The McCain Cable Bill Can Only Do So Much; Real Change Is Market-Driven

from the it's-innovators-who-need-freedom dept

Wed, May 15th 2013 11:43am — Leigh Beadon

There's a lot of buzz about Sen. John McCain's proposed Television Consumer Freedom Act (pdf and embedded below), a bill designed to encourage cable companies to unbundle the TV stations they offer, and force the networks to do the same. It also takes away the weak bargaining chip that some networks have attempted to play against Aereo, in which they threaten to pull their broadcasts from the open air, by making them sacrifice broadcast licenses in order to do so.

Everyone on the consumer side agrees that they'd like to have à la carte choices from cable companies, but beyond that there's no shortage of debate as to how effective the bill is likely to be and whether the end result would actually be any better for those consumers. The television market is badly distorted at all levels by monopoly interests and those whiffs of not-quite-collusion by groups of companies with a shared interest in maintaining the status quo, but is this bill capable of overcoming that? And is the practice of bundling really at the heart of the problem, or just a good public face for the deeper issues?

This is hardly the first attempt to stop the practice at either the network or cable provider level. Some courts have already found bundling by cable providers to be legal and not anticompetitive; meanwhile Cablevision is currently pursuing an antitrust suit against Viacom for the network's bundling of stations that it sells to providers. Most of the details of the latter are under seal, but one notable point is Viacom's claim that it already offers channels individually, they just cost way more. If that's true of all Viacom's content, then it wouldn't be affected by McCain's bill anyway, which still permits bundling as long as there is an à la carte option.

And even if it's not true, it just underlines the core problem of this approach: the bill doesn't give networks any reason to make individual channels affordable or desirable. They either already offer an expensive à la carte menu that nobody orders from, or they could easily do so. Moreover, it's not as though the justification for bundling offered by the networks is completely falsified: they can spend more money on niche channels and programs by subsidizing them with the revenue from more broadly popular fare. Of course, it's not as though that justification isn't exaggerated and twisted to suit their needs either, nor is it true that the same fundamental idea couldn't exist without bundling. Networks get more value from niche programs than just transmission fees: they care about audience reach, brand-building, competing with other forms of content, accumulating accolades for prestige shows and even, believe it or not, making good television. There's no reason their businesses could not be structured to continue subsidizing niche programming with popular programming in a slightly less direct manner.

So the final solution, as always, needs to be found in the market — and that's already happening. Basically every single noticeable trend in media consumption habits, not just in television but in music and publishing and every format, points towards a more à la carte world. It's not news that the networks and cable providers have dragged their heels on this in the hope of milking their incumbent position a bit longer, nor is it news that they are privately a lot more freaked out by the cord-cutting movement than their public statements admit. Ultimately, it will be consumers making choices that force these companies to either adapt or perish.

But for that to happen, innovators do need to be able to actually give the consumers those choices. If the market has become so badly distorted that innovators are being locked out, then legal action and new laws are needed. And that's why the aspect of the bill that is likely to be the most effective (not to mention the most interesting) is the way it all seems to come back to Aereo.

The fight that Aereo started sits at the core of almost everything in the bill. Network owners don't like Aereo because they don't want to lose their retransmission fees from cable providers. Cable providers don't like Aereo because they don't want to lose the appeal of the major networks which, despite the ascendence of cable channels, still sit at the core of their service bundles — and because, generally, they don't want cord-cutters to have more options. McCain's bill basically says: Aereo or no Aereo, consumers need choices, and they're going to get them, whether you like it or not.

Is it a worthwhile step? Yes — or, at least, it's hard to see how it could do any harm, even if it does prove ineffectual. Is it the best approach? No. It almost feels like a bet on Aereo's failure. If Aereo were permitted to innovate, rather than being forced to jump through endless technological hoops and still spend more time in court than in the workshop or the boardroom, then the market would already be giving consumers what they want and pushing the networks and cable providers to become more competitive. If there is to be legal reform, it shouldn't be another layer of conditions and caveats on broadcast licenses and the retransmission fee structure that attempts to force the hand of the networks and cable companies, it should be a clarification (and probably a relaxation) of the rules, removing the legal and regulatory uncertainty that holds disruptive startups back. Television doesn't need a Consumer Freedom Act — consumers already have lots of freedom, they just don't have many choices in how they exercise it. The heart of McCain's bill is in the right place, but a Television Innovator Freedom Act is what we really need.

TV ConsumerFreedomAct2013 (PDF)TV ConsumerFreedomAct2013 (Text)

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Filed Under: a la carte, bundles, cable tv, innovation, john mccain, policy, technology
Companies: aereo

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out_of_the_blue, 15 May 2013 @ 11:52am

"Sunk (or fixed) costs" make individual channels expensive.
A cable co must have a certain amount of gadgets just to deliver ONE channel, so bundling is almost required. I don't see any real objection to that, it's sheer economic fact.

If you'd just attack the high profits and regulate the hell out of these middle-men, you'd have a Populist basis that could take off, instead of weenie whining that's doomed to fail.
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Another AC, 15 May 2013 @ 12:08pm

Re: "Sunk (or fixed) costs" make individual channels expensive.
A cable co must have a certain amount of gadgets just to deliver ONE channel, so bundling is almost required

Actually I used to work in a cable headend. You are simply incorrect sir - All you need is a Controller and a QAM. Most QAMs can deliver a minimum of 4 channels simultaneously, and with the move to Switched Digital video the # of QAM's needed in a typical cable headend is a fraction of what it used to be.

The initial costs of such equipment for a typical cable operator would have been paid off years ago - I'm not aware of any *new* cable companies starting up in the last decade :)
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Anonymous Coward, 15 May 2013 @ 12:11pm

the biggest problem with all new bills is that whoever is introducing it hasn't bothered to

a)attempt to remove whatever monopoly Congress has already grated to the industry concerned

b)ask the very people who will be using the services that are or will be available what they want

why is it that the very consumers never get a say? it's always the supplier that gives various options but only in ways that are, obviously advantageous to the business. the problem then arises that if no one signs up to use the service because of the choices offered, the supplier then starts to plead poverty and blame anyone and everyone, but usually illegal downloading or something similar as the cause of the failure rather than admitting to the real reason, itself, and doing something about it!!
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Anonymous Coward, 15 May 2013 @ 12:30pm

Re:
I hear this question, or some variation of it all the time. Why don't consumers/ the general public ever get a say in whatever the debate is. And my answer is the same. Because consumers/the general population never hold anyone truly accountable for their action. Politicians are going to listen to the people who "pay the bills" and as long as the general public continues to let them keep their jobs term after term after term, then they are going to continue to follow the dictates of their larger campaign donors.

When the general public start replacing the Lamar Smiths and Dianne Fensteins, the Orrin Hatches and Nancy Peolosis in large numbers than, and only then, will the consumers actually be given a voice in the decision process.
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Harrekki (profile), 15 May 2013 @ 12:33pm

This bill will not save the public a cent. They will just charge "access fees" and a per channel rate that allows them to make the same amount of money. and then they will charge a "service fee" to comply with the new law.
Anyone who thinks this is going to do a damn thing for the public and is not meant to push more special interest money McCains way is just delusional.
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Some Guy, 15 May 2013 @ 12:50pm

I used to like McCain before his failed presidential bid. At some point he got hateful and went all creepy.
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Anonymous Coward, 15 May 2013 @ 12:52pm

Re: "Sunk (or fixed) costs" make individual channels expensive.
Why would they have to bundle them the way they do though? I actually have a fair sized cable package and would like a single channel from another package. Why couldn't they unlock that single channel for me at some small fee rather than forcing the entire package on me to get that one?
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Coogan (profile), 15 May 2013 @ 12:55pm

Re:
I guess it depends. I pay DirecTV $100 a month for 300+ channels. I can count on two hands the number of channels I watch somewhat regularly. I can count on a single hand how many channels I would consider "essential" - the ESPN family (I'm not counting the broadcast networks).

If ESPN came out and offered all their content streaming live for $50 a month, I'd still save money every month, and that makes it worthwhile to me. I doubt Disney is getting $50 every month from DirecTV on my behalf.

It's no different than the HBO/Game of Thrones meme: Take my money! Consumers are screaming for better options and more choice, and are willing to pay for it. Networks seem to be purposefully sticking their fingers in their ears, because it's easier to buy political power the old-fashioned way than to have to change for Internet-centric world. And why bother, when you've built up so much power in DC over the past century that you can pretty much regulate to death anybody who tries to do any actual innovating?
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Wally (profile), 15 May 2013 @ 1:08pm

I only can disagree in the positive.
I think that this bill is directly designed to allow better consumerism in the market. Currently, cable companies have to spend a lot on specialized equipment to scramble out digital cable signals which are more easily transmitted over QAM. I don't really think cable companies are as big an issue as major broadcasters because cable companies have to pay for extra equipment to descramble signals for us. A truly strong economy is marked by the amount of affordable consumer market spending that con occur without loans. That being said this bill is designed to do just that. It provides us a means to be free of the mercy of broadcasters like Viacom and CBS who demand higher and higher costs for crappy extra channels nobody likes.
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Beech, 15 May 2013 @ 1:11pm

If small/niche channels can't earn enough to be profitable maybe they should get the axe. This IS supposed to be capitalism after all...
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Leigh Beadon (profile), 15 May 2013 @ 1:27pm

Re:
The cost/benefit analysis isn't always so direct, though. If AMC didn't put all its weight behind prestige shows like Mad Men and Breaking Bad, which despite all their buzz, don't consistently pull particularly huge audiences, it's questionable whether they ever would have built the brand and image that allowed them to make and put out a huge moneymaker like The Walking Dead. NBC has been struggling with ratings for years now, and their only decent moneymaker at the moment is The Voice -- which they smartly use to subsidize critically-praised but low- or unevenly-rated comedies, the high quality of which are pretty much the only thing that kept anyone talking about NBC or thinking of it as more than "that shitty channel with the olympics"

Fox uses its deep pockets to run the FX Network, which has a bunch of niche original shows that have gotten fantastic receptions -- Fox found a way to capture the audience of people who hate everything on Fox. Plus The Simpsons has fuelled the Sunday night animation block forever now, and Fox got to experiment with a tonne of niche shows around it, eventually finding sturdy syndication fare like King Of The Hill and (though they almost missed it) the moneymaker of Seth MacFarlane.

Adult Swim airs those syndicated KOTHs and Family Guys and Futuramas as a lead-in to the block of extremely niche animated programming, where they've supported all sorts of wild experiments and made themselves one of the biggest names in modern animation in the world -- and the cult following allowed them to branch out into music and a sizeable web presence with reasonable success.

There are lots of reasons to subsidize shows that, on paper at a glance, appear to lose money or break even.
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Mikael (profile), 15 May 2013 @ 2:14pm

Re: Re: "Sunk (or fixed) costs" make individual channels expensive.
I felt the same way back when I used to actually have cable service. I had the basic cable service because I didn't watch any of the channels on the "premium digital" tier. One of the channels I watched on basic was G4, but then one day it just wasn't there anymore. I check the cable channel listings and found it was moved to the premium lineup. I called to see if I could get it by itself and they wanted me to get the premium tier. They lost at least one viewer that day because no channel is worth going up to a whole new package just to watch it.

I don't need 5 ESPNs or CSPANs so why pay for something I'm not using. Cable companies should still be able to offer at least an � la carte bundle. Don't want to just charge for one or two channels? Have a package of 10, 20, or 30 channels and let customers pick what channels they get. After that, THEN allow individual channels to be added at an additional rate.
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Anonymous Coward, 15 May 2013 @ 2:18pm

Why even buy channels a la carte?
First, most of them are garbage. The History Channel is crap. The Learning Channel is crap. The Discovery Channel is crap. "Reality" shows have taken over, and they are all, without exception, crap explicitly designed to appeal to those of simian intelligence.

Second, most of the rest are garbage most of the time. AMC runs advertising over and during and through movies, so forget watching them there. Other channels cut the hell out of them and compress them and stuff them with commercials -- including teasers FOR THE MOVIE YOU'RE WATCHING. Thanks for the spoilers, assholes. And jebus tapdancing christ, will the SciFi, oh excuse me, SyFy channel PLEASE stop making movies? Really. You're embarrassing yourselves. Just stop.

Third, most of the rest are garbage some of the time. Cop shows, detective shows, and soap operas -- none of which display much in the way of creativity, plot, character development or acting/directing skills.

There ARE some good things buried in this drivel: "Mad Men", for example. "Dr. Who" is still wonderful. But why should I buy an entire channel for one show? And why should I have to watch them on THEIR schedule? Screw that. I'll wait until the whole thing is available, then either buy it or download it, then watch it on MY schedule -- which is usually 4-6 episodes at a time.

The only reason left to subscribe to a cable channel is live sports -- and clearly that only applies to sports fans. I'm really starting to think that Aereo might be the answer to that, in a lot of cases.

So at this point, as I look over the available channels, I don't think I'd pay $.99/month/channel for most of them. It's just not worth it.

TL;DR: Comcast has made and continues to make a powerful argument as to why I should stop being their customer forever.
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Another AC, 15 May 2013 @ 2:44pm

Re: Re:
Aren't you both agreeing?

Beech appears to be saying if they can't stand on their own axe them, you seem to be saying that if they can stand on their own (even if it takes experimenting and time to prove it) they should be kept.

So if a niche channel can't stand on it's own indefinitely it should be axed eventually, unless it can end up standing on its own.
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Anonymous Coward, 15 May 2013 @ 3:16pm

Cable and the networks need to understand that the days of scheduled programming are coming to an end (I don't mean like tomorrow, but over say the next decade or two).

Youtube's experimentation with subscription channels, along with the continued growth of services like Netflix, are showing where the future of TV are headed. A growing number of us are no longer content with watching a show at Thursday at 8pm or Sunday at 7pm, and the technology now exists where we don't have to.
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Anonymous Coward, 15 May 2013 @ 3:17pm

Thanks for the reasonable commentary on this issue. Cable a la carte just will not be what people expect. The "fixed" costs of a cable company are real and exist if even one (or zero) channels are being delivered (maintaining the system, trucks, people answering phones, ect.) so there will always be a minimum access price. And ESPN charges the cable company something like $5 for each subscriber now. What would they charge if they expected 25% of viewers to subscribe a la carte? And how many people who say "I just want live sports" will pay the cable company's access charge (say $15) and ESPN's charge (say $20) for just ESPN? So you ESPN want a la carte? Your choice is $35 for one channel or go back to the $55 package that gives you ESPN and 100 others. Happy now?
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nasch (profile), 15 May 2013 @ 4:55pm

Freedom and choice?
consumers already have lots of freedom, they just don't have many choices in how they exercise it.

WTH does that mean? How can we have lots of freedom with few choices?
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Anonymous Coward, 15 May 2013 @ 5:07pm

Re: Re: Re:
Under Beach'a principle, he'd cut funding PBS...that's a particularly bad idea when you watch Martha Speaks with your children and they suddenly stay using big adult words you would not expect from a 5 year old.
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Anonymous Coward, 15 May 2013 @ 5:15pm

Re: Freedom and choice?
Under the current system that's not broadcast under QAM standards, broadcast companies like Viacom will demand that cable providers use costly set top boxes to decrypt digital TV signals sold as packages. The consumer has no choice but to use certain packages because the cable companies are forced to bundle in extras like VH1 Classics or Nick West or MTV2...lest the provider also pull their main channels that everyone actually wants to see.
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Anonymous Coward, 15 May 2013 @ 5:26pm

Re:
I'd pay $20/month for ESPN-everything because I like to watch several different sports. But I wouldn't pay for the NFL or MLB or other sport-specific channels/packages, because I couldn't possibly watch enough of them to make it worth it.

Heck, I'd pay that NOW to get ESPN-everything over the Internet so that I could drop Comcast, but ESPN won't sell it to me. (In other words, ESPN could make $20/mo from me instead of $5/mo. But they don't want to.)

Guess what my response to that is.

The producers of content need to wake up and realize that intermediaries (some intermediaries) are very expensive middlemen who subtract value. I'm sure that ESPN's hi-def coverage of football looks much better before Comcast mangles the hell out of it and delivers it to me...and if I'm going to get that kind of degraded product anyway, then why should I pay Comcast anything?

And: sell me a subscription to a show, not a network. Can you imagine how much money "Firefly" would have made if they'd adopted that model? Jebus, there are people that would pay to watch Nathan Fillion eat breakfast.
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Leigh Beadon (profile), 15 May 2013 @ 6:14pm

Re: Re: Re:
We're not necessarily disagreeing, I'm just saying it's not always obvious when a specific channel or a specific show is "worthwhile" -- when Adult Swim started piggybacking on the Cartoon Network, it was a block of shows that are never going to be financially viable for cable television -- and it still mostly is, just subsidized by syndicated hits. There are business benefits to being the leader in a particular genre of television, and that can mean subsidizing stuff that couldn't stand alone for years because it's still worth it.
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Anonymous Coward, 16 May 2013 @ 9:42am

If aereo is allowed to survive
It would be interesting to see a company try the concept with cable service. Perhaps basing it in an area with a municipal cable service who could be accommodating and already has rates below national avg. City wins because it gets to subsidize its service with subscriptions from across country. Consumers win by getting cheaper cost. But Media companies probably go balistic and refuse to sell any channels and drag everything thru court. Guess price has to go up to pay litigation tax. Oh well it seemed good for a second.
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David (profile), 16 May 2013 @ 12:52pm

Market driven changes won't work in this situation
The reason market driven changes won't work here is that there is an "industry standard" that everyone follows. If there was someone who offered an alternative, and that company had the ability to make the product available, then as people started leaving current providers to go to this new innovative service, then change may occur.

As it is, the industry players are entrenched and made it hard for any new players to enter the space.
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John85851 (profile), 16 May 2013 @ 4:04pm

Will non-watched channels be cut?
The main problem with a la carte pricing is that you never know what you'll watch. For example, suppose I decide to buy the History Channel, but I never watch CNN. Then a big story comes out and I want to see what's going on. Yes, I have an iPad, an internet connection, etc that I can watch it on, but suppose I want to watch it on my 60" TV. But since I don't pay for CNN, I now have to call my cable company and sign up, which is inconvenient and may not be immediate. And do I really want to pay an entire month for a channel for one news story? Or do I pay for the news channels just in case I might want to watch them?

The other problem is that some niche channels may be cut by your cable provider if not enough people pay for it. What happens if I'm in an area where not enough people watch the History Channel? If the customers aren't paying for the channel, then there's no reason to keep it, so too bad for anyone who watches it.
And if the cable company isn't paying the History Channel, would we lose the other channels like History2 or History International?
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Leigh Beadon (profile), 16 May 2013 @ 4:14pm

Re: Market driven changes won't work in this situation
I believe that is pretty much exactly the point I made :)
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