Cable ’04: Carrying On

In October 1996, a lawyer stood in the marbled chamber of the U.S. Supreme Court and told justices that broadcasters have no right to space on cable systems.

The scene is likely to be repeated in the next few years, as the cable industry continues its perennial jousting with its rival and business partner, the broadcast industry. The question before the Supreme Court that day in 1996—whether cable must carry programming offered by broadcasters—remains the top regulatory issue facing the industry.

A host of other issues claim attention, too. Con- gressional disquiet with ever-increasing cable rates is leading some lawmakers to call for à la carte pricing that lets consumers pick which programs they buy, rather than being faced with bundled programs, or tiers. Cable-industry officials say the proposal would raise prices while weakening or killing less-popular programs. The recent indecency debate, too, shows signs of drawing in cable, as some lawmakers want it subjected to the same indecency regulations that restrict broadcast fare.

Other issues are less incendiary but nonetheless important. Federal regulators are deciding, albeit at a leisurely pace, whether to restore court-vacated limits on the size of multiple-system cable operators, or MSOs. And cable operators, anticipating that high-speed Internet may become a dominant conduit for video programming and other services, are fighting a government mandate that they open to all Internet service providers the $75 billion digital pipeline into homes that they have constructed with private money over the past decade.

But of all the challenges facing the industry, the argument over cable carriage of broadcast fare is drawing the most attention. That’s partly because the issue has been hard fought for many years, and the Federal Communications Commission has signaled its intention to decide the issue soon. It’s also because the argument is over a fundamental question: who may control what fare cable can offer to its customers.

“This is probably the issue of highest importance in terms of the future of the industry,” said Brian Dietz, a spokesman for the National Cable & Telecommunications Association, the trade group that takes a lead in regulatory affairs. The debate concerns broadcasters’ rights to demand their signal be carried by cable operators. The Supreme Court sided with the broadcasters in a 5-4 decision after the 1996 arguments (the case, brought by Turner Broadcasting System against the FCC, was decided in March 1997). Now the argument is over how to apply those must-carry rights once the nation’s television industry moves from its traditional analog broadcasts to digital service. The transition has a target date of Jan. 1, 2007, which few expect to be met. The FCC is devising a plan to accomplish the transition by 2009, but further delay is possible.

Whatever the timing, broadcasters, cable operators and other industry participants are all moving ahead under the assumption that their future will be digital. And broadcasters have noticed they have options. They can use the digital bandwidth allotted to them to send one gorgeous, high-definition video stream. Or they can stuff the bandwidth with as many as six separate programs that offer less-detailed pictures more akin to the quality of today’s broadcasts.

They desperately want cable to carry all six programs. They fear that without full access to the nearly 70 percent of TV households that take cable service, the new multicast services will not attract enough viewers or advertising revenue to stay alive. In a recent filing to the FCC, NBC affiliates asserted that uncertainty over carriage could strangle the multicast baby in the crib. Cable operators, they said, increasingly compete with broadcasters for advertising. “Cable operators…have both the power and the incentive to snuff out these multicast initiatives before they have the opportunity to compete for viewer attention,” the affiliates said in their Jan. 8 filing.

As examples of prospective programming, the NBC affiliates mentioned a weather channel that would focus on local conditions, and channels devoted to coverage of local events such as press conferences and government meetings. Jack Sander, president/media operations for Belo Corp., pointed to his company’s existing 24-hour local news service on KTVB in Boise, Idaho, as an example of the digital programming that could prosper with cable carriage—but fail without it. “Cable systems serve as gatekeepers,” Sander wrote. “Multicast programming that is distributed solely over the air to our stations’ viewers can reach as little as 15 percent of the local public.”

In an interview with Mediaweek, Brandon Burgess, executive vp/business development for NBC, called must-carry “an important factor. When you’re an advertising-only business, you invest in programming knowing it will be transported to all viewers, and you hope consumers watch it,” Burgess said. “If you don’t know it will be carried, then you don’t invest.”

Cable officials say broadcasters are seeking guaranteed space for programming of unproven quality. “Even a cursory examination” shows the NBC affiliate group “has not developed any plans or business models for multicast programming that are economically viable and/or attractive to viewers,” Daniel Brenner, senior vp, law and regulatory policy for the NCTA, wrote in an April 20 reply filed with the FCC.

Brenner reprised themes struck by other cable-industry executives, who say they are eager to carry compelling broadcast content but reluctant to serve as a conduit for flat or uninspiring fare—including infomercials that some cable operators fear broadcasters will foist upon them in the name of multicasting. “There are dozens of nonbroadcast entities ready to compete for limited available channel space,” Brenner wrote.

Last summer NCTA president/CEO Robert Sachs spelled out some consequences of an adverse decision on must-carry. “In Chicago, for instance, where there are 17 local TV stations, cable systems could be required to carry up to 102 digital broadcast channels,” he said in an address to the NCTA’s annual convention. Broadcasters contend that even such burdens upon cable systems’ limited capacity are less, thanks to digital compression technologies, than the burden approved by the Supreme Court in the Turner case seven years ago. That may be true, say cable operators. But they also assert that they need whatever bandwidth they can muster to provide video-on-demand, Internet telephony and other high-end services that offer a chance for business growth as the traditional video market matures.

Sachs said rather than forcing fare upon cable systems, broadcasters should create “high-definition programming and other high-value digital content that consumers want” and that cable would carry because consumers demand it. Indeed, by this spring, local cable systems had negotiated with broadcasters to carry the digital signals of 88 ABC affiliates, 85 CBS affiliates and 79 NBC affiliates, according to NCTA figures. For broadcasters, such figures fall woefully short. According to the National Association of Broadcasters, cable systems carry only one-third of the digital signals broadcast by nearly 1,200 stations that are using the format.

The bitter and seemingly irreconcilable dispute will be resolved by the FCC and by courts that will field the inevitable appeal of the FCC’s decision. Strangely, the agency already decided the issue once, in a ruling in January 2001 on the last day of the chairmanship of William Kennard, a Democrat. The decision held that broadcasters may not demand simultaneous carriage of digital and analog signals (so-called dual carriage) during the years-long transition to a digital system. At the same time, the commission determined that when asserting digital carriage rights, broadcasters could claim space only for their “primary video” signal.

The agency now is deciding broadcasters’ request that it reconsider the 2001 ruling. Most Washington-based analysts say dual carriage is as good as dead. As for multiple must-carry, its fate hinges upon a spirited fight over the meaning of the word “primary,” as in “primary video.” Ask a cable lawyer, and the word means “one” or “single.” Ask a broadcast lawyer, and the word means main or basic, as in primary colors.

One bright spot for cable: The sole holdover from the Kennard commission is a powerful one, Chairman Michael Powell, a Republican. Powell shows no signs of changing his mind that primary means one. Replying to a question before the National Association of Broadcasters convention in Las Vegas on April 20, Powell could barely conceal his impatience with broadcasters’ argument that multicast must-carry would further the free flow of information. “Let’s let it freely flow—by increased regulation to make sure,” Powell said in a caustic characterization.

Cable advocates think they also might have Powell’s fellow Republican commissioner, Kathleen Abernathy, on their side. But they appear to have lost Commissioner Kevin Martin, a Republican who has not hesitated to oppose Powell on other issues. Martin freely admits he believes cable and satellite viewers should be able to see what over-the-air viewers see for free.

The agency’s two Democratic commissioners may be leaning toward multiple must-carry. But before moving forward, they want to determine what plans broadcasters have for serving the public interest with their expanded palette of channels. “If they just multiply more infomercials and there’s more crassness and more rudeness, how does that help anybody?” asked Commissioner Jonathan Adelstein at a panel discussion April 20 at the NAB convention in Las Vegas. “You need to know up front there are more public interest obligations, before moving ahead.” His fellow Democrat, Michael Copps, expressed similar sentiments. “We have an obligation to tee up the public interest questions,” he said. —with Katy Bachman K

Todd Shields is the Washington editor for Mediaweek.