New TV Freedom
Two recent developments promise greater diversity in television programming in coming years. One is the growth of over-the-air pay TV, also known as subscription television. More than 35 applications for this type of service are pending before the Federal Communications Commission. Service has already been approved for San Francisco, Denver, Detroit, Milwaukee, Cincinnati, Boston, and Philadelphia, and stations are on the air in Newark, New Jersey and Corona, California. Like pay-cable, over-the-air pay TV offers feature-length films, live sports events, and other premium fare, all shown without commercials. Subscribers rent an unscrambling device to receive the coded signals over the air.
Because of the growing demand for subscription TV, the FCC has asked for comments on relaxing its present regulations. Currently, it will allow only one such station in each community, and then only if there are already at least four conventional stations serving the area. The Commission is considering dropping the monopoly rule and possibly altering the four-station rule.
Heretofore, the principal form of pay TV has been provided by cable services, which offer both conventional and premium programming. The growth of cable TV has been severely restricted by FCC regulations, among which was the requirement that cable operators set aside channels for access by others—one each for public access, educational access, local government access, and leased access. At least one was to be supplied without charge, and the education and local government channels were to be without charge for the first five years. Cable operators were not permitted to have control over program content on these channels.
These arbitrary restrictions have now been overturned by the federal court of appeals in St. Louis. The landmark decision, by Judge Howard T. Markey, supported the contention of Midwest Video Corporation that the regulations were beyond the FCC's jurisdiction, violated the free speech clause of the First Amendment, and constituted a taking of private property without due process of law and just compensation.
In his 81-page opinion, Judge Markey found that the Communications Act of 1934 does not give the FCC any specific authority over cable systems, nor are such regulations "reasonably ancillary" to the FCC's statutory responsibility to regulate broadcast television. (The FCC was set up, ostensibly, to regulate use of the electromagnetic spectrum—the "airwaves"—by allocating frequency bands to different users on a noninterfering basis. Cable TV does not utilize the airwaves at all.) The judge noted that the FCC's rationale for its cable access regulations was "laudable, praiseworthy, and desirable…" but "the question before us isn't the sincerity of the Commission or the glorious nature of its intentions. The sole question is whether compelling cable systems to build and dedicate facilities to essentially free public uses was within the Commission's jurisdiction."
More fundamentally, Markey pointed out that "governmental interference with the editorial process raises a serious First Amendment issue." The access regulations "strip from cable operators, on four of their channels, all rights of material selection, editorial judgment, and discretion enjoyed by other private communications media and even by the 'semipublic' broadcast media."
Judge Markey's ruling cuts the ground out from under the whole rationale for FCC regulation of cable TV. It is not yet clear whether it will be interpreted narrowly, to throw out only the access rules, or more broadly, to deregulate cable altogether. Even if interpreted narrowly, the ruling is an important victory for property rights and freedom of the press.
• "Limit of One Over-the-Air Pay-TV Station May Be Boosted," Wall Street Journal, Dec. 22, 1977.
• "FCC Dealt Loss on Cable TV Access Channels," Ibid., Feb. 27, 1978.
As the costs of postal service continue to rise, more and more users are switching to alternative forms of delivery. In the magazine field, the leader is Reader's Digest, which has delivered over three million copies outside the postal system since 1974. Most recently it has contracted with the Sweeny News Service to deliver its issues in seven zip code areas in the Boston region. In February the Digest was among the participants in a New York symposium called "Alternative Delivery Reaches the Crossover Point," sponsored by the Magazine Publishers Association. It brought together representatives of major publishers and leading private delivery firms. According to the MPA, private delivery (where available) now costs less than postal rates for some publications.
Meanwhile, entrepreneur Patricia Brennan, who has been challenging the government's first class mail monopoly (REASON, Spotlight, December 1977) has been found guilty of violating the private express statutes. The Federal District Court in Rochester, New York has issued her firm a cease and desist order. Brennan, however, plans to appeal. "It's not the end of the ball game," she said. "It's just the end of the first inning." [Those wishing to contribute to the Brennan defense funds should send a check to Harris, Beach, Wilcox, Ruben and Levey, Cross Roads Building, Two State Street, Rochester, NY 14614—Ed.]
Although the federal judge in the Brennan case thinks that maintaining the government monopoly is essential, the Council on Wage and Price Stability strongly disagrees. In a filing last year with the Postal Rate Commission, the Council stated:
Permitting competition to the Postal Service's first-class service probably would result in significant benefits to the economy and to the mail user. Under a regime of competition, rates would likely differ significantly from the now mandatory uniform first-class rate, recognizing different segments of first-class mail. Thus, competition could lead to greater economic efficiency, and provide better signals to guide the flow of resources into each kind of service provided. Moreover, competition might well lead to greater postal efficiency, higher productivity. Such competition could also induce innovation and technological change in the provision of postal services, resulting in better services and lower costs.
• "RD Expands Alternate Delivery," Media Industry Newsletter, Jan. 16, 1978, p. 3.
• "Liberate the Post Office!" Battle Line, March 1978, p. 25.
Private Forecasters Beat Winter
February's severe blizzards in the Northeast taught many companies a harsh lesson about relying on the government's weather forecasts: don't. The storm that hit on Sunday night, February 5th, cost firms up to several million dollars each, in lost sales and employee time. But some, like Wakefern Food Corporation, a major food distributor, had plenty of warning. Wakefern completed 90 percent of its normal Monday night deliveries on Sunday, before the storm hit. It had received a detailed advance forecast of the blizzard from National Weather Corporation, of Newark, New Jersey.
National Weather is one of several hundred private weather services (see REASON, Trends, April 1977 and September 1977). They are growing by leaps and bounds as more and more firms in diverse industries realize the dollar value of having accurate, timely weather forecasts. But the government's National Weather Service just can't seem to do the job. Although it generates large amounts of data (which forms the majority of the data used by private forecasters), the NWS doesn't have the personnel or the analytical capabilities to do the kind of detailed work companies need.
Among the users of private weather services are the following:
• Shipping lines—450 different steamship companies pay $375 apiece for custom-designed sea routes from Oceanroutes, Inc. of Palo Alto, California. About 65 percent of the company's $5 million annual income is derived from shipping lines. Most of the rest comes from major oil companies, which pay $20,000 a month for custom forecasts of weather in the vicinity of their drilling rigs.
• Agribusiness—dealers in agricultural commodities pay up to $200,000 for crop forecasts from firms such as Earth Satellite Corporation. Giant Cargill now employs its own meteorologists.
• Mining companies—Reserve Mining Company buys custom forecasts for the area around its taconite mines from Murray & Trettel, Inc. of Chicago. It schedules blasting operations for times when the weather will not reinforce the shockwaves (which causes damage far from the mines).
• Sports-related firms—WBAL-TV in Baltimore pays $700 a month to Accu-Weather, Inc. for custom forecasts, especially so it can predict conditions at Colts and Orioles games for fans. A bakery subscribes to the Travelers Weather Service to decide the quantities of hotdog and hamburger rolls to produce for each weekend.
• Merchandisers—Sears, Roebuck & Co. has hired its own meteorologists in order to forecast expected demands for seasonal products like air conditioners and snow tires. Their short-range forecasts help stores stock up on umbrellas prior to rainy weather.
Very tangible economic needs for weather information exist. And the market is meeting those needs. If the NWS were not supplying much of the basic data, those same economic needs would still exist, and we can be sure that one or more firms would emerge as weather data wholesalers, to supply the hundreds of retail weather data suppliers already in existence.
• "Perverse Weather: the Boom in Private Forecasting," Business Week, Feb. 27, 1978.
Thirty years of state regulation of the insurance industry have generally failed to provide low-cost, readily available insurance. Instead, rigid state regulations have discouraged rate reductions, contributed to instability in insurance company operations, and made insurance unavailable to people considered high risks. So concluded a special Justice Department task force during the closing days of the Ford administration.
But there is an alternative. Over the last 10 years, notes the task force report, a number of states have adopted an "open competition" system of rate regulations, to replace conventional regulation. Comparison of states that allow market forces to predominate and those that set rates by regulation leads to following conclusion: "…unrestricted price competition is superior to rigid rate regulation as a way of achieving reasonable prices, a reliable insurance mechanism, and economically fair prices which are based on accurate assessment of the risk presented."
But how to get rid of restrictive state regulations? Here the report waffles, suggesting that the federal government set up a "more flexible national system of regulation" which insurers could choose instead of state regulation. Companies opting for a federal charter would lose their present antitrust exemption, but would also be exempt from state regulations in such areas as rates, solvency, collective merchandising, and direct writing of insurance. Rates would be set by free competition. In addition, the proposed federal system of solvency regulation would emphasize the swift removal of failing companies from the marketplace. By contrast, present state regulation has emphasized "keeping every insurer afloat."
• Federal-State Regulation of the Pricing and Marketing of Insurance, Paul W. MacAvoy, editor, American Enterprise Institute, May 1977.
Three more victories have occurred in support of an individual's right to make his own medical decisions. In California a Sacramento health food store proprietor has been cleared of a charge of practicing medicine without a license. Ms. Georgana Elliott had given advice to a customer who asked for help on his diet. She recommended food supplements containing minerals, without claiming they would cure any disease. The customer turned out to be an undercover agent for the state Health Department. Ms. Elliott was arrested under a provision of the Business and Professions Code which prohibits anyone not licensed as a physician from "practicing a system or mode of treating the sick and afflicted.…" Municipal Judge Edward Garcia dismissed the case "in the interest of justice," after widespread newspaper publicity. And state Senator William Campbell plans to introduce legislation to exempt nutrition counseling from the law's restrictions.
In New Mexico a new law permits cancer and glaucoma patients to use marijuana under medical supervision. The drug has been found to ease nausea caused by cancer chemotherapy and is effective in counteracting glaucoma. Up to 500 people may be eligible under the terms of the law.
Finally, New Jersey became the 14th state to legalize the sale of Laetrile. The new law also allows manufacture of the substance, like some but not all of the 13 other decriminalization measures. Although several large pharmaceutical firms promptly announced that they would not manufacture Laetrile, smaller firms are almost certain to do so. The only limitation may be obtaining sufficient quantities of apricot pits. The Food and Drug Administration is rumored to be looking into a ban on interstate shipment of apricots, most of which are grown in California (where Laetrile remains illegal).
• "Standing Up to Health Department Paid Off," NHF Newsletter, March 1978.
• "Cancer Victims May Be Given Pot," Los Angeles Times, Feb. 13, 1978. â€¢ "Laetrile Legalized," AP (Trenton), Jan. 12, 1978.
FTC Backs Competition
The Federal Trade Commission continues its ongoing campaign against anticompetitive standards and practices in the professions. Principal targets include bans on advertising, restrictions on types of services offered, and strict licensing requirements. Most of the challenged practices are enforced by state law.
In the legal profession, although the ban on advertising has been overturned by the Supreme Court, other restrictive practices continue. In January the FTC announced a new investigation into bar association restrictions that inhibit lawyers from forming legal clinics or prepaid legal plans.
Another field the FTC is investigating is accounting. It is looking into state-imposed restrictions on entry to the field; codes against advertising, solicitation, and competitive bidding; the extent to which major firms control the industry; and the way in which accounting and auditing standards are established.
The agency has also gone after restrictions on the sale and advertising of eyeglasses. Some years ago University of Rochester economist Lee Benham showed that state laws banning or restricting eyeglasses ads lead to substantially higher prices in those states (REASON, Trends, May 1973). Although a few of these laws have since been overturned in the courts or modified by legislatures, most of the modified laws impose stringent limitations on the content of eyeglass ads.
But the FTC has just changed all that. In February it issued a trade regulation that wiped out the ad bans in all 40 remaining states, and limited the content requirements, FTC staffers are investigating remaining restrictions in some states that prevent large chains like Sears from offering optical services. Over the last few years a number of these chains have entered the eyeglass market, sometimes challenging state laws in doing so. By aggressive price-cutting, backed by radio and TV advertising, their share of the market has already reached 40 percent—up from 14 percent five years ago. The FTC's new trade regulation will open the door to expansion by firms like Eckerd, Revco, and People's Drug Stores, which have pioneered price competition in optical services.
• "An FTC Challenge to the Legal Profession," Business Week, Jan. 9, 1978, p. 23.
• "FTC Seems Near Issuing Eyeglass Rules," Wall Street Journal, Jan. 11, 1978.
• "Drugstores See a Boom in Eyeglasses," Business Week, Feb. 13, 1978, p. 116.
• No Longer Master. A state law making the husband the "head and master" of the property and finances in a marriage has been ruled unconstitutional. Louisiana Civil Court Judge Gerald Federoff ruled that "there is utterly no justification for the State to arbitrarily grant to the husband the sole administration of property legally owned in common, and in fact as often as not actually produced by the joint earnings of husband and wife." The law dated back to the 1700's when Spain exercised sovereignty over Louisiana. (Source: AP (New Orleans), Feb. 16,1978.)
• Spending Limitation. Tennessee voters have approved a constitutional amendment to limit state government spending. The measure, which was Proposition 9 on the March 7 ballot, limits the annual growth in state appropriations to the rate of growth of the state's economy. Had the amendment been in effect for the past eight years, state government spending would not have tripled, since total personal income in Tennessee has gone up only 2½ times in that period. While not providing a very stringent restraint on government growth, the Tennessee measure is at least a step in the right direction. (Source: AP (Nashville), March 8,1978.)
• Boycott Soviets. A US technical society has voted to sever all contacts with the Soviet Union. And a leading Soviet dissident supports the move. Because the USSR has refused to allow a young computer scientist, Anatoly Shcharansky, to emigrate to Israel, the Association for Computing Machinery has cut off all cooperative efforts, including participation in international conferences at which the Soviets are represented. Countering fears that this might make things worse for dissidents, leading dissident Andrei Sakharov has lauded the ACM move, ACM has "hit the right nail," said the famed scientist in a recent letter. "Do not take seriously any assertion that your decision could only embitter the Soviet authorities and aggravate the situation of Soviet scientists.…The Soviet authorities extremely appreciate the cooperation in science and technology; thus, there is nothing to induce them so factually and effectively as a refusal to maintain this cooperation." (Source: Science, Feb. 17, 1978, p. 752.)