Cuban Calls for an Activist FCC

HDNet co-founder Mark Cuban has been making a lot of noise lately about the uphill climb that many indie nets face as they try to gain carriage. After all, it’s an environment in which a few big media companies can exert enormous leverage. But lately, Cuban has been turning those complaints into action, lobbying the federal government for protection that he says would level the playing field for indie nets—and benefit consumers in the process. Many in the industry worry about government intervention and unintended consequences, but Cuban remains undeterred. In a far-reaching Q&A, the serial entrepreneur and billionaire gives CableFAX the skinny on his indie quest.


You’ve suggested that Washington step in to level the playing field for indie nets. What exactly can the government do, and why shouldn’t private negotiations and the free market decide these things?

Mark Cuban: I wish it simply were a free market issue. In a free market it’s supposed to be a level playing field where the best product wins. In the current market that’s just not the case. Given the finite amount of distributor competition, the fact that distributors own TV networks and may give them preferential treatment, that distributors may also give the programming of other distributors preferential treatment so that those distributors will reciprocate, and the risk that larger companies use their size to preclude smaller companies, we are in an environment where it’s very, very difficult for an independent programmer to get or retain carriage.

Here is what we would like to see:

A. End wholesale bundling. To get a network they want, distributors shouldn’t have to take from its owner a bunch of other networks that no one wants or watches. This consumes physical resources, channels, that otherwise could be available for networks that consumers want and that distributors want to offer. It also consumes financial resources that could be available for more desired networks and costs consumers money. This is a huge issue not only for the independent networks that are being bumped off or never get on, but also for smaller, often rural cable systems, that cannot select the networks they think best serve their customers. One thing that has changed that makes it more plausible for a change, is that there is finally second-by-second data available from digital set-top boxes. No longer can a programming distributor dismiss claims that a network is popular, but there is no hard data because it’s not rated. Today you can look at data like that which TNS provides and see that there are networks with decent amounts of carriage that can have ZERO viewers across 400K set-top boxes. This data makes it much harder for major media companies to make an argument that this network deserves to be part of a "must take" bundle at the expense of any other network, independent or not, that is showing bigger numbers. The relative values of networks will never be a science, but it’s becoming much more quantifiable, and this needs to be considered as part of the solution.

B. Expand the existing FCC carriage access complaint process to make it meaningful and effective, which will also help to deter any legally inappropriate behavior by distributors. Once discrimination and other prohibited conduct just don’t pay, negotiations have a better chance of being a fair, effective and successful way to resolve legitimate business issues. The complaint process should deal effectively not only with prohibited behavior that keeps an independent programmer off a distributor, i.e., blocks initial carriage, but also impermissible behavior by a distributor after the network gets picked up and its owner has made even bigger investments. Accomplishing this means adding a shot clock so that the resolution process can’t be extended beyond a few months; defining and simplifying what a complaint must say to match widely established court standards; and deciding the merits of a complaint by a network claiming discrimination against a distributor already carrying it, before the distributor is permitted to take challenged action, such as moving the network to a tier with extra charges that might decimate the network’s viewership. Independent networks, which lack the leverage of big media companies, often get displaced, misplaced and treated in a discriminatory fashion relative to distributor-owned or major media conglomerate-owned networks. Independent networks will still have to perform and compete for viewers and some will still not make the cut, but with a shot clock, they can’t be bled dry by delay tactics.

C. Truth in Advertising. Only allow a network to call itself an HD network if more than a specific percentage, say 50% to 75%, of its programming is truly in HD rather than upconverted. Consumers are being cheated and misled, thinking they are watching HD programming when they are not, and they are being misled in their programming decision-making process by thinking they are buying HD programming when they are not. Independent programmers are getting hurt because passing off upconverted content as HD diminishes the value of the investment we have made in real HD programming in both consumers’ and [distributors’] minds.

D. Finally, there is a need for independent voices on the TV dial. There has been so much consolidation among both distributors and media companies that has closed the door on small networks. You can count on two hands the number of networks that are owned by individuals and small entities, rather than large, often public, companies. Programming decisions are now dominated by earnings per share considerations. The days of an entrepreneur coming in and launching a network and getting carriage without having to give up equity in his company are long gone. We should be in an era where the low cost of digital content creation creates a new generation of TV network entrepreneurs—instead it’s the exact opposite. Don’t you worry that this kind of lobbying effort could really hurt your relationship with big MSOs? After all, it’s good business to stay in their good graces, no?

Cuban: The good news is that these are non-issues for many, if not most, distributors. When there is fair treatment of indie programmers, none of this matters. We have great relationships with almost all of our distributors. It’s the distributor that knowingly gives preference to their owned or affiliated networks and discriminates against independent networks that violate the FCC rules and for whom the FCC rules need to be stronger. Again, they are the exception rather than the rule, so for almost all of our relationships, or potential relationships, this is a non-issue.


Have you given up on the FCC at this point? FCC chairman Kevin Martin has said the votes aren’t there for last fall’s proposal for revamping access rules. Are you squarely focused on a legislative fix at this point and, if so, what’s your lobbying game plan?

Cuban: The remaining surviving independent networks have joined together to form the National Association of Independent Networks. So not only do we intend to work with the FCC, we have chosen to work together on the issues that matter to independents. In addition to other indie programmers, we are working with the American Cable Association and several public interest organizations as well. With so much at stake for the independent, and for consumers, we all are making a significant financial contribution so that we can act strongly and with a united front. We will also find other allies along the way.

If the government were to outlaw certain negotiating tactics—such as demands by larger programmers with multiple nets to tie carriage of one to another—doesn’t this become a slippery slope of regulation that could end up hurting the entire industry?
 
Cuban: No. That’s not a major intrusion. In many circumstances, the government already prohibits sellers from forcing buyers to take products they don’t want in order to get a key product they do. That sort of tie-in can raise antitrust issues, and please don’t try it in the insurance industry, for example, or you’ll be in big trouble. What we seek will set reasonable boundaries that will help negotiations get to a fair result. This type of organization probably wasn’t necessary even five or so years ago when there was a much larger entrepreneurial base of ownerships of programming networks and distributors. The incredible consolidation has necessitated a different approach, and unfortunately that includes getting the FCC more involved. At stake is the survival of the independent programmer and voice. Given the option of the extinction of the independent programmer or some intervention, I think the prudent choice is obvious. The good news is, these steps impact only a few outliers.

You’re up against some powerful foes on these access issues. What do you think is your ace in the hole that will help you prevail?

Cuban: The cable and satellite industries have been built by entrepreneurs who had to fight difficult battles to build their companies. I think this entire industry, as well as the FCC and consumers, understand the need to have a fair playing field where independent, entrepreneurial voices can survive and thrive. No one wants big media to be the only media, and that is working in our favor. Also, in some cases, we are just asking for the FCC to implement effectively and sensibly laws that Congress has already adopted.