How Government Regulations Created the Time Warner-CBS Blackout

It’s time for Congress to completely deregulate the video distribution marketplace.

When negotiating to buy a new car, a frequent tactic of shoppers is to get up and walk away if the salesman’s price is higher than they want to pay. Often the salesman will run after the buyer with a “final” offer that makes the buyer grin in victory. Sometimes, however, the shopper just has to walk away empty-handed. In the days that follow, the salesman might call and make a lower offer, or if the buyer just has to have the car, he might return with his tail between his legs and pay more than he wants to.

That’s how negotiation is supposed to work in a free market. Unfortunately, the fact that many are calling for government intervention in the recent standoff between CBS and Time Warner Cable shows that there is nothing free about the video marketplace.

The blackout, now entering its eleventh day, is the result of an impasse in negotiations between Time Warner and CBS. At stake is how much the cable company should pay to carry CBS’s broadcast stations, as well as Showtime and TMC, which CBS owns. Time Warner thinks the price CBS is demanding is way too steep, and CBS isn’t budging. It let its contract with Time Warner expire and walked away, leaving more than 3 million subscribers in New York, Los Angeles, and Dallas without access to their local CBS stations.

The situation has become heated in recent days. CBS has blocked Time Warner broadband customers from accessing video of CBS shows on its website. It has also been playing its popular programs, like Big Bang Theory, in New York’s Times Square next to a giant billboard that reads, “If you’ve got Time Warner Cable you can’t watch CBS.” Time Warner, for its part, has replaced the signals  of the blacked-out stations with a video message that begins, “CBS has demanded an outrageous increase for programming that CBS delivers free over the air and online, requiring us to remove their stations from your lineup[.]”

In a free market, like our car-buying scenario, the parties would remain at loggerheads until they came to terms, which might never happen. Yet when cable companies face blackouts, they always want an assist from the federal government.

Matthew Polka, CEO of the American Cable Association, said last week that Congress and the FCC had failed to heed cable operators’ urging “to adopt rules that prevent consumers from losing access to programming during these disputes,” and that “With the CEO of CBS openly declaring war on Time Warner Cable, Congress and the FCC need to take action to ensure that these types of disputes do not continue to erupt and victimize consumers who, in this case and in many more, seem to be at the mercy of a bellicose broadcast CEO with a Napoleon complex.”

It’s grandstanding in pursuit of a favor from government, but his frustration is, in a way, understandable.

Before 1992, cable companies didn’t need the permission of broadcasters to retransmit TV signals. They had to pay the copyright owners of the programs they retransmitted, of course, but TV station signals were free for the taking. After all, broadcasters transmit on spectrum given to them for free by the federal government in exchange for a promise that they make their signals freely available.

Then Congress passed the Cable Act of 1992, which essentially created a new super-property-right for broadcasters in their signals.

Why super? For one thing, broadcasters were given “must-carry” power, which means that if a cable company is not interested in carrying a local TV station’s signal, the station can force them to do so. Not only that, it can also choose to be assigned a coveted spot among the low-numbered channels. Additionally, if the cable company does want to carry a TV station’s signal, it now must negotiate with the broadcaster for the right, which if withheld leads to a blackout.

This wouldn’t be so bad if cable companies that couldn’t reach an agreement with a local broadcaster could simply make a deal with an out of town affiliate of the same network. For example, if Time Warner can’t reach a deal with CBS to carry L.A.’s KCBS, maybe it can make a deal to retransmit San Diego’s KFMB—affiliated with, but not owned by, CBS. Viewers wouldn’t get the local station’s news, but at least they wouldn’t miss the Masters golf championship as many did last weekend.

But again, the government has given broadcasters outsized rights. The FCC’s “network non-duplication regulations” allowing local stations to block cable systems from importing network programming from another affiliate of the same broadcast network. They can’t even carry Jeopardy, Divorce Court, or similar syndicated TV shows because FCC rules also allow local stations that carry syndicated programming to prevent cable systems from carrying the same programs from out-of-market broadcast stations.

So it’s more than a little ironic that many are now calling for government intervention to solve a problem that was largely created by regulation. In a letter  to the FCC last week, Massachusetts Sen. Edward Markey made a “request that the Commission take action to bring the parties together so these negotiations can be concluded in an equitable and expeditious manner.” Reading between the lines that means forced arbitration. And in a letter  of its own, Time Warner has suggested to the FCC that the agency has the power to force CBS to let the cable company continue to carry the blacked out channels while they negotiate.

Two wrongs don’t make a right, however. There is no free market when it comes to broadcast retransmission because Congress and the FCC have tilted the scales in favor of the broadcasters. But the solution is not for government to “even things out” with more regulation and intervention. The solution is to take its thumb off the scales altogether.

When Congress and the FCC came up with the “must-carry” and “retrans consent” rules, they were afraid that local TV stations would be at the mercy of monopoly cable systems. That didn’t make much sense then, but today with cable facing competition from two national satellite TV providers, video service from traditional phone companies like Verizon and AT&T, as well as Internet video, it definitely doesn’t make any sense now.

Congress should completely deregulate the video distribution marketplace by repealing broadcaster’s special rights. While the they’re at it they should also end compulsory copyright licensing that allows video distributors like cable companies to pay regulated rates for the programs they retransmit, rather than negotiate. And they should privatize the spectrum, rather than continue to give it away to broadcasters in the name of the “public interest.” At least one bill now pending before Congress would do much of that.

In the meantime, to my friends in New York, L.A., and Dallas, I say, hang in there. I hear Aereo has ambitious expansion plans.

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  • Overt||

    Not meant to be snarky- how do you privatize the spectrum? Largest transmitter wins? Gift it to some GSE?

  • UnCivilServant||

    Typically, they auction off frequency bands.

  • SweatingGin||

    The pre-FCC radio world is interesting for that. Essentially, homesteaded property rights were being recognized by courts -- you couldn't interfere with others, or overpower them.

    Another interesting thing in that vein is the time when satellite radio had cell tower repeaters.

  • UnCivilServant||

    They'd never do that again - no money for the state.

  • ||

    Reason's own Jesse Walker wrote a great book a few years ago called Rebels on the Air. It goes quite in-depth on how the spectrum was co-opted and divvied up by the feds.

  • April06||

    just as Heather said I am shocked that any body can profit $5264 in 4 weeks on the internet. have you seen this page http://www.max47.com

  • April06||

    my neighbor's step-sister makes $64 an hour on the laptop. She has been without a job for 10 months but last month her payment was $17489 just working on the laptop for a few hours. Go to this web site and read more http://www.max47.com

  • UnCivilServant||

    The only thing I noticed was that when calling to get tech support for my internet connection I'd end up screaming "I don't give a damn about your spat with CBS" at the recorded message because they put it on their telephone IVR before the menus too. I don't watch any of the channels impacted, and don't care how long it takes for them to reach an agreement.

  • mr simple||

    they wouldn’t miss the Masters golf championship as many did last weekend.

    When was this article written? The Masters is in April.

  • UnCivilServant||

    Golf Reruns? Are they trying to perfect boredom?

  • Timon 19||

    HuffPo is no better. They call it "golf's Major Championship".

    What the fuck is that?

  • Warrren||

    It's the very model of a modern major championship!

  • Number 2||

    Jerry,

    It was the PGA Championship, not the Masters. The point is the same, though.

  • mr simple||

    So it’s more than a little ironic that many are now calling for government intervention to solve a problem that was largely created by regulation.

    First day on this planet? That's all the statists know how to argue. I love the blank looks I get when I try to explain to people that the corporashuns! they hate so much wouldn't have the power they do or invest so much money in politicians, etc., if the government hadn't taken for itself the power to pick winners and losers. But to them only more government regulation can solve any perceived problem.

  • Scruffy Nerfherder||

    slashdot/ We need Net Neutrality! Stop Comcast! /slashdot

  • Neoliberal Kochtopus||

    This wouldn’t be so bad if cable companies that couldn’t reach an agreement with a local broadcaster could simply make a deal with an out of town affiliate of the same network. For example, if Time Warner can’t reach a deal with CBS to carry L.A.’s KCBS, maybe it can make a deal to retransmit San Diego’s KFMB—affiliated with, but not owned by, CBS. Viewers wouldn’t get the local station’s news, but at least they wouldn’t miss the Masters golf championship as many did last weekend.

    I have to ask - wouldn't this be (likely) prohibited in any contract CBS would sign with an affiliate?

  • UnCivilServant||

    Not when it's enshrined in law and they don't have to worry about it.

  • T||

    Hard to answer as that contract provision would only be valid with significant changes to the current regulatory scheme. If you went back pre-92, it's a moot point. You'd have to kill the 'must carry' and the 'network non-duplication regulations' but leave intact some of the retransmission restrictions? I'm thinking off the top of my head here.

    I think in general contract law is a better answer than regulation to cover this, but I don't have a clear enough picture of the property rights.

  • Overt||

    And at that point one wonders if those Separate-but-affiliated-Companies would then come under Anti-Trust regulations for trading as a single cartel.

    (Which in and of itself is ANOTHER government regulation).

    All of this comes from the Government's decision to grant monopolies. Monopolies on Spectrum. Monopolies on Cable Companies. Without these monopolies, we wouldn't be constantly trying to legislate mitigation.

  • Bill Dalasio||

    But, where-oh-where will I ever get my NCIS, Blue Bloods, CSI or The Good Wife?

    /s

  • NeonCat||

    You could also get an antenna and a splitter switch and enjoy free broadcast HD. Less convenient than watching it through the cable box (I don't know if anyone sells remote controlled splitter switches) but if you have T-W and really miss Craig Ferguson, Price is Right, etc. it would give you your shows back.

  • Mizchief||

    I don't remember what channel it was now, but this kind of BS is why I dropped cable all together. Was watching a show that had scrolling bars 2 deep on being the Channel complaining that the cable network wasn't paying enough, and the one below the network complaining that the channel wanted too much.

  • XM||

    I can watch reruns of Big Bang Theory and How I met Your Mother on other channels and watch fresh episodes online. I'm surprised out of my mind that network TV has survived this long.

    I heard that "2 Broke Girls" is the most racist show on Earth. The guy who portrays the Korean store owner isn't even Korean. The 10 liberals who boycotted the station for that have finally won.

  • April06||

    Start working at home with Google! It’s by-far the best job I’ve had. Last Wednesday I got a brand new BMW since getting a check for $6474 this - 4 weeks past. I began this 8-months ago and immediately was bringing home at least $77 per hour. I work through this link, http://www.max47.com

  • April06||

    my neighbor's step-sister makes $64 an hour on the laptop. She has been without a job for 10 months but last month her payment was $17489 just working on the laptop for a few hours. Go to this web site and read more http://www.max47.com

  • Floozy||

    I never understood this when I worked for a cable company. It always seemed that if you carried the over-the-air channel completely unaltered, then you should just be able to grab it and put it on the system. I can see where you would need to pay them if you were going to do things like inject your own ads or something. But on our system, in a small city, we had to pay the big five local channels $1 per month per subscriber to carry them. So, that meant that it we could have almost nothing of any value in our most basic tier and keep it under $10 a month. I sort of understood the must carry provision to give channels some access, but even that seemed a bit heavy-handed. But you generally were giving people a better signal than they got off an antenna and paying the channel to do that for them. Nuts. But then government creating headaches for government to solve is what they do best.

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