Time For Some Hot Bi-Partisan Action on Cable: Or, Why Copps and Adelstein Need to Work With Martin Here Part I

I gotta hand it to the NCTA – they really know how to spin the press. Given the outrageous excesses of market power displayed by incumbent cable operators, you would imagine that activists would leap at the opportunity offered by Kevin Martin to reign in cable market power – regardless of whether one likes Martin personally or thinks he is a Bellhead or industry tool in other respects. But no, over the weekend, the NCTA has done an exemplary job of spinning the upcoming sledgehammer to cable market power as a bad thing.

I am talking primarily about the news that the FCC may invoke the “70/70″ provision of Section 612(g) of the Communications Act (codified at 47 U.S.C. 532(g)). For those not as obsessed with the Communications Act as yr hmbl obdnt, this provision states:

[A]t such time as cable systems with 36 or more activated channels are available to 70 percent of households within the United States and are subscribed to by 70 percent of the households to which such systems are available, the Commission may promulgate any additional rules necessary to provide diversity of information sources. Any rules promulgated by the Commission pursuant to this subsection shall not preempt authority expressly granted to franchising authorities under this subchapter.

Now you would think anyone who opposes media concentration would be jumping for joy here, wouldn’t you? At last, a clear source of authority for the FCC to regulate cable in the name of diversity, and a directive from Congress to do it (without preempting local franchise authorities). And one would certainly expect that the Democratic Commissioners, Copps and Adelstein, who have repeatedly shown themselves stalwart champions of diversity and enemies of consolidation, would rush to seize the moment. But while I hope the later is true, some normally sensible people are buying into the cable spin that this is somehow bad because (choose however many apply):

A) It’s an “archaic leftover” of another time and nowadays cable is “highly competitive.”

B) It’s not really true that the 70/70 test is met anyway so the courts will just reverse it.

C) Kevin Martin is an evil Bellhead who has it in for cable, wants to deregulate broadcast media, and shafted local franchising authorities, so you know this must somehow be evil, even though it is something media reform advocates have fought for over 20 years to achieve.

D) Somehow, this is just an effort to distract us from the fact that Kevin Martin is an evil Bellhead who eats puppies and throws kittens into trees for his amusement.

E) Martin is just slapping the cable guys around because they didn’t do family tier.

G) Somehow this helps Kevin Martin deregulate the broadcast industry.

Having spent the last several years trying to get the FCC to recognize the goddamn truth that 70/70 was met years ago, and trying to get the FCC to address leased access and carriage complaint issues, the 30% cable ownership cap, and a bunch of other reforms to address cable market power, I am just a shade peeved to see folks who should know better eating out of NCTA’s hand. Because public policy is not about whether I like or dislike the current FCC Chair or whether I would rather he focus on reigning in telcos rather than cable cos. It’s about what is the best public policy. And what Martin has put out for a vote: 70/70, reform of leased access and the carriage complaint process, and reaffirming the 30% cable ownership cap, are all things justified by the record and urgently needed.

We have already seen that when the Democrats work with Martin to protect independent programmers, good things happen. Holding the cable operators accountable under the set-top box law, letting The America Channel arbitrate its case against Comcast, these are areas where Copps and Adelstein recognized that their interest in promoting diversity and free expression converged with Martin’s interests in restricting cable market power and worked together to create well-crafted rules that promote the public interest without selling anyone out. This is that “bipartisan” thing everyone claims they want – work together where you can, oppose each other when you must, and always keep in mind the public interest rather than your partisan ends.

Below, I run through some background on what’s going on — especially with the 70/70 test. Since that will make this ridiculously long, I will save for Part II why Copps and Adelstein need to seize this opportunity before the NCTA gets a chance to work its mind-clouding magic and once again get a quorum to vote that slavery is freedom and market power is competition. And, since Martin’s motives appear to absolutely rivet everyone’s attention, I will give my best speculative guesses followed by my explanation of why Martin’s motives don’t matter. Because, as in all good politics, Martin has maneuvered it so that he will get his political pay off whether the Democrats vote for the cable items or not. So rather than waste the best chance at cracking cable market power in the last 20 years and give Martin a political victory anyway, the only sensible thing to do is vote for the items and make it clear that doing the right thing in cable over here doesn’t give Martin a pass on previous bad Orders (like preempting local franchise authority) or give a license to deregulate broadcast ownership.

More below . . . .

What’s At Stake?

There are three major cable issues up for grabs at the Commission right now. The Section 612(g) “70/70” ruling (which is part of the FCC’s video competition report for 2006); revision of leased access rates and the Sec. 616 carriage complaint issues, and the 30% ownership cap. Let’s take each of these in turn and deal with the major objections. Then I’ll get to the other global issues.

The 70/70 Test
First some background, because — as usual — the NCTA and the other cable cheerleaders would like to forget how we got here and why this matters.

Until 1984, the FCC regulated cable operators like television broadcasters under something called “ancillary jurisdiction.” (Read U.S. v. Southwestern Cable if you are dying for the underlying legal details.) Basically, whatever authority the FCC had to regulate broadcasting (especially to promote the goals of diversity and competition), it also had to regulate cable.

This system became, sadly, the poster child for “what happens when incumbents use an agency against new entrants.” The broadcaster spent about 15 years beating up on cable and doing what they could to prevent it from becoming a competitive threat. So, in 1984, Congress decided to deregulate cable and insulate it from FCC or local regulation. This became known as the Cable Act of 1984. But in the midst of this deregulatory frenzy, some folks asked what would happen if cable actually became the dominant means for delivering video? If that happened, they argued, we’d want the FCC to protect diversity, yes?

So Congress included Section 612(g). If 70% the country is served by cable systems with 36 or more activated channels, and 70% of the people with access to these systems subscribe, then the FCC has authority to put in place whatever regulations it deems necessary to protect and enhance the available of diverse voices on cable.

This provision proved enormously foresighted. Cable has become the dominant means of delivering video programming. Congress’ efforts in 1992 and 1996 to create new competitors created both DBS and an opening for the telcos to come play, as well as the occasional overbuilder like RCN. But cable remains dominant — especially in its ability to control programming. Independent programmers — defined as programmers not affiliated with cable conglomerates like Comcast or Time Warner, boadcasting conglomerates like Disney or Viacom, or John Malone’s Liberty Media (which grew its market share when Malone also owned the largest cable company) — are pretty much dead or dying. The Oxygen Channel sold itself off to NBC for about $500 Million less than analysts had predicted, leaving damn few independent networks standing. Of those, even the most successful, like Hallmark, find themselves paid about a fifth as much as channels with poorer ratings but the right affiliations (cable or broadcasting). (Perhaps coincidentally, Comcast has been eliminating both Oxygen and Hallmark from its basic line up.)

So rather than being some “forgotten relic” or obscure loophole, as the NCTA keeps repeating and reporters in the trade press keep lapping up with a spoon (shocking, I know . . .), this is exactly the situation for which Congress designed 70/70. A necessary safety valve to ensure that the FCC could step in if necessary which, as I have told the FCC on more than one occasion, is in fact desperately needed if we want anything that even vaguely resembles an independent programming market. On the other hand, if you agree with the cable guys that five different flavors of Fox News mixed with subtle variations of CNN, NBC, ABC and CBS is all the diversity America needs in its news media, then you probably don’t think this is necessary.

But Are We Really There? Good question. Because the cable operators treat their actual subscriber numbers as proprietary data, and never have to disclose them, figuring this out is non-trivial. The numbers you get in places like BIA and Kagans and other private reporters is what the cable guys chose to tell plus whatever their independent research digs up, this is why the independent reporters never agree with each other — which should be shocking if we are relying on them for accuracy but lets face it, at this point, we’d be shocked if the cable companies didn’t lie about something important. Of course, as I’ve argued for years, the FCC should just order cable operators to report their subscriber numbers under penalty of perjury. But they aren’t up for that.

Still, it’s not enough to just say they are over and that the burden is on the cable guys to prove they aren’t. I (and the FCC) need to prove that there is at least some basis for believing they are. The cable guys, naturally, claim they aren’t, and are recently tossing around numbers like 54%. But having caught NCTA red-handed cooking their numbers last year, I’m not terribly inclined to believe them this year. (I am so unreasonable!) In the 2005 report, when they never thought the FCC would pull the trigger, they ‘fessed up to about 68%. that’s still not 70%, but it does demonstrate that even NCTA felt uncomfortable shading things too badly (until they got desperate this past week).

In any event, when counting subs, it is not enough to look at total MVPD market (meaning all video subscribers) and take out those held by the incumbent cable cos, like Comcast. Why? Because (a) telco and overbuilder video subscribers count (which NCTA conceded in their reply comments); and (b) a fair number of DBS subscribers (but not all) don’t count.

Look at the statutory language. The statute talks about cable subscribers served. Not “incumbent” cable subscribers. As anyone who has lived through the franchise wars knows, telcos providers and other overbuilders are “cable” systems as far as the statute is concerned. So to the extent that cable operators are now discounting telco and overbuilder subs, too bad. Because for 70/70 purposes, they count.

O.K., but how do I get rid of the DBS subs? Go look at the statutory language again, particularly this part here:

[A]t such time as cable systems with 36 or more activated channels are available to 70 percent of households within the United States and are subscribed to by 70 percent of the households to which such systems are available

(emphasis added).

As noted repeatedly by the Government Accountability Office (GAO) (see, for example, in this 2005 report), a fair number of DBS customers live in places where there is no cable system at all or rural areas where you still have systems below the 36 activated channel limit. These subscribers are not in an area served by the relevant cable systems, and therefore do not count as an offset against the cable subscribers. For that matter, neither do their neighbors who qualify as “households” but who are not served by cable systems with 36 activated channels or more.

If we rerun the numbers with the telcos and overbuilders added, and subtracting the people who live in areas that aren’t served by a cable system or a cable system that meets the definition, you jump NCTA’s number of 68% to get to the number SBC (now AT&T) estimated in its 2005 comments — about 77%. Comfortably over the threshold. We don’t even need to resolve ambiguities against the cable operators, which the FCC would certainly be justified in doing given that it is the cable operator who have the relevant information.

So where did this 54% number come from? The 54% number comes from 2 places. First, Michael Powell’s Media Bureau Chief Ken Ferree pulled it out of his ass in 2005 because he thought that the NCTA number was too close for comfort. So, in what can only go down as an utterly shameful act of industry pandering, Ken took some survey data from the FCC’s cable price survey, data which the GAO had explicitly found unreliable. Indeed, the survey data Ferree used was so unreliable that GAO dedicated an entire report called “Data Gathering Weaknesses in FCC’s Survey of Information On Factors Underlying Cable Rate Changes.” Ferree then extrapolated from this unreliable data on the basis of some laughably ridiculous assumptions to arrive at 54%. (Ferree has been subsequently rewarded for his loyalty to industry, adherence to ideology in the face of empirical evidence, and willingness to suppress inconvenient data, by being made President of Progress and Freedom Foundation.)

The other source of for this number is Sanford C. Bernstein & Co. analyst Craig Moffett. You may remember Mr. Moffet from such previous hit soundbites on cable issues as “Net Neutrality will kill the cable industry and strangle broadband”, “banning exclusive cable contracts doesn’t matter,” and “cable should crush uppity independent channels for our benefit and viewing pleasure.” The fact is, you never find Mr. Moffet disagreeing with the cable industry. The suspicious and cynical among us might suspect that perhaps, just possibly, the large financial bet his ultimate employer has made on cable might be influencing his “independent” evaluations a smidge. But even assuming that this is not the case, I would be quite willing to explain to Mr. Moffet where he goes wrong in his analysis — if he ever gave a justification for his estimate beyond “I say so.”

I expect someone at this point to notice that yes, Comcast and Time Warner both lost cable subscribers this past quarter. This comes, of course, after about a dozen consecutive quarters of steady subscriber gains. It is also unclear what is causing the subscriber loss. If the subscriber loss comes from either (a) people switching to FIOS or U-Verse; or (b) people losing their homes due to foreclosures, then it doesn’t impact the overall numbers. Nor does it change the fact that when the FCC did its calculations, the 70/70 threshold was crossed. Go read the statute again. There is nothing that says “if it ever drops below 70%, then the power goes away.”

What does 70/70 Do For Me? The 70/70 trigger gives the FCC a “power boost” on a number of pending proceedings to reign in cable market power, such as the leased access provisions and the 30% ownership cap. It also potentially gives the FCC new authority. To take a few examples of possible FCC Orders.

1) National PEG set aside. The FCC could decide that, because PEG channels are being eliminated by state franchising rules, it will require all cable operators to set aside capacity for PEG programming regardless of whether the local franchising authority requires it. Hard to say that doesn’t “increase diversity.”

2) Must carry for Low Power TV stations. There are a lot of low power TV (LPTV) stations, many of them providing Spanish-language programming (others provide religious programming, home shopping or just plain local programming). While a small class of these have must carry rights on cable, most don’t. Again, hard to say this doesn’t “increase diversity.”

3) Sometime back, I wrote a piece about a company called VDC:Virtual Video Cable. They are trying to do for video what comapnies like Vonage did for VOIP — a purely internet-based play that lets you get cable networks via broadband. Unsurprisingly, cable operators refuse to sell them programming, claiming that the rules requiring them to sell programming to rivals do not apply here because VDC is not a “cable service” as defined by statute. Equally unsurprising — given the “craptastic” speed with which FCC Media Bureau staff enforce the law against cable companies (official slogan of staff “If we wait long enough, the complainant will go bankrupt and our cable masters will reward us with doggie treats!”) — VDC’s emergency complaint is still pending. Well, triggering the 70/70 threshold could provide the FCC with authority to resolve the issue in favor of VDC without deciding whether they are a cable service. Similarly, the FCC could prohibit Comcast and other cable companies from making exclusive deals for “must have” video on demand, for “must have” sports programming, or other anticompetitive means by which cable operators prevent programs from appearing in other venues.

Of course, the FCC has none of these things teed up. The MVPD report merely notes that the 70/70 threshold has been met. If the FCC wants to do these things or anything like them, they would need to start a rulemaking and conclude that the new rules were necessary to maintain or increase diversity of views. Which leads us to the great elephant in the room — a la carte.

Isn’t this a sneaky way for Martin to do A La Carte/Isn’t this a great way to finally get a la carte? “A La Carte” is French for “split the public interest community into bitterly warring factions.” A La Carte rules would require the cable operators to offer cable channels on a per channel basis. Cable operators could also offer bundles, but would be required to offer individual channels as well.

A number of organizations like Consumers Union, Free Press, and Consumer Federation of America, love a la carte. They believe it will reduce cable rates and will force cable operators to give independent channels a fair chance because cable companies will only make money if they sell programming people actually want. On the ot , a number of organizations like National Hispanic Media Coalition and Minority Media Telecommunications Council hate a la carte. They believe that minority-oriented programming and news programming will die, and we will be left with a handful of channels that compete for the ever-popular-with-advertisers 18-35 yr old white male eyeballs.

At Media Access Project, we resolve this conflict among our close allies by saying “SO HOW ABOUT THEM RED SOX!” everytime the subject comes up. If pressed, we will spill coffee or some other suitable beverage all over ourselves and flee the building. We have actually all signed a statement affirming that, even if threatened with waterboarding, we will not endorse a position on a la carte.

So my discussion here of 70/70 and a la carte should not be taken as an endorsement or a rejection. But I would be remiss in refusing to acknowledge that Martin — who is a big fan of a la carte — could certainly use 70/70 as a justification. Provided, of course, the FCC found that a la carte would actually increase diversity of programming voices. Remember, 70/70 isn’t about competition or rates. It’s just about diversity. Given the current positions of the other Commissioners on the FCC, with Copps and Adelstein dead set against a la carte for diversity reasons and McDowell dead set against it as an unjustified interference in the market place, I don’t see Martin getting a la carte just from triggering 70/70. OTOH, one of his motivations for putting it out there probably is that it makes it easier for him to do it if he can ever get the votes. But if he can get 3 votes for a la carte, he is going to get them anyway whether he has 70/70 authority or no.

In any event, Martin has recognized that the cable companies will push the a la carte button to try to break up support for 70/70 from minorit programmers and civil rights groups that would otherwise jump at the opportunity to push for regulations requiring greater diversity in cable programming. So Martin has taken a la carte off the table. He will continue to insist that before the FCC authorizes a la carte, Congress would need to pass a separate law authorizing it. So whether you love a la carte or hate it, it’s pretty much off the table as far as 70/70 is concerned.

To conclude, 70/70 is no loophole or relic exploited by a vengeful Martin for venal ends, despite what NCTA and the normally intelligent folks at Techdirt have to say. It was designed for exactly the situation we find ourselves in today, the threshold has been met, and we desperately need it.

Leased Access and Carriage Complaint Process

I’ve blogged about these recently and extensively, so I will try to summarize things here real quick. Congress requires the cable operators to set aside about 15% of their capacity for independent programmers and authorized Congress to set appropriate rates. The idea was to provide a way for programmers — whether local, regional, or national — to get on cable systems without needing to get approval from cable operators.

The FCC did an utterly crappy job of implementing this after Congress told them to come up with something decent in 1992. The FCC’s enforcement folks further compounded this by failing to enforce even its pathetic rules in a meaningful way. Despite this, a few leased access programmers have actually managed to use the system. Some, like CaribeVision, target an underserved demographic. Other users include home shopping, religious programs, various infomercials, local advertising supported programming, and others. (If interested in leased access generally, check out the Leased Access Programmers Association.) Back during the Adelphia transaction, we pushed on the idea of a low rate for leased access as a merger condition. Commissioner Adelstein thought this would be an excellent vehicle to improve independent programming — particularly minority programming and local programming — and pushed Martin to open a full fledged proceeding.

Meanwhile, following up on complaints in the same proceeding that the process for independent programmers to complain to the FCC about cable companies illegally discriminating against them was broken, Martin also included questions on the Section 616 complaint process.

At this point, enter Commissioner Copps and The America Channel v. Comcast dispute. Another Adelphia merger condition gave regional sports networks (RSNs) a shortcut to get to carriage dispute resolution because of the nastiness over Comcast refusing to carry the DC Nationals games. The America Channel (TAC) tried to invoke the process, Comcast filed objections. While Copps generally agreed with Martin that TAC should have its day in court and a chance to prove discrimination, Copps wasn’t exactly happy with the idea that sports channels should get special treatment or that you could go out and get enough college sports to win a free pass to arbitration while everyone else had to leap a very high hurdle at the Media Bureau. So in exchange for Copps agreeing to vote the TAC decision, Martin agreed to suspend the Adelphia Merger condition giving special rights to RSNs and move as quickly as possible to get general changes to the carriage complaint process so it would be less dysfunctional for everyone.

So this combined leased access/carriage complaint order is now on circulation before the Commissioners and up for a vote. From what I have heard, the Order is a huge win for independent programmers and leased access programmers. The FCC will generally make it easier for independent programmers to get to adjudication of complaints about discrimination, and will allow independent programmers to prove discrimination from the general course of conduct of cable operators in addition to specific evidence. For example, if Hallmark can prove that Comcast never pays independent channels more than 3 cents a sub, while paying affiliated channels with lower ratings 15 cents a sub, the adjudicator can take that into account as part of the case by proving a general pattern of discriminatory behavior. On leased access, the FCC is looking to lower the rate from about 45 cents a sub to about 7-10 cents a sub, and reign in the more obstructionist practices of cable operators documented in the record. in both cases, the FCC will also put a shot clock in place so that staff will have at least an internal deadline for resolving outstanding complaints.

The cable response in this docket has been unusually feeble. Basically, they trot out the old arguments that if the FCC makes these things more usable, the cable operators will have to dump the existing minority and local programming they have for home shopping and pornographers. Uh-huh. As I keep pointing out, this argument boils down to “the FCC should ignore the explicit instructions of Congress because that would let us do better programming.” Even if that were true (which it ain’t), the FCC is not at liberty to throttle demand for leased access capacity — although one understands why folks like Comcast are all for traffic throttling while lying their asses off about it.

Cable Ownership

This post is long enough, and I’ve been talking about the possible 30% limit on cable ownership for more than 2 years. Martin has circulated an Order which would uphold the 30% cap the DC Circuit overturned back in 2001. And yes, as we have repeatedly argued, it is fully justified by the existing record and no, the DC Circuit did not say the limit could only by 60% or better. None of this stops the cable guys from repeating ad naseaum the same old nonsense about how wildly competitive the video market is and how the DC Circuit said that a 30% limit could not be sustained.

Frankly, the FCC ought to just vote the 30% limit and move on. If the cable guys are right, the DC Circuit will reverse and then we will actually know. But as of right now, we have put in several thousand pages of empirical studies, economic experiments, and theoretical arguments sustained by the more than five years of direct observation of the exercise of market power. At some point, you either bloody get off the pot or not.

My, That Was Certainly A Lot of Background

Yes, it was. And because I have discovered that nobody reads this stuff once it gets past 6 pages or so (heck, keeping people for 6 pages on telecom policy is nothing short of a minor miracle in itself), I am rolling the rest of this into a Part II, wherein I will explain (a) why the objections raised about Martin’s motives, even if they are true, are irrelevant; (b) why I think Martin is actually doing this — or at least one reason — and how it fits in with everything else he has done in the last 6 years as a Commissioner and as Chair; and, (c) why the Democrats need to work with Martin and vote for these items even as they vigorously oppose Martin on his plan to relax the newspaper-broadcast cross-ownership rule. Because we have never, ever had this kind of a chance to put a dent in cable market power and push for a genuine revolution in independent programming. And if we blow this opportunity, we will truly deserve — to paraphrase George Orwell — to have the cable boot stamping in our face forever.

Stay tuned . . . .

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3 Comments

  1. shun says:

    Yeah, quite a whirlwind tour of cable (non-)regulation of the past decade or two.

    You lost me between pages 4 and 5, btw. Anyhoo…the whole “a la carte” argument is fraught with danger. Frankly, no one knows what will happen. Many people have testified that without all the folks watching CMT, Discovery would die, etc.

    Too bad you can’t bifurcate the universe and tell one half to do “a la carte” and the other to stick with the old mode. I guess you could do this experiment: West Coast gets “a la carte” East Coast does not (or vice-versa, makes no difference to me). See who profits.

  2. Aaron says:

    “Given the outrageous excesses of market power displayed by incumbent cable operators, you would imagine that activists would leap at the opportunity offered by Kevin Martin to reign in cable market power – regardless of whether one likes Martin personally or thinks he is a Bellhead or industry tool in other respects.”

    That assumes that Martin’s goal is to “reign in cable market power” and not simply to make AT&T and Verizon’s TV efforts easier….

    Yeah, the new authority could create some wonderful things in an alternative universe where the FCC gave a damn about the end users, our nation’s regulators weren’t utterly corrupt regardless of party, etc…

    I’m not sure why you’d pen eight pages that suggest Martin’s motivations are irrelevant because they’re IMMENSELY RELEVANT. I also think Cook’s point that the move is in part about dodging accountability is not one to be brushed aside so easily….

    Somebody’s being spun. Are we sure it’s everybody but you?

  3. Harold says:

    It’s not a question of spun.

    Lets assume you’re right and it’s about helping the Bells. So? Is living in a world of unrestrained cable market power worth it to keep the Bells down? Why?

    It would be if I thought the Bells were a worse threat and that somehow helping them therefore hurts me. But it doesn’t. I’m certainly no worse off if we regulate the cable industry and reign it in — which are the proposals that are teed up here, and I am considerably better off if cable is not allowed to throw its market power around.

    God knows, if you read my blog that I am no friend of the Bells. But I am not gonna shaft <i>myself</i> on a theory that because things I want are also things the Bells want and Bells shouldn’t get anything they want. That’s as ridiculous as the teenager that decides to stay in his room just to show everyone else how much they miss him. It’s human, but it’s not a very sound basis for public policy.

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