Much ink has been spilt in recent days about the program carriage dispute between Comcast and the Tennis Channel. And while the legal volleys will continue following this week’s initial ALJ decision (now subject to review by the full FCC), what is less clear is why the program carriage regime exists at all given the transformative changes in the video marketplace and the harms inflicted by the rules on the freedoms of speech and contract.
First, a little history. When Congress adopted program carriage rules in 1992, it cited then-present concerns about high levels of vertical integration between cable programming and cable distribution. Regulation was necessary, so the story goes, to ensure that content creators could reach consumers and so that MVPDs could not favor program networks in which they had an ownership interest over “similarly situated” program networks owned by someone else. If they did, the government could order the MVPD to change its programming line-up so that the affiliated and unaffiliated networks were treated “equally.”
For starters, the factual predicate used to support the case for program carriage rules has virtually disappeared. In 1992, consumers that wanted multichannel video service typically had one choice available to them – the local cable operator. DBS service hadn’t even launched and the telephone companies were statutorily barred from offering video services to consumers. Cable systems themselves had limited capacity – the largest systems only had about 60 channels – and about 53% of cable programming networks were affiliated with cable operators.
Today’s marketplace has changed completely. DBS operators control almost 35% of the MVPD marketplace. The statutory bar on telco participation was lifted in 1996 and now two of the top ten MVPDs are telephone companies. Due to advances in technology, all of these platforms, including cable, now offer consumers hundreds of channels to choose from. And vertical integration of cable networks has plummeted from 53% to only 14% -- even after Comcast’s merger with NBCU.
Finally, of course, online video is booming, with companies like Google, Apple, and Microsoft jumping into the fray. Netflix alone has more video subscribers than the largest cable operator. In other words, whatever concerns may have led Congress to adopt the program carriage provision in 1992 no longer exist. Amazingly enough, however, the FCC recently released an Order expanding the program carriage rules and some are pressing it to expand the rules even further. We have filed an appeal of the FCC’s recent Order and look forward to our day in court.
These marketplace changes lay bare some of the fundamental problems with the program carriage regime itself. First, the government’s abrogation of freely negotiated contracts between sophisticated parties is a danger to the foundation of free markets. The security and stability of the marketplace depend upon the predictability that contracts, once entered into, will be enforced. That’s especially true where free speech is involved. We should all be alarmed when the government starts favoring certain programming over others and dictating channel line-ups. But it’s not just government carriage mandates that raise serious free speech concerns; it’s the creeping government involvement along the way. One of the first things the FCC does in assessing a program carriage complaint is to determine whether the programming networks are sufficiently “similar” to make a case actionable. Is a channel that carries documentaries similar to a news channel? Is it similar to a science or history channel? What if the documentary channel also has some news and interviews – what percentage of its programming has to qualify as news to be considered “similar”? And do we really want the government making those distinctions? These questions aren’t academic. Programming that is deemed “similar” by the government falls into a favored category under the program carriage rules. Fall outside that favored category and you’ll get no help from the FCC. And the irony here should not be lost. In the name of “diversity,” the program carriage rules provide a perverse incentive for new networks to look and feel as much like existing networks in order to gain FCC favor. The time has come to stop the madness and to replace mythology with intellectual rigor.
In today’s video marketplace, innovation, investment, and, yes, editorial discretion, are more important than ever in ensuring that consumers get the content and technological services they most value. The world has changed and the regulatory world has to change with it. Congress and the FCC should take stock of the fundamental changes since 1992 and remove the regulatory underbrush that too often leads to the government picking winners and losers in the marketplace of speech, content and ideas. This is especially important now, when the shape and form of the video marketplace is in such ferment and transition. As the Internet emerges as an important source of video content, all media – new and old – need the freedom to experiment and compete. Nobody knows where this is new world going. Even the government. It’s time to reset, step back, and let the marketplace work.