End of Cable Bundle Inevitable, With or Without Aereo: CEO [telecom]

We have laws that describe the deal that broadcasters make with the public, including a set of requirements in return for an extremely valuable local monopoly on a slice of the RF spectrum. Part of that deal has always been that anyone with an antenna gets to listen to or watch the broadcast. Aereo doesn't cut out the commercials, which have always been where the broadcasters' revenue comes from.

Although I understand why the broadcasters would like the laws to be different, and to be able to extract even more money from the rest of us than their current franchise allows, wanting doesn't make it so.

Historically that has been the case. However, things have changed substantially since the last Cable Act was passed in 1992. A larger and larger fraction of broadcasters' revenue now comes from "retransmission consent" payments from MVPDs, and a much smaller fraction of broadcasters' total audience depends on over-the-air reception as a way to acquire the programming. Most metropolitan areas are monopoly or duopoly markets for wireline MVPDs.[1] Thus, the "extremely valuable local monopoly" on 6 MHz of spectrum is no longer particularly valuable (particularly if it's unsaleable VHF); it is the other perquisites that come along with being a licensed broadcaster, such as retrans consent and the right to exclude competing broadcasts of the same programming, that have value today.

Stations use retransmission consent in two ways: first, to directly extract rents from cable subscribers by requiring them to pay cash for carrying the station, and second, to require MVPDs to carry (at an additional fee, of course) other programming owned by the licensee or an affiliate of the licensee. (I believe, without direct evidence, that the networks offer better affiliate compensation if their affiliates negotiate cable carriage of network-owned services.)

Aereo's claim, as made before the Second Circuit but not yet tested in any other circuit, is that their system rents to each customer an individual tuner (and antenna?), located at one facility in each market where they operate, and current laws exclude this arrangement from the definition of a regulated "cable television system". If they were regulated, they would be subject to the same must-carry/retransmission-consent regime.

If I were dictator, I would eliminate the must-carry side entirely for commercial stations (*so* sorry to Lowell and Devon Paxson, whose stations would now be worthless), provide retransmission consent only for subscribers who are located outside each station's FCC service contour, and end the use of Nielsen DMAs for the purpose of defining stations' exclusive markets. TV broadcasters would hate this, but many pointless stations would go under, making it easier to reuse the valuable upper-UHF spectrum (not to mention cable-TV spectrum) for something more productive.

-GAWollman

[1] I'm lucky enough to live in a market with three competing MVPDs: Comcast (formerly Cablevision in my town), Verizon FiOS, and RCN. It does not have an appreciable effect on ever-increasing cable rates, but it does make it somewhat easier to get a decent deal on Internet access. At my home I have a Verizon POTS line, Comcast video service, and RCN Business Internet.

Agreed. But we also have laws that describe the deal that copyright owners make with the public. If a broadcaster buys the rights to a copyrighted work, the agreement between the broadcaster and the copyright owner can (and presumably does) stipulate the conditions under which the copyrighted work can be used. To the extent that Aereo reuses the copyrighted work above and beyond the stipulations set forth in the agreement, the copyright owner has reason to assert a claim of infringement.

As I noted in a previous post, this case bears a remarkable similarity to the battles that the cable TV industry fought 50 years ago.

Neal McLain

Not to mention government-mandated geographic market monopolies based on half-century-old analog coverage areas.

This situation results directly from the 1992 Cable Act. In order to protect over-the-air viewers, Congress wanted to make sure that broadcast television would remain viable. Presumably, Congress saw retrans-consent revenue as a way to protect OTA viewers.

In practice, of course, this has resulted in the truly anonymous situation in which MVPD subscribers are being forced to subsidize OTA viewers.

For as long as Aereo keeps winning in the courts, it won't have to pay retrans-consent fees.

Keep that in mind next time you pay your cable bill: you're subsidizing Aereo.

All in the name of consumer protection, of course.

[snip]

What about subs located inside the Grade B contour? If you eliminate both must-carry and retrans-consent for every inside-contour home-DMA station, that seems to imply that a CATV can carry, or not carry, the station, at its sole discretion, without even letting the station know it. As an ex-cable guy, that would be fine with me, but I don't think the NAB would approve.

Neal McLain

That's the idea: the CATV operator (or DBS operator) is merely providing a signal that the subscriber could receive already, so it doesn't seem to me that the broadcaster is entitled to receive any compensation as a result. The subscriber could always use an antenna (and with DTV, they would get just as good a signal as they get from cable and probably better than satellite); in this particular sense, the MVPD is deriving its consumer value primarily from the other services it offers, and secondarily from the convenience of not having to install and use one's own antenna. These days, you could easily do it on a per-subscriber basis with the point-to-point Longley-Rice model (as I believe is done for SHVIA/SHVERA in non-local-into-local markets).

-GAWollman

Well, you'll have to be a mighty tough dictator to get the broadcasters to accept that idea!

Neal McLain

snipped-for-privacy@bimajority.org (Garrett Wollman) writes: The subscriber could always use an antenna

In my experience with Comcast and DirecTV, the quality chain is more like {best} DBS -> DirecTV -> CATV {worst}

CATV re-encodes the broadcast signal to compress it more to fit on their system, same as DirecTV, although Comcast in this area (multiple franchises) is consisitantly worse.

By "DBS" are you referring to over-the-air broadcast reception? If so, I think you mean:

In North America, DBS commonly means "direct-broadcast service", a generic term that includes DirecTV and Dish Network.

Neal McLain