Regulation gave us media monopolies. Can consumer power shake them?
Americans hate their cable companies—for bumbling installers, on-again-off-again transmissions, peculiar channel selections, and indifferent customer service. The only thing cable subscribers hate more than the cable company is not being able to get what it delivers: multichannel selection and good reception.
So when Time Warner yanked ABC from the homes of more than 3 million subscribers, including a lot of Manhattanite media stars, the cable company was bound to lose the p.r. battle. As Eric Mink of the New York Daily News put it, "On one side, there's Oprah Winfrey, Regis Philbin, Ted Koppel, Dennis Franz, Diane Sawyer, Michael J. Fox, Drew Carey, Jenna Elfman and Peter Jennings. On the other side, there's…the cable company! The technical term for this situation is 'no-brainer.'"
Beyond the Everyman consensus that the cable company is bad, there was the equally common idea of why that's so: because the cable company is big. Time Warner is already a huge jumble of media properties, from DC Comics to CNN, and it's trying to merge with AOL. Over and over again, populist cynics warned that we might as well get used to its viewers-be-damned attitude.
"It's the future," wrote Phil Rosenthal of the Chicago Sun-Times. "A future that doesn't have to be, perhaps, but a future toward which we seem inexorably headed. This nasty shoving match between media megapowers…is a warning to everyone about all that's at stake as conglomerates merge and flex their newly fortified muscle."
The ABC affiliate in Philadelphia put out a press release with much the same message. Viewers in West and North Philly, it said, were victims of Time Warner's "illegal and irresponsible midnight ambush of Channel 6 and its viewers." The big, bad conglomerate had bought out minority-owned Wade Communications, which formerly held the monopoly franchise for those areas, and now Time Warner was beating up its customers. "Time Warner's action is a frightening foreshadowing of how it will treat the public after its merger with AOL," said Dave Davis, the station's general manager.
The problem with this diagnosis is that it ignores history. As it happens, I lived in West Philadelphia in the early 1980s, and I could only dream of such problems. In those days, the issue wasn't whether local cable subscribers would do without Ted Koppel for a few nights. It was whether Philadelphians would ever get cable at all. Local and national companies were clamoring to provide service, and we customers wanted to buy it. But the city council wouldn't let anyone into the cable business.
Council members couldn't make up their minds how exactly to divide up the monopoly territories and what to demand in return. How much favor should local companies get? How about minorities? How many channels should be reserved for public access programming or showcasing city council meetings? Every time a deal looked close, it fell apart. Philadelphians who wanted cable TV were victims of years upon years of political ambushes—all in the name of the "public interest." The same was true across the country.
Ever wonder why the low channels in Washington, D.C., are full of unwatchable yack shows featuring local eminences you've never heard of? That's the sort of "public service" payoff it took to get the right to give subscribers ESPN, C-SPAN, and A&E. As for the rinky-dink home shopping and religious stations that clog many cable systems, you can blame the federal "must carry" law—a reflection of a long-standing official bias toward "localism." Must-carry forces a cable company to transmit all local broadcast stations that don't demand payment, even if viewers would rather watch something else.
Contrary to critics like Rosenthal, what we saw in the Disney vs. Time Warner fight wasn't the future. It was the past. It was the destructive, anti-consumer legacy of treating telecommunications as too important for market competition.
For 70 years, federal technocrats have imposed rigid categories on telecom—blocking the fluidity that would otherwise match technological creativity and consumer desires. In the 1970s and '80s, the ostensibly disinterested stasis of federal telecom regulations met the crass, interest-group jockeying of local politics. The combination of federal restrictions and municipal favoritism created the nasty cable companies customers loathe today.
Cable companies aren't bad because they're parts of unwieldy media conglomerates. They're bad because they're monopolies (even where they are no longer legally exclusive) and because the government policies that made them monopolies rewarded lobbying over customer service. In the name of the "public interest," cable companies were taught, and in some cases required by law, to screw their subscribers. They learned instead to please the powers that doled out their franchises and protected them from competing technologies. Making customers happy was desirable, of course, but it wasn't a bottom-line priority. Customers had nowhere else to go.
That's finally changing. During its battle with Time Warner, Disney didn't rely on p.r. and politics alone. It signed up with DirecTV to offer free satellite dishes to people who wanted to dump the cable service that had dumped ABC. In Houston alone, some 15,000 subscribers switched to satellite service. (DirecTV and its main competitor, EchoStar, have about 12 million subscribers, compared to 65 million cable subscribers, and the satellite base is growing by 40 percent a year.)
Why that alternative exists tells us something important about the future of telecom. Consumers are finally demanding, and getting, a voice in what happens to them. As REASON Washington Editor Michael W. Lynch was early to report, the satellite companies offered customers questionably legal service and changed the balance of power by doing so. (See "I Want My Satellite TV," April 1999.) Federal law allowed Americans to hook up to satellite programming only if they got unbelievably terrible over-the-air service, but the exact definition of that terrible quality was fuzzy enough to provide a temporary loophole. By the time the FCC got around to defining lousy service, millions of people loved their satellite TV. They were outraged that regulators were saying they should do without it.
Perhaps unintentionally, the satellite companies created a grassroots consumer interest in deregulation, not as an abstract concept but as a day-to-day reality. Ordinary people had something to lose from the regulations that were supposed to protect them, and they were mad as hell. They knew how markets were supposed to work, and this wasn't right. As Bud Smith of Port St. Lucie, Florida, told REASON, "It's my money. I bought the dish. I maintain the dish. I should be able to buy what I want."
Under pressure from angry constituents like Smith, Congress was forced to change the law. That's why Time Warner subscribers in big cities like Houston and New York can now switch to satellite. Unfortunately, as REASON Contributing Editor Tom Hazlett recently noted in The Wall Street Journal, the good lawmakers slipped a "must carry" poison pill into the bill. By 2002, a satellite company that offers one local station must carry all local stations. Given the national reach that satellite subscriptions offer, that translates to something like 1,600 channels (including all those annoying home shopping stations, small-fry religious broadcasters, and infomercial specialists)—a killer requirement for systems that currently offer 500 or fewer stations and concentrate on the ones people actually want to watch.
After a couple of decades watching telecom regulators and interest groups crush consumers and competition, Tom is a bit of a pessimist. But this time, there's reason to hope. Two million unhappy satellite subscribers were enough to get the law changed last time. By 2002, there will be millions more. They will demand, with Smith, the right to buy what they want.
That's not just a change in interest. It's a change in ideas. Telecom regulation was built on the assumption that experts knew best how to allocate service. Cable monopolies added "democracy" to the equation, giving local politicians—those closest to the people, after all—the right to determine how, when, and from whom citizens could get TV service. Americans still support expert regulation in some areas, and they certainly support democratic politics. But they also want individual choice and individual control. They don't want officials making inherently private decisions for them, including decisions about which products and services to buy. The more potential choices technology creates, the more people expect the right to exercise those choices.
The political and media establishments haven't quite realized that consumers want the right to control their own lives, not simply to ask favors from officials. After seven decades of complex and esoteric regulations, it's hard to grasp the idea that communications technologies might be too quickly evolving and too important to individuals' lives to be governed by central control. Reporters like Newsweek's Johnnie Roberts still see the answer as more government control. "When you find that you can't get the local news because of a business dispute between these giants, then Washington is clearly apt to scrutinize these businesses and whether they want them to get even bigger," he said on The Charlie Rose Show. This analysis, which encapsulates the conventional wisdom, gets the story all wrong.
Viewers don't care how big media companies are. They care whether they can dump those they don't like, whether because of lousy service or because of crummy shows. They want the right to exit—the fundamental right that has been lost in 70 years of "public interest" regulation.
Virginia Postrel (firstname.lastname@example.org) is REASON's editor-at-large and the author of The Future and Its Enemies: The Growing Conflict Over Creativity, Enterprise, and Progress.