Cable Snubs Mandatory a la Carte; Martin Says it Could Help

The McSlarrow/Martin exchange came in a day-long forum convened by Senate Commerce Committee Chmn. Stevens (R-Alaska) to collect ideas for decency legislation -- a pending Senate bill would hike indecency fines on broadcasters from $32,500 to $500,000 per violation. But, for purposes of indecency controls, Stevens wants to expand the universe of media to cable, satellite, wireless and Internet -- and invited representatives from those industries to testify Tues. “We made some progress -- it was an interesting day although we haven’t reached any conclusions yet,” Stevens told reporters after the forum. He said he wants to explore a voluntary industry ratings system used with the V-chip and publicized so parents know how system and technology work. “This could help resolve some of the complaints we've been hearing,” he said. “I want a voluntary ratings system rather than a mandatory system,” he added. The committee’s expected to meet again in Jan. to review the issue.

“I'm pleased that decency legislation seems to be gaining steam in the Senate,” said House Commerce Telecom Subcommittee Chmn. Upton (R-Mich.) in a statement after the forum. Upton sponsored a bill (HR-310) passed in Feb. by the House that would up broadcaster indecency fines from $32,500 to $500,00 per violation.

“By increasing the fines for indecency to $500,000, the fines will be at a level where they cannot be ignored,” he said: “With passage of this legislation, I believe that broadcasters will think twice about pushing the envelope.” Upton’s bill also would mandate license revocation hearings after a broadcaster’s 3rd offense. The FCC now can hold such a hearing after the first offense, but need not do so. The Upton bill also would set a 180-day FCC “shot clock” to act on consumers’ indecency complaints.

The cable/FCC fracas hinges on whether to apply indecency standards for broadcasting to cable and eventually satellite and the Internet. Martin’s comments seem to suggest he backs a regulatory mandate by Congress. Cable says that would be unconstitutional and, since it doesn’t make good business sense, would harm consumers. “If you went to newspapers and said ‘Sell sports and business sections separately,’ it wouldn’t work,” McSlarrow said. Cable has about 390 networks that survive because they're bundled together in packages that link more- popular and profitable channels with lesser-known offerings. “Cable has been treated by the Supreme Court as a First Amendment speaker,” McSlarrow said.

The FCC report under Powell’s tenure, which never moved past the staff level, “incorrectly” found offering a la carte cable programming economically unfeasible, Martin said. “I had many concerns with this report, including the logic and some of the assumptions used,” he said. He’s asked the Media Bureau and the FCC chief economist to scrutinize the issue, he said. The staff is finalizing a report concluding that the earlier edition relied on problematic assumptions and gave an incorrect and incomplete analysis, Martin said. The update suggests ways to up consumer choice: (1) Cable and satellite could offer a family-friendly tier as an alternative to the “expanded basic” tier, letting parents get Nickelodeon and Discovery without having to buy adult-oriented fare. (2) Programming cable and DBS operators offer in expanded basic packages could come under indecency regulations now applied only to broadcast. (3) Cable and DBS operators could offer programming in a more a la carte manner, letting consumers choose which channels to get.

Controls aren’t imminent, said Legg Mason analyst and former FCC staffer Blair Levin. “As we have noted before, we don’t think the FCC as the authority to [require the govt. to mandate a la carte] and we don’t think Congress will end up doing so for at least 3 reasons.” Along with technical difficulties with such offerings in the absence of expensive new digital equipment, a la carte economics could destroy many cable channels. “We don’t see that as a price Congress is likely willing to pay for keeping a lid on indecency and putting a lid on prices,” Levin said. Finally, a la carte would undermine the contractual and legal framework built on retransmission consent rights provided in the 1992 Cable Act. Paul Gallant of Stanford Washington Research Group also thinks legislation a long shot: “We continue to believe such legislation faces an uphill battle.”

Cable Industry Reacts

Meanwhile, the absence of an a la carte report from the FCC drew some cable industry fire. Company officials said they couldn’t assess the revised study without seeing it. No schedule has been set for publicizing it. FCC staffers refused to comment, some saying the report is under wraps even within the FCC. Cable officials said they weren’t aware of the methodology used to refute the findings of last year’s Media Bureau report. “We don’t know what to expect other than what he’s said in public this morning,” said a cable industry official who asked not to be identified. “We don’t have any insight into what the FCC or any of its bureaus might have done on this issue in recent weeks.”

“We're really not able to assess any of the details until we've had an opportunity to see the report,” said Rob Stoddard, NCTA senior vp-communications & public affairs. “We take [Martin] at his word that they've taken another look at it, and he thinks there were deficiencies in previous analyses. We won’t argue process at this point.” Other cable officials spoke more pointedly. “It certainly undercuts his credibility,” said cable consultant Steve Effros, former pres.-Cable Telecom Assn. Martin is saying “we're changing our math and conclusions 180 degrees -- we're just not telling you how we got there,” said Effros. “Until we see this report, I am just going to have to wait to find out why all of a sudden the math has changed.”

Martin’s comments signal he wants Comcast and Time Warner to volunteer to start a family programming tier to get FCC’s nod to buy Adelphia systems, said a lobbyist who asked not to be identified. “The whole thing is a political dance, to leverage a voluntary agreement,” the person said. “It’s holding up the Adelphia deal, putting it in limbo by making it clear to the parties that they need to do a voluntary deal” on a family tier, the person said. The $17.6 billion Adelphia transaction has stalled in part due to FCC delay in sending an information request to the 2 firms buying Adelphia, sources have said (CD Nov 22 p2). Comcast and Time Warner had no comment.

Asking that the 2 firms voluntarily accede to Martin’s wishes would circumvent legal issues about whether the FCC has the authority to require a family tier, analysts said. “This would be a way to do it and not run into any questions of legal authority,” said the Progress & Freedom Foundation’s Thomas Lenard, a former FTC staffer. “The FCC has a history of imposing requirements in the form of ‘voluntary’ agreements. You only have to look at the recent telecom mergers” involving AT&T and Verizon, he said. Such a tier probably would lead to a similar one at all other major cable and satellite operators, said one lobbyist. “The Adelphia deal gives the FCC a far easier vehicle to impose a family tier than through direct regulation covering all cable and satellite operators,” wrote Stanford Washington Research Group analyst Paul Gallant in a bulletin. “Such a regulation would likely face very difficult hurdles in court on First Amendment and agency authority grounds,” said Gallant, a former FCC 8th floor staffer. Freedom of speech would be violated by imposing content restrictions on subscription services like pay TV, constitutional scholars have said (CD Nov 8 p5).