Station brakes: the government's campaign against cable television

Reason, Feb, 1995 by Thomas W. Hazlett

In fact, it wasn't until 1986--31 years after the FCC's TV allocation scheme killed DuMont, a fourth broadcast network then operating--that a network to rival ABC, CBS, and NBC was financially viable. The arrival of Fox was directly linked to the enhancement of UHF stations over cable; another nationwide broadcast network was finally possible.

From its inception, the anti-cable policy was a product of intense lobbying from VHF licensees, which simply used the weakling UHF broadcasters as poster boys. Even at the time, a number of economic studies predicted that UHF would prosper as cable spread. (And you thought economists couldn't make successful predictions.)

So cable has gained the freedom to compete against broadcasters, and despite the collapse of the FCC's plan, the consumer's interests seem to be served. Unfortunately, cable interests quickly discovered that they could profit by employing against others some of the very same gimmicks used to keep them down (hey, go with what you know!). By the late 1980s, various cable competitors were being locked out of local video markets via a host of anticompetitive tricks. The local cable monopoly was a problem, and everything we had learned--about TV markets and about Washington--suggested that competition, not regulation, would serve consumers best. No matter. The failed policy of rate regulation was reintroduced in the Cable Act of 1992.

The chief backer of the law was none other than the National Association of Broadcasters. Why would broadcasters--longtime competitors of the cable industry--want to lower the price of cable programming? How lovely; at long last, an industry that altruistically wants to help the people, and cares not if it drains viewers--and, hence, revenue--from its own coffers. In truth, the NAB was convinced by the regulation evidence: Deregulation had actually spurred cable sales and ratings. Rate re-regulation would likely reverse the trend.

And so it did: 1993 was the first time in a decade that the ratings of the Broadcast Three rose while the combined ratings for basic cable were frozen. The scam worked.

Rate re-regulation has deterred investment in high-quality infrastructure, has prompted cable operators to furiously re-configure and divide their offerings into tiers, and has led to wholesale substitutions of low-quality programming for high-quality. For instance, while C-SPAN disappeared from more than 4 million homes, about one-tenth their sub-scribership, home shopping network stocks have been on fire. Cable systems, with per-channel prices capped by the 1992 Act, simply cut some stations and added others, leaning toward those with greatest financial reward. Cable systems don't even pay for home shopping nets--instead, they share a cut of the take.

But the regulatory drag, while delaying progress, cannot stop it. The cable industry is exploiting loopholes, both economic and political, which will allow it to make mincemeat of the rules. For a time, subscribers will suffer marginally worse viewing choices on the cable; over a few years, the constraints will drift away as so many old Washington lawyers riding off beyond the Beltway. And competition to cable from "overbuilders," (the industry pejorative for competitors), direct broadcast satellites, wireless cable operators, and telephone companies--will crash down on the local monopolies, creating new and exciting options for customers.