DTV Mandate Tally Could Grow Again With Upcoming Multicasting Decision

December 5, 2003 • TechKnowledge No. 67

Officials at the Federal Communications Commission are once again considering rules that would supposedly help salvage the digital television (DTV) transition and preserve a future for over‐​the‐​air (OTA) broadcasting. The latest chapter in this ongoing regulatory saga focuses on whether the FCC should require cable operators to carry multiple signals aired by television broadcasters. By digitally transmitting their OTA signals to the public, broadcasters now have the ability to condense their old analog signal into a much smaller amount of spectrum and then simultaneously “multicast” a few more signals as well. For example, a local NBC television affiliate that broadcasts an analog signal on channel 4 in a regional market will now be able to broadcast multiple digital channels of programming on channels 4.1, 4.2, or even 4.3. DTV sets and tuners will be needed to receive such signals, of course.

While broadcasters already possess “must‐​carry” rights on cable systems for their old analog TV stations, they now want the FCC to expand those rights to include mandatory cable carriage of their multicast digital signals if and when they decide to start airing them. Despite being constitutionally suspect on both First and Fifth Amendment grounds, analog must‐​carry mandates have been sustained by the Supreme Court reasoning that preserving “free, over‐​the‐​air” broadcasting was a compelling government interest. But the analog must‐​carry free ride wasn’t enough for the broadcasters and so now they’re back asking for a digital free ride as well in what can only be labeled a massive land grab of cable capacity.

DTV and OTA at Any Price. As a previous TechKnowledge installment lamented, the FCC has repeatedly shown it is willing to bend over backward and do whatever it takes to advance DTV and guarantee a future for OTA broadcasting. A partial tally of the mandates the FCC has already put in place to advance the DTV transition would include: transmission and receiver standards; DTV build‐​out rules and construction delay penalties; digital tuner mandates; “plug‐​and‐​play” cable compatibility rules; and just a few weeks ago, the adoption of “broadcast flag” copy protection regulations. The FCC compiles all of its DTV regulatory proceedings on a special DTV web page and lists 50 rules or proceedings since they started putting documents online in 1995. But if the FCC’s online archives included all the rules and proceedings going back to the beginning of this almost 20 year industrial policy, the list would be significantly longer.

Despite all the FCC efforts to facilitate the DTV transition, only a very small percentage of households receive digital signals today. Proponents of the regulatory schemes claim that the mandates are starting to pay off and that DTV is set to explode. Perhaps, but we don’t need all of these FCC mandates to make the digital television transition a reality. “Digital transitions” are happening all around us today in almost every sector of our economy. Even the oldest industry sectors, including agriculture and manufacturing, are being revolutionized by digital transitions as advanced computing and communications technologies have helped reinvent the way business is done. And almost every other segment of America’s more modern service sector has been transformed by digital transitions of one variety or another.

Why the Endless Favors for Broadcasting? Why then are policymakers treating the digital transition in broadcasting as special or unique? Moreover, why did policymakers loan broadcasters tens of billions worth of DTV licenses in the mid‐​1990s when many other companies were willing to buy that spectrum for other purposes? And finally, why should other industries or consumers be forced to bear the costs of preserving the OTA broadcast business model when more than 85 percent of households have already opted to move to subscription‐​based cable or satellite services? There are no good legal or economic answers to those questions. The answers are purely political: policymakers have come to believe that every American has the right to “free” over‐​the‐​air broadcast TV, and broadcasters are a very powerful political constituency that have done everything in their power to preserve the old way of doing business.

If broadcasters can find a way to continue to retain viewers and sustain their old advertising‐​supported OTA business model, that’s fine. Some critics will bemoan the fact that broadcasters are allowed to continue to use so much spectrum to transmit video programming at all, claiming it is a massively inefficient use of this scarce resource. There’s some truth to that, but if broadcasters were forced to compete in a truly free market for video programming without any regulatory assistance they would quickly discover the true opportunity costs of continuing to operate in this way. Many broadcasters would likely get out of the business voluntarily and sell their spectrum to someone who could put it to better use. Some broadcasters‐​especially the large network programmers‐​could go into the programming business full time and sell their fare directly to cable and satellite distributors.

This scenario is not going to develop anytime soon, however, since both policymakers and broadcasters see substantial benefits in propping up this dying and increasingly inefficient video delivery method. Broadcasters understand that “public interest regulation” gives broadcasters almost all benefits and few costs by providing access to rent‐​free spectrum and other special favors, such as must‐​carry mandates and other DTV assistance, discussed earlier. Policymakers believe they are directing the content or character of broadcasting toward a more noble end, or at least ensuring that every citizen is receiving some sort of video programming in their homes. However, there are few benefits for the public in this persistent regulatory effort to sustain OTA broadcasting at any cost.

Viewed in that light, multicast must‐​carry proposals are merely the latest in the long string of misguided attempts to pass along the costs of propping up the OTA broadcasting business model to someone other than the broadcasters themselves. But what makes must‐​carry particularly insidious is that it represents a substantial indirect tax on cable operators and their customers, who are forced to do without some channels or services while broadcasters grab several cable channels for their programming. Worse yet, broadcasters don’t even air much original fare on their multicast channels; it’s mostly the same programming found on their analog station that is digitally converted to look a little better. When asked how they might use those extra channels in the future if given expanded must‐​carry rights on cable systems, some broadcasters talk of a dedicated weather station or of offering programming on a time‐​shifted basis. Apparently they’ve never heard of the Weather Channel or personal video recorders, which already handle those tasks quite nicely. But where is the compelling government interest in making cable operators give broadcasters free channels anyway? Why shouldn’t broadcasters compete with the dozens of other programmers that are currently fighting for space on cable systems?

If the FCC passes any variation of the multicast must carry proposal, it will be sure sign that there is no end in sight for such special interest favoritism of the broadcast sector. Of course, policymakers could take the opposite path and finally admit that over‐​the‐​air broadcasting isn’t worth saving, at least not through costly government dictates like multicast must carry.

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