Monday, January 4, 2010

More on Cable Rates

In the 1970s when CATV was just getting started Congress in its never ending search for things to control looked at separating content from transport. Namely they wanted to make CATV companies transport only entities and force those who has even the slightest hand in content to divest it from the transport side. In effect Congress sought to make Cable a common carrier.

Now to the present, the FOX/Time Warner flap, the Cablevision/HG and Food Channel flap and the many others brewing around are trying to change the playing field.

In the old days the local broadcast channels provided free access and made money by advertising. Now with FOX taking the lead they want both advertising and a subscription fee. Namely they want $1.00 per month per subscriber whether the subscriber wants to watch or not. The business model is changing. You the subscriber will be paying for content you do not want plus for the CATV companies lines to your residence, which frankly are paid for many times over by the exorbitant broadband charges.

The FCC has an interesting FACT Sheet that is worth the read for the general individual regarding CATV. For example it distinguished the issue of "must carry" and retransmissions. It is this doorway that opened the set of problems we see now.

Per the Fact Sheet:

"The 1992 Cable Act established new standards for television broadcast station signal carriage on cable systems. Under these rules, each local commercial television broadcast station was given the option of selecting mandatory carriage ("must-carry") or retransmission consent ("may carry") for each cable system serving the same market as the commercial television station. The market of a television station is established by its Area of Dominant Influence ("ADI"), as defined by Arbitron and/or modified by the Commission. Every county in the country is assigned to an ADI, and those cable systems and television stations in the same ADI are considered to be in the same market. Upon the request of a television station or a cable system, the Commission has the authority to change the ADI to which a station is assigned. As a result of Arbitron abandoning the television research business, the Commission has determined that, effective January 1, 2000, the market of a television station shall be its Designated Market Area ("DMA") as determined by Nielsen Media Research.

Must-Carry/Retransmission Consent Election

Every three years, every local commercial television station has the right to elect either must-carry or retransmission consent. The initial election was made on June 17, 1993, and was effective on October 6, 1993. The next election occurred on October 1, 1996, and was effective January 1, 1997. All subsequent elections will occur every three years (October 1 1999, to be effective January 1, 2000; October 1, 2002, to be effective January 1, 2003; etc.).

Election of Must-Carry Status

Generally, if a local commercial television station elects must-carry status, it is entitled to insist on cable carriage in its local market. Each cable system with more than 12 channels must set aside up to one-third of its channel capacity for must-carry stations. For example, if a cable system has 60 channels, it must set aside 20 of those channels for must-carry stations. If there are 25 stations in the market which elected must-carry, the cable operator may choose 20 to carry. On the other hand, if only 15 stations elected must-carry in the market, the cable system would have to carry all 15 of these stations. A must-carry station has a statutory right to a channel position, usually its over-the-air channel number, or another channel number on which it has historically been carried.

Retransmission Consent Election

A cable system is not permitted to carry a commercial station without the station's consent. Therefore, if the local commercial television station elects retransmission consent, the cable system must obtain that station's consent prior to carrying or transmitting its signal. Except for "superstations," a cable system may not carry the signal of any television broadcast station that is not located in the same market as the cable system without that broadcaster's consent. Superstations are transmitted via satellite, usually nationwide, and the cable system may carry such stations outside their local market without their consent. The negotiations between a television station and a cable system are private agreements which may, but need not, include some form of compensation to the television station such as money, advertising time or additional channel access."

The two options open up the current Pandora's Box. If they select retransmission they then get to negotiate for a price. As seen in the FOX example it is a bit of brinkmanship because the core is advertising. Yet it seems to be the belief of the FOX management that advertising is going the way of the horse. They must have subscriptions. The question then is "is there a fatal flaw here?". We believe there may be.

Back in 1980-1982 when at Warner I ran their Electronic Home Services Business, the first interactive two way video on demand business. We had a similar set of problems and yet we at the same time were generating content, MTV, and the like. We had content, new content, but not it seems that they are just moving the chairs. FOX wants to redefine the way things work. That is always dangerous. You may actually get what you are seeking and it may not be pretty.