TCS Daily

The Government's Vertical Hold on TV

By James Gattuso - February 2, 2006 12:00 AM

Like a bad TV set, the ongoing debate over indecency on cable television has produced a lot of heat and noise, but not much focus. Last month, the topic was examined by Sen. Ted Steven's Commerce Committee, in its third hearing on the subject in as many months. Discussion centered on providing cable viewers more choices as to the channels they receive. However, in the hours and hours of hearings, the most promising way of achieving this goal -- competition -- was virtually ignored.

The debate over cable TV comes in response to the understandable concerns of many American parents who are increasingly worried about what their children see on television. FCC chairman Kevin Martin has said that cable TV firms should offer customers more choice, such as the ability to buy channels on a one-at-a-time or "a la carte" basis, a position echoed in last month's hearing by anti-indecency advocate Brent Bozell.

Both stopped short of calling for government to mandate this change, instead calling for the cable industry voluntarily to change its pricing structure (although there was an implied threat of regulation if voluntary changes were not made). The cable industry, for its part, has offered to provide family-friendly tiers of programs. The limited nature of these tiers, however, has left critics unimpressed.

Clearly, increasing control by parents and other viewers over what appears on their TV sets is the right approach -- certainly far better than simply expanding the FCC's broadcast TV speech restrictions to cable TV. And, to a large extent, viewers already do have control over their TVs, more than most probably realize. Cable subscribers with set-top boxes, for instance, can easily block particular channels with a few remote control clicks. Those with digital set-top boxes (soon nearly universal) can block individual programs by date and time, or even by rating. Further advances in technology will empower subscribers even more, perhaps allowing screening by specific language or visual content.

Critics argue that's not enough, since consumers still pay for channels they block out. Better, they say, to let consumers pick and choose their channels individually from the outset, paying only for those they want, rather than bundled together into tiers.

But under the current business model, it's not clear that the a la carte idea is economically feasible -- desirable as it might be for other reasons. Cable firms -- backed by studies by the Government Accountability Office and the FCC itself -- say the result could be higher costs and less program variety for consumers. Cable providers and programmers, they point out, earn revenue not just from subscriber fees, but also from advertising. And advertisers demand some assurance that someone may be watching their ads. Bundling channels together guarantees that a large number of people will at least have access to each channel.

Under a la carte pricing, though, the number of people with access to any particular channel would decrease, The result would be lower advertising revenue and higher rates for consumers. Moreover, because the potential audiences for new and niche channels would probably fall the most, the number of program choices available to consumers would likely also be reduced.

Is this dark scenario correct? FCC chairman Martin and other a la carte proponents say no. (Martin has promised a new FCC study to prove it.) A better question, however, is: who can best determine the answer? One thing is clear: politicians and government regulators are poorly placed to pick winners and losers from among business models, especially in quickly changing high-tech markets. Whether a la carte pricing would work is a question that can be answered only in the marketplace -- with rival firms testing alternative ways to serve consumers.

The good news for parents and other consumers is that a set of new competitors to traditional cable providers is already emerging. In recent months, telephone companies Verizon and AT&T have begun providing video service in several cities. Both employ an Internet-based technology known as "Internet Protocol Television," or "IPTV," that allows consumers great control over what they see on television. Viewers, for instance, will be able to pause and playback video and enjoy expanded "video on demand" service.

This technology also promises further to enhance parents' ability to protect their children. AT&T's service, for instance, would allow parents to block or filter programs using their cell phones, even if they are far from home. More broadly, the service could make a la carte pricing more feasible by reducing the cost of offering individualized channel lineups. In addition, the technology may be able to provide more and better information to advertisers as to which shows are being watched, thereby reducing the advantages of channel packaging.

Although neither firm now offers a la carte service or a family tier, both are considering the option. A spokeswoman for AT&T recently stated that if "consumers want a la carte programming, we will be happy to offer it, so long as we are able to obtain access to the programming in that manner." AT&T's marketing strategy, in fact, seems to be to win over customers by providing more choice. As the spokeswoman explained, "Our goal is to provide more choices to our customers when they want it, in the way they want it." This would set up a clear marketplace contest between different ways of providing video service - to the benefit of cable viewers.

New entrants seeking to offer a la carte service will have to overcome some obstacles. One comes from firms that own cable channels, such as Disney and Time-Warner, who have resisted a la carte pricing for fear that their less-popular channels would lose viewers and cable-system placement.

However, this needn't be an insuperable barrier. Instead of the potential audiences that the current system provides, new forms of compensation could work: increased cash payments, explicit audience guarantees, or risk-sharing arrangements. If all else fails, the new entrants could obtain independent programming or even create new programming of their own.

A second set of barriers facing new entrants stems from the government itself. Under current law, any new cable television competitor must receive a franchise from local cable officials before offering service, a typically slow and cumbersome process. So far, such approval has been granted in only a handful of jurisdictions. Completing the process in the thousands of remaining jurisdictions could take years, and there is no guarantee that the new entrants' franchise applications would be approved in all areas.

By lowering or eliminating this barrier to entry, policymakers could boost competition and enhance prospects for increased consumer control over television content. Several bills now pending in Congress would streamline or eliminate local franchising procedures. In addition, the FCC itself could act because existing law already prohibits localities from unreasonably refusing to grant a franchise. In early November, the Commission started a formal proceeding to determine whether current franchise procedures violate this requirement.

Parents have real concerns about the content of cable programming. That's why it's important that this debate focus on what will really give parents and other consumers more control. Rather than new regulation or even calls for voluntary action, the best way to foster more consumer control over that content is increased competition. If policymakers want to help families and other cable consumers, they should reduce or eliminate barriers to this competition, thereby making possible greater choice for viewers.

James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation (


TCS Daily Archives