Politics & Policy

A Plan for Free-Market TV

Time for an upgrade? (Joe Raedle/Getty Images)
The TV industry has changed drastically. So should the FCC’s decades-old rules.

This week, the FCC’s Media Bureau chief faced a grilling in Congress over the agency’s restrictive rules on media ownership. Representative Greg Walden (R., Ore.), who has long championed loosening the agency’s grip, pounded him with questions.

“What’s the delay? How do you justify not changing the rules?”

The bureau chief finally relented, admitting that the “entire marketplace has changed” and that the agency would be open to “input.” And for good reason.

The television industry has indeed undergone massive change in recent years, with consumers increasingly replacing or complementing over-the-air television and pay-TV subscriptions with other video platforms. As a result, there are fresh concerns about a host of decades-old regulations that are holding back broadcasters, and others, from engaging in true free-market competition. As Congress and the FCC grapple with fundamental questions about the future of broadcast television, we need a dramatic rethinking of the system.

The proponents of pay-TV, a catch-all phrase for the entire cable and satellite industry, have presented the choice facing policymakers as a false dichotomy: Either maintain the regulatory status quo or alter obscure provisions in the law in order to advantage the pay-TV industry.

But there is a third option that could harness the power of the free market and would have far-reaching consequences for the future of broadcast television. My organization, the Center for Boundless Innovation in Technology, unveiled this option earlier this week in a white paper titled “Future of Broadcast Television: Unleashing the Competitive Potential of Television Stations in the 21st Century.” This option would eliminate the government-mandated broadcast business model and all of its onerous regulatory requirements.

Take the example of the FCC’s ban on separately owned broadcast television stations teaming up to negotiate programming fees with cable and satellite providers. Prohibiting family-owned TV stations from banding together in negotiations with massive pay-TV companies exemplifies the type of outdated regulation that is hobbling innovation in the television industry. We need to scrap it.

The FCC placed stringent limits on television ownership in order to foster localism and competition among TV stations back when they were the only means of distributing video programming to the home. In today’s competitive video market, however, broadcast-ownership limits create severe disadvantages for television stations by preventing them from offering more channels and realizing the economies of scale they need to compete with pay TV.

The local-ownership rule prohibits a single firm from owning more than one television station in smaller markets or more than two television stations in larger markets. The rule also prohibits a single firm from owning two stations that are both affiliated with one of the four largest broadcast programming networks (ABC, CBS, Fox, and NBC).

These local-ownership rules impose severe limits on a station owner’s potential economies of scale and prevents a single station from offering a package of channels that could be competitive with pay TV.

Take another example: the much-debated joint-sales agreement (JSA). This type of agreement lowers costs by authorizing a broker to sell some or all of the advertising time of a brokered station. The FCC recently found that JSAs “involving a significant portion of the brokered station’s advertising time convey the incentive and potential for the broker to influence program selection and station operations.” Based on this finding, the FCC adopted a rule counting “television stations brokered under a same-market television JSA that encompasses more than 15 percent of the weekly advertising time for the brokered station toward the brokering station’s permissible ownership totals.”

This relatively recent ruling by the FCC gives pay-TV providers, who are not subject to any restriction on JSAs, a substantial competitive advantage over broadcast stations in the advertising market. The largest pay-TV providers are all parties to a single, nationwide joint-sales agreement, which allows them to bundle advertising time and share their marketing costs on a nationwide basis.

Up until now, the reform debate has focused on only two options, each sponsored by a competing segment of the marketplace: (1) Broadcasters support maintaining the regulatory status quo; and (2) pay TV supports maintaining the unique “public interest” obligations imposed on television stations by the regulatory status quo while repealing the regulatory provisions that enable television stations to meet those obligations.

Both options fail to harness the power of the free market to determine the future of broadcast television.

The first option would continue to rely on government intervention to preserve free over-the-air television. The second option would bear even less resemblance to a functioning free market. Repealing only the regulations that enable television stations to meet their unique public-interest obligations would effectively force owners to abandon their television stations or sell them at fire-sale prices. This would amount to destroying the legitimate, investment-backed expectations of station owners through government action. It would be the antithesis of a free-market approach.

A free-market alternative that would enable television stations to innovate and compete in the MVPD (multichannel video programming distributor) and wireless-broadband market segments could unleash the broadcast industry’s full potential and usher in a new wave of innovation and investment in communications. This alternative would allow television stations to transition their businesses to a free-market approach by eliminating the following anticompetitive regulations: the free-television mandate, the prohibition on broadcasters offering cable channels, the federal broadcast tax, broadcast ownership limits, broadcast programming restrictions, and broadcast spectrum limitations.

No reform proposal that keeps the government-mandated broadcast business model in place could legitimately be considered comprehensive or free-market. Eliminating that model would allow broadcasters to compete with pay-TV providers by providing an affordable package of the top television and cable channels along with mobile video and broadband services. That is the type of public-interest benefit today’s consumers need.

— Fred Campbell is executive director of the Center for Boundless Innovation in Technology and former chief of the FCC’s Wireless Bureau.

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