Root Cause Analysis

While the American Cable Association represents the interests of smaller and medium-size cable operators serving more than 8 million subscribers in all 50 states, there are several critical issues that concern operators of all sizes and directly influence our industry’s ability to compete in a converging marketplace. One of the most visible issues is broadcasters’ demand for cash or other economic consideration, such as carriage of forced bundles of affiliated programming, for carriage of channels. This situation is especially dire for independent operators serving smaller and rural markets whose size puts them at a severe disadvantage when negotiating with the giant media conglomerates. Broadcasters’ demands are unreasonable given the fact that they can set their price in a monopoly local marketplace. Broadcasters make these demands without regard to competition from lower-cost alternatives or to the direct benefit they receive from carriage by cable operators. A recent economic analysis concluded that broadcasters’ realize up to $4.16 per channel per month in increased advertising revenue directly attributed to the extended reach delivered by cable’s carriage of the channel into smaller communities. Given these facts, shouldn’t broadcasters be paying cable operators to carry their channels instead of charging them? Another core concern relates to indecency and consumer choice. The very public debate on these topics has far-reaching implications, not the least of which is the threat of government-mandated a la carte, which ACA and most operators do not support as a viable solution. At the same time, skyrocketing programming fees from the media giants continue to plague operators. For the last five years, smaller and medium-size cable operators have seen 15 percent annual programming cost increases. In an increasingly competitive environment, cable operators cannot simply pass the full fee increases onto subscribers. Increasing programming costs have diverted funds in many markets from facility upgrades that would enable greater deployment of advanced broadband services, such as voice over Internet protocol (VoIP) and high-speed Internet. As other telecommunications providers race to roll out bundled packages of services, cable can ill afford to fall behind. If the unfettered economics of supply and demand were at force, more equitable practices would prevail. That leads to the root cause of these three critical issues: the 1992 Cable Act unintentionally resulted in massive media consolidation and widespread abuse of retransmission consent by the media conglomerates. What needs to be done? The practical solution is to implement a true competitive, economic marketplace for carriage of local broadcast stations and cable programming channels. As a result, operators would be able to develop programming packages tailored to local market needs instead of having their channel capacity filled with bundles forced upon them during retransmission consent negotiations. Programming costs would be aligned with market value. Cable operators could give consumers more cable programming options and an important goal of Congress and the FCC would be fulfilled. While it isn’t likely that the media giants will voluntarily change their revenue-centered behavior, Congress and the FCC have the ability to rewrite the laws and regulations. By doing so, Washington can facilitate competition in the marketplace, give operators the right to seek lower-cost retransmission consent alternatives, and end forced tying of programming channels that raises cost, but eliminates more choice in local markets. Matt Polka is President and CEO, American Cable Association. His views are his own and do not necessarily represent those of the editors or publisher of CableFAX Daily.