Conservatives Should Support “Local Choice” Reform

Posted September 9, 2014 at 3:04pm

Here’s an interesting political trivia question: “What was the only veto of President George H.W. Bush to be overridden by Congress?” The answer is the 1992 Cable Act.

A Democratic Congress, beholden to its own special interests and fearing the market power of cable systems, advanced legislation ostensibly aimed at protecting consumers against price increases and local broadcasters in their interactions with cable companies. Fearing price hikes, many Republicans considered it too regulatory even in monopoly-mad 1992, but when Democrats led by then-Congressman Edward J. Markey, D-Mass., and John D. Dingell, D-Mich, labeled the GOP Enemies of Consumers, they overturned their own president’s veto.

Ironically, a statute enacted to protect customers against high monthly cable bills has become the main driver of price increases for TV viewers.

Although cable has regulatory control, no cable monopolies exist today — the vast majority of American households can choose among three to four pay television services. But the 22-year-old law, passed in the Jurassic era of TV technology, remains in place. Reps. Steve Scalise, R-La., and Cory Gardner, R-Colo., have advanced legislation to repeal it and return the pay television industry to a consumer-friendly free market environment, but vehement opposition from broadcasters makes enactment of such legislation unlikely in the near term. Utilizing crony capitalism techniques, broadcaster lobbying has convinced some free-market and tea party conservatives to support a law that was too regulatory for an arguably moderate Bush 41. Broadcasters claim that proposed modifications to the Cable Act regime constitute “government intervention in a free market” — but somehow the act’s current regulatory burdens magically do not.

Pay-TV operators carrying broadcast channels must abide by rules governing syndicated exclusivity, network non-duplication, mandated channel placement, retransmission consent, must-carry rules, compulsory licenses and mandated basic tier buy-through — a dog’s breakfast of regulatory constructs that would make EU bureaucrats blush. The cost of this regulatory maze, which pre-dates satellite television, residential broadband, cell phones and the Internet, is found on your pay-TV bill. In the era of Netflix and Hulu, why would anyone still support this? Particularly Conservatives?

The Act created a regime called “retransmission consent” under which broadcasters could seek compensation from pay-TV companies, for signals previously free for anyone with a good antenna. In 1992, for nearly all markets, there was one broadcaster with a monopoly on must-have network programming, and one cable system serving any given household. Each side needed the other; negotiations were balanced.

Now, DIRECTV, DISH, AT&T, Verizon and others have emerged as competitors to cable monopolies, radically changing the balance of retransmission consent negotiations. Local broadcasters still retain monopolies on network programming, but pay-TV providers need that programming to remain competitive. Because they can, broadcasters are demanding ever-higher prices for programming, and pay-TV providers and their customers are forced to pay higher prices or experience “blackouts” wherein consumers do not have access to the programming of one or more networks. A useful club for broadcasters, the increase in the frequency of blackouts is striking; in 2010 there were only 12 blackouts; in 2013 there were 127.

The Scalise bill would eliminate this expensive, lopsided regime and return us to a free market where content distributors could negotiate prices and terms directly with content producers. Although it’s presently unable to move forward, consumers should be screaming for this from Congress.

In the short term, Sens. Jay Rockefeller, D-W. Va., and John Thune, R-S.D., are offering a narrower proposal, called “Local Choice,” an incremental approach which would finally restore some market discipline to the retransmission consent regime.

Local Choice would allow broadcasters to set their own prices for their programming. Pay-TV services would disclose these costs on monthly bills. Subscribers could decide whether to pay the fee for the programming. Pay-TV providers would not be allowed to mark-up the price.

Local Choice would end blackouts and empower customers to choose which programming was worth the price for them. Broadcasters would continue to be paid for programming with market-based pricing. Unlike some previous proposals, it would not apply to pure cable channels like HBO or ESPN, which operate in a far freer market — but only to broadcast channels that avail themselves to the government protections and benefits of the retransmission consent regime. It would not affect religious, educational or non-profit broadcasters at all.

Demonstrating a marked lack of original thinking, broadcasters have also attacked Local Choice as “government intervention in a free market.” The market in question is anything but free. The Scalise bill they oppose would create one. Local Choice is an incremental intervention in a highly-regulated market designed to make it function more like a free market — an approach that Conservatives should support.

Local Choice is unquestionably better than the system we currently have, which is no choice at all.

Kerri Toloczko is a senior fellow with Let Freedom Ring, a non-profit public policy organization committed to promoting constitutional government, free enterprise and traditional values.