big – if Washington plays it smart” and doesn’t change the retransmission consent rules, Mr. McDowell declares.

It’s ironic that a free-market champion like the former Commissioner is such a fierce defender of a broadcast carriage system nurtured by government regulation.  As analyst Adam Thierer of the Mercatus Center has written: “When it comes to television programming, many layers of red tape still encumber this sector and prevent a truly free market in video programming from developing.”

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Broadcasters enjoy the best of both worlds in a regulatory sense. The Cable Act of 1992 gives local broadcasters the right to elect either “retransmission consent” (where higher-rated stations can seek payment from pay-TV operators for carriage) or “must-carry” (where lower-rated stations get carriage without paying any compensation to pay-TV operators).  A law dictating that one company may force another to provide its service for free is hardly a free market concept.

Other layers of regulatory red tape favorable to broadcasters serve to hold together the so-called “free marketplace” of retransmission consent.

First, the “must buy” provision of the 1992 cable law requires cable operators to carry all broadcast signals on the most widely distributed tier of cable service and requires cable customers to buy that tier of service to access any other programming.  To put it another way:  A government-mandated requirement forces cable subscribers to purchase “free” over-the-air broadcast signals, even if they don’t want them.  Are any two words less indicative of a free market than “must buy”?

Second, existing law prevents a cable operator from pulling a TV station during “sweeps” periods – four individual months when key audience measurements are taken to establish broadcasters’ advertising rates.  Although cable operators are prohibited from pulling broadcast signals during periods of time financially important to broadcasters, broadcasters are free to pull their signals from cable at any moment and without notice to consumers. In fact, broadcasters depend on pulling their signals at times important to consumers, such as the Academy Awards or the World Series, in order to extract higher pay-TV carriage fees.  

In a truly free market, a cable operator would be allowed to negotiate a carriage deal with any TV station.  But under the FCC’s territorial exclusivity rules, stations affiliated with ABC, NBC, CBS and FOX in one market are shielded from competition by brethren affiliates from another market.

These network programming non-duplication rules use government resources to enforce private contracts that yield local monopolies for TV stations, with serious anti-consumer consequences.  If a pay-TV provider in Kansas City wants to carry the Chicago CBS station, the Kansas City CBS station can block that action knowing the FCC has its back.  Not surprisingly, TV station blackouts are at record highs because FCC rules deny pay-TV providers out-of-market alternatives, even on an interim basis.  In a true free market, no agency would be charged with enforcing such lopsided rules.

Troubled by the status quo, some reform-minded lawmakers see potential solutions to the broken retransmission consent system.  For example, under the Next Generation Television Marketplace Act, drafted by Rep. Steve Scalise (R-La.), reams of media regulations would disappear, clearing the path for a true free market. There are many other possible solutions – from both parties – that would help address our outdated video rules, including Rep. Anna Eshoo’s (D-Calif.) Video CHOICE Act.

Ultimately, one thing is clear:  Today’s tilted playing field has led to a record number of TV blackouts and skyrocketing retrans fees.  And consumers will continue to lose until we see new video rules that reflect the 21st century marketplace.

Polka is President and CEO of the American Cable Association, a member of the American Television Alliance.