No Senate Decency Bill—for Now

“Our bill is a commonsense measure that will stand up to any court challenge, as it does not change the current standards that have been on the books for decades,” said House Telecom Subcommittee Chmn. Upton (R-Mich.): “Now is the time for the Senate to step up to the plate and deliver something of real value to families across the nation.” Many House members chafe at the Senate’s failure to devise an indecency bill of its own, and Stevens acknowledged his panel has been “criticized for the delay.” But, he added: “We're trying to find a way to have a bill improve the position of American families.”

“What constitutes indecency?” Senate Commerce Committee Co-Chmn. Inouye (D-Hawaii) asked in the hearing. Not even the Supreme Court has been able to define it, said Alan Rosenberg, pres.-Screen Actors Guild. When Sen. Allen (R-Va.) asked if bigger fines would deter indecency, former MPAA Pres. Jack Valenti said: “I've been quite nervous about being indicted for a crime whose specifics are vague. There ought to be some specific and precise measure about what is indecent. Before we ought to be assigning fines, shouldn’t we be defining what it is we're talking about?”

Stevens said he believes the Senate focus on indecency has pressured industry to act, bringing the family tier option that cable and now satellite are offering. And a coalition of industries led by Valenti Thurs. announced a public education campaign to show parents how to use the V-chip. Participants include NCTA, CEA, MPAA, Viacom, Time Warner, ABC, CBS, Fox, NBC Universal, DirecTV, Dish Network and the Ad Council. The 18-month campaign -- expected to be valued at $300 million -- marks the first time such groups have collaborated on an issue, Valenti told the Senate panel. “What we have is a well-coordinated program to educate parents,” he said.

“It isn’t enough to create technology like V-chips,” said Sen. Lautenberg (D-N.J.). “We have to make sure that parents understand how to use these tools,” he said. The family tiers are a good first step, but should include sports, he said: “Why should a father have to choose between protecting his children and being able to watch sports?” Lautenberg’s gripe was echoed by Allen, who said “the senior senator from New Jersey and I rarely agree.” Stevens said sports isn’t rated, so it can’t be included.

The family tier was slow to arrive at cable, in part because deals with programmers complicated assembly of commercially viable options, David Cohen, exec. vp-Comcast told us. “We were working on this for 6 to 9 months,” he said. “Programmers weren’t real excited about it.” As for viewers, it’s too soon to gauge responses but now there is flexibility to change things around to meet consumer needs.

Parents TV Council Pres. Brent Bozell blasted the Senate for its “inability” to address indecency. The family tier option cable is offering can’t succeed due to rules requiring customers to subscribe to certain programming to get a family tier, he said. “The cable industry’s sudden embrace of the family tier model is quite possibly its most cynical response yet,” he said: “They have designed these family tiers to fail, because they would like nothing better than for the family tier concept to fail so they could claim after the fact that no demand exists.”

EchoStar CEO Charles Ergen unveiled Dish Network’s family tier during Senate testimony. The DishFamily package will be sold starting Feb. 1 for $19.99 monthly and have about 40 channels. Broadcast networks will cost an extra $5. That’s about $10 less than competitors’ family packages, Ergen said. There’s still work to be done expanding the channel lineup, Ergen said: “But, unbelievably, we continue to meet resistance from some who remain unwilling to unbundle or relax penetration requirements in existing contracts.”

To get at program bundling, Ergen urged Congress to create “a binding arbitration process” to resolve disputes involving TV stations. Arbitration would essentially separate the negotiation of broadcast channels from talks to carry nationwide networks, he said. And while it wouldn’t “go as far as legislation that would provide an a la carte solution, it would immediately offset the leverage the largest programmers now wield,” Ergen said.

EchoStar supports a la carte, Ergen told us after his testimony. It would be “willing to take a lower profit” in the short term to give customers what they want and keep them long term, he said. Most rivals support bundling because it’s more profitable, but the industry will have to move toward a la carte eventually, said Ergen: “The Internet is a la carte today…. I think the world is changing and that a la carte is already happening.” DBS analysts agreed, though they said full a la carte may never be realized. DirecTV declined to comment.

“The doors have been opened to new programming packages and new matches of channels to consumer needs. That won’t stop,” said Jimmy Schaeffler, CEO of The Carmel Group. Telecom firms’ video offerings will increase the pressure, said Schaeffler: “It’s going to be like watching the fastest ping pong game you could ever imagine, and they're going to keep each other honest… Consumers will really benefit.”

Ergen won’t find a lot of sympathy from cable providers, said Sanford Bernstein analyst Craig Moffett: “EchoStar is as close in the industry as it gets to a pure distribution player.” That’s in stark contrast to rivals, said Moffett: “EchoStar essentially has no interest in programming, but virtually everyone else in the cable or satellite worlds either owns programming or has ties to program or content owners. The debate is less complicated for Ergen.”

Cable operators and DBS firms may eventually voluntarily offer channels individually because of business demands -- not political or regulatory pressure, said some analysts and consultants. Several former cable executives disagreed, saying programmers are unlikely to give in to the demands of EchoStar’s Ergen and Cablevision Chmn. Charles Dolan, long a supporter of a la carte. A spokeswoman for Disney’s ESPN said a la carte would be a raw deal for pay TV subscribers. “In a nutshell, we're against it… We just think it would be bad for consumers. We think it would cost them more.” Lobbyists and other officials at several other programmers and broadcasters were mum when asked about the subject.

“It’s a politician’s dream, but it’s a consumer nightmare,” said analyst Dennis McAlpine: “The cable guys will fight this like mad, and the programmers will never go along with it.” Low usage of VoD means full-fledged a la carte probably doesn’t have legs, he said, saying networks with low ratings would cost more money than consumers would pay. “The more you slice the pie up, the fewer of these networks are going to survive,” said McAlpine. Ergen’s comments are more likely a political ploy rather than what he actually wants, he said.

Increased DVR use by pay TV customers will further discourage them from paying for individual channels, said another former cable executive. “There is no business model to make it make sense,” said Bruce Leichtman, who worked for Continental Cablevision and now runs a research firm. More than 12 million U.S. homes have PVR capabilities, he said. “Ultimately, DBS is a great example of what consumers want -- in many cases it’s more [channels] and not less,” he said. “What we'll see over time is the per-episode pricing is not necessarily a consumer friendly model.”

Some disagree. A prime market for a la carte is customers who don’t want many channels, said ABI Research analyst Vamsi Sistla. “A la carte will enter at the low end, the price-sensitive consumers and the time sensitive consumers, who are primarily overshot subscribers,” offered more channels than they want, said Sistla. An industry official, who asked not to be identified, said there’s pent-up consumer demand. AT&T and Verizon, which have backed a la carte, may stimulate cable competition for the product, said the executive. Still, even Sistla said the move to a la carte won’t take place soon. “It will be 5 years, 10 years,” said Sistla: “But the shift will happen.”