Why Should Cable Television Carriers Pay to Deliver Local Broadcast TV?
--M. Joseph Young

  I should first say that I do not now and have never had any connection to either a cable or a broadcast television service (beyond that of viewer and subscriber).  I was involved in a local independent AM/FM radio station which carried the ABC radio network news and sports broadcasts, more than a decade ago.  However, I have been and will be a cable subscriber, and a viewer of broadcast stations, and I find that there is something about the position taken by the government of these United States regarding the relationship between cable services and broadcasters which does not make sense to me either legally or economically.  According to the federal government, any cable company or satellite service which provides as part or all of its service the delivery of television signals by wire, fiber optics, or other means which are available in the same area as free broadcasts for local television reception must pay the broadcast station for the right to do so.  This does not make sense to me.

Am I linked from somewhere?
  But perhaps you will understand my thinking if I tell you what is allowed, and what is not.  The distinction between what is permitted and what is not permitted is, I believe, an indefensible nuance, and cable television companies should challenge the rule; furthermore, they should win.  Broadcast television frequencies in the United States legally belong to the American public.  Broadcasters are our licensed representatives, permitted by the Federal Communications Commission to use specified frequencies to serve the public interest.  Of course, in doing so, stations broadcast programs which are protected property under copyright laws.  The argument presented in defense of requiring cable companies to pay broadcast companies to carry their programming is based on copyright law:  the cable company profits by essentially re-selling programs which are the property of the broadcast company or licensed by it from networks or syndication distributors.  On its face, it seems a reasonable argument:  no one is permitted to sell or rent programming recorded from broadcast sources without paying for the rights to do so.  However, consider what is and is not permissible use of broadcast programming, and you will see that the argument must break down.

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  Everything which is broadcast on normal very high frequency (VHF) or ultra high frequency (UHF) television frequencies is intended for free public access.  Broadcasters may not charge viewers to watch these programs in their homes or in their places of business.  I may tune in any channel in my local area and watch it free.  If I am unhappy with my reception, I can go to any electronics or television store and buy an antenna--and if I have more money, I can buy a bigger and better antenna.  So by spending money on hardware which I install myself, I can improve my reception.  This is an important point.  Local television viewing areas are determined by a theoretical level of micro volts per meter, that is, the amount of energy the signal has in a specified area.  By this measurement, I am in the local area for all Philadelphia stations, but not for Baltimore (Maryland) stations.  However, without a good antenna, my viewing is limited.  I cannot actually receive any of the VHF stations, and the UHF stations are less than clear.  On the other hand, were I to install a top quality antenna, I could easily and clearly receive not only all of the Philadelphia stations, but by realigning the antenna several of the Baltimore stations and on a good day, I am told, a few of the New York stations.  The concept of a "local" station is an arbitrary standard; but by law, I am neither guaranteed reception of those stations which are legally considered local, nor forbidden to view stations I can receive which are considered distant.  Thus, my willingness and ability to spend money and effort on an antenna array (and the space I am able to make available for this purpose) can greatly enhance the number of channels I receive and the clarity of the reception.  There is no law which prevents me from installing such antennae myself, provided I have the money and the space.

  There is also no law which says that I cannot hire someone else to install such antennae on my property.  I can pay the store to install it, or hire someone else.  If I have the money, I can pay someone to maintain my antennae.  In fact, I can include radio frequency (RF) amplifiers, splitters, multiple televisions, multiple antennae, remote towers (if I have the space and it is permitted under the local zoning regulations), and many other things which will enhance my personal reception, provided I have the money and the space.  If I have enough money, I can hire someone--or even a team of people--just to ensure that my television reception is always clear.  If I own property in two different locations, I can maintain antennae at either or both locations, and transmit signals between the locations over high-quality telephone lines or specially licensed microwave narrowcast transmitters if I so desire, thus ensuring that if there is excessive atmospheric interference at one site, I may still receive clear signals at the other.  And I can hire professionals to maintain all of this equipment for me, provided it is all for my personal viewing and that of others in my household or employ, and guests in my house.

  But if I live in an apartment complex or a high-rise condominium, I have no place for an antenna.  The management of the building knows this.  They cannot allow every tenant to have his own antenna on the roof, or run all the wires to each apartment.  So part of the rent--or part of the regular property maintenance fee--goes to pay a maintenance crew whose jobs include maintaining a master television antenna connected by wire through RF amplifiers to each unit.  This way, every person in the apartment can receive the local broadcast TV stations--not exactly free, but at a reasonable fee.  They don't buy the antenna, or maintain it themselves.  They, as a group, hire someone else to buy and maintain the antennae necessary to provide them with such service.

  And let me further observe that if I run a hotel, I similarly may hire someone to maintain my television reception equipment.  I pay them to do so out of money I receive from paying customers who stay in the rooms and watch those broadcast television stations.  Although technically I'm not selling those programs, I do have it on the sign out front that color television is available in the rooms, and on that basis some customers will choose to stay at my establishment rather than that of my competitor (or will choose my competitor over me if I do not provide it).  Thus I am in essence charging my customers for the programs which I receive "free", using the money to cover my costs in providing the service, and making a profit in the process.  Similarly, if I own a bar, I may very well have a television in the room which my customers may watch.  I don't charge them to watch the television; but I do expect them to buy drinks (possibly also food), and I believe that the presence of the television is an expense which pays for itself in the increased business.  Thus every drink and sandwich I sell includes a small charge for the maintenance of the antenna and wires which provide the television service for my customers:  I'm selling them the same programs they could watch at home for free.  If I run a hospital, I can charge resident patients for the service of watching the television to defray the costs of the television and the maintenance of the reception equipment--and I do not have to be a non-profit organization to do so.

  Thus we have established that I can receive and view local programs on my own property at no charge; and I can pay someone to maintain antennae and other equipment to improve my reception.  Also, I can use those free programs for commercial purposes to bring customers into my business or to make their stay more enjoyable as long as they watch them on my commercial property.  Furthermore, if I live in a multi-unit dwelling such as an apartment or condominium complex, I can cooperate with the other residents in the building or buildings to pay someone else to provide such service to all of us.

  What I cannot do--the only thing I cannot do--is I as the owner or renter of an individual dwelling, such as a suburban household, cannot agree with my neighbors to hire someone to connect all of us to a single antenna array and RF amplifier system to receive those same broadcast television signals which we could each receive independently.  The rule specifically prevents only this type of service:  the paid service which provides clear television signals from top quality equipment to multiple independent homes.

  You might argue that a cable company which provides service to an apartment or condominium building also must pay this charge, but you would be mistaken.  The company which puts an antenna on the roof of the building and maintains the wires and equipment which carry that signal to each apartment is a cable company.  The company which connects all of the rooms in the hotel or hospital to the antenna on the roof is a cable company.  The company which installs and maintains an antenna on my property for my own personal use under a continuing maintenance agreement is a cable company.  Each of these cable companies in one sense works for a single subscriber--the apartment owner, the condominium association, the company management, the single homeowner.  But the only cable company which has to pay for the rights to carry signals which we could receive free with an antenna is the cable company which serves more than one direct customer from the same antenna array; and the only customer who has no access to the free reception of locally broadcast programs through any cable company is the single homeowner who cannot afford to create his own company.

  But the federal government, in its finite wisdom, has decided that cable and satellite television providers must pay local broadcast stations for the right to provide to local cable or satellite subscribers those local broadcasts which those subscribers could receive through normal antennae.  Interestingly, they have decided that such payments are not required for the cable or satellite companies to bring their subscribers channels which are broadcast in other markets but are not local to these subscribers.  And the logic of this decision should offend both your legal sensibilities and your perception of economic realities.

  From the legal standpoint, why should the cable company be required to pay a local broadcaster for the rights to carry its programming, but not pay a distant broadcaster for the rights to do the same thing in a distant market?  After all, the local broadcaster loses nothing if its programs are carried locally (that's an economic reality, which we will consider in a moment).  But the distant broadcaster suddenly finds that its programs are being viewed by people not in its market.  On top of that, many of these programs will have been licensed for each market separately--that is, one station has the right to show the program in New York, and another in Philadelphia.  Now, it's true that with adequate equipment I might be able to watch the New York broadcast rather than the Philadelphia broadcast of the same network or syndicated show; but that's splitting hairs.  I would have no hope of picking up Chicago's channel 9 were it not carried on my cable system.  Cable and satellite providers carry such channels almost routinely now, and they are not legally required to pay for them.  But the distinction of where the programming would have been available for free viewing, if it could be said to apply at all, would seem to apply in exactly the opposite way:  were I to have to pay for providing such programming, it should be for that which my customers would not be able to obtain otherwise, not for that which they already get for free.  But once the programming has been broadcast, the decision that a cable company must pay to carry it in some areas but not in others is entirely arbitrary.  Either the use for commercial purposes of such programming violates the copyrights and licenses of the broadcaster, or it does not.  Where such programming is shown is not directly relevant to this question, as long as there are no relevant distinctions between the viewers.

  But the economic realities are also important in this regard.  Generally, whenever a law does not make legal sense or moral sense, there is an economic reason for it.  In this case, it appears that a group of short-sighted broadcasters complained that cable companies were making money partially by carrying their programming.  They wanted some of this money, and they convinced lawmakers that the cable companies should have to pay them some of those profits.  But where is the benefit of this?

  The viewer who receives his signals through an antenna does not benefit, unless the station itself benefits.  To this viewer, the only difference which might appear would be that the station would have more money and so would improve its programming--or in the alternative, if the station suffers due to lower revenue, this viewer also suffers.  Whether the cable company has to pay to show the station's programming only matters to this viewer if the quality of programming on the broadcast station is affected.

  The viewer who has a cable or satellite service also does not benefit.  Since his television provider must now pay for programming which he was previously able to receive free, he will either have to pay more for the same service, or sacrifice access to those stations.  Furthermore, this viewer will not have the choice of which of these prices he will pay.  The decision will be made for him by his provider.

  The cable and satellite companies also do not benefit from this arrangement.  They are forced to make this decision, and they are in a lose-lose situation.  I do not subscribe to a satellite service in my area, because they have chosen not to carry many of the local stations--clearly their decision not to carry those broadcasts has cost them at least one customer.  But the local cable company does carry most of the local stations, and thus its costs have increased, which means so have its prices.  They have undoubtedly suffered some losses of subscribers who felt that they couldn't afford the continuing expense for cable as compared with merely installing an antenna, or conversely that they would get more for their money with a satellite provider as the price gap narrows.

  This leaves the television stations themselves.  They, after all, are the ones who expected to benefit from this arrangement.  But if we consider how broadcasters make their money, we will realize that they too can only lose from this arrangement.

  Television stations are loosely divided into commercial and public stations.  Public stations for the most part belong to the Public Broadcasting System.  They make money from several sources, all of them in the category of contributions.  The government provides a certain amount of money for these stations; a lot of this money goes into programs which are produced by one of the stations for use by all of them, so there is something to broadcast (and some of the best quality television comes from this source).  A great deal of money comes from corporate sponsorship.  Corporations pour money into such programs for several reasons.  One of these is image--they wish for the public to see that they contribute money to worthy causes.  Another is targeted education:  they create shows which will educate the public in areas related to their business, in the belief that an educated public will better understand their position.  A lumber company will support nature programs, partly because they want the image of caring about the environment, and partly because when they have public hearings about matters of concern to them, it helps them if there are people present who have some understanding of the forest habitat who won't dismiss their position for foolish reasons.  But the third source is direct contributions from viewers, who are encouraged (through annoying pledge drives) to subscribe, that is, to send money directly to the station to keep it on the air.  There are other sources of income (and programming) for public stations, depending on the stations themselves.  In some markets, commercial stations kick in a bit of money to support the public stations for various reasons.  Some stations are connected to universities, and staffed in part by faculty and students.  But in every case, it is to the benefit of the station to have more viewers.  They will get more subscribers and more corporate money if people are watching.

  The commercial stations generally get money from a single source:  they sell commercials.  A one-hour television show is just under forty-five minutes; a half hour show is close to twenty-two (and this includes credits).  The rest of that time is sold to companies with a product to sell (or used to promote other programs where other commercials will promote companies with products to sell).  In a very real sense, the program is part of the commercial:  its the part that gets you to watch the advertising.  The station charges thousands of dollars for the opportunity to advertise your product on its airwaves.  It can do this because traditionally there were only a few broadcast stations in any area, and a lot of people were watching them.  Over the years, very sophisticated methods have been developed to make it possible to say with considerable accuracy just how many people were watching at a particular moment, and to predict how many will be watching any particular station at any particular moment.  Such stations are feeling a pinch.  They are losing revenues--because it matters to their advertisers how many people are watching, and the advent of cable and satellite television has caused an increase in the number of choices, and therefore a decrease in the number of viewers watching any particular channel.  To the commercial station, it appears quite correctly that it is losing money to the cable station, and the representative of the cable station in its area, the cable system.  Thus it tries to recoup these losses by asking the government to force the cable companies to pay some of their profits to the broadcasters.

  But even in the short run, this is not a good idea.  The immediate affect of this in this area was that all of the local stations disappeared from the local satellite service providers; several stations also disappeared from the local cable companies, because the cable company perceived that there were not enough viewers to be worth the continued expense of carrying that station.  After all, many stations were carried because at one time cable companies were required to carry all local broadcast channels; VHF stations had to be carried on the same channel on the cable as that on which they were broadcast, so that viewers would be able to find the stations they identified by channel number rather than by call letters.  But you can't require the cable companies to carry a channel, and then say that they must negotiate an agreement to pay the channel for its programming--the broadcaster would be able to charge anything in that case.  Therefore, if the cable companies must pay for the channels they want, they must also be able to delete channels they don't want.  And this is a serious problem for broadcasters which will not be compensated by whatever pittance they may receive from those companies that choose to carry them.

  Follow the logical progression.  I am a broadcast station.  There may be thirty or forty cable companies and two or three satellite services in my local broadcast area.  It is now required that they pay me for the right to carry my programming, or remove me from their service.  But they can carry other stations from outside my local area at no charge, and in so doing they can deliver to their viewers almost every program for which I would charge them.  Only programs which are locally produced--and for most stations, that means only local news--will not be available through another station in another city.  Let us suppose that during my ten o'clock newscast I have ten percent of the population of the region watching my news team.  I'm making money on the commercials I sell for this time slot.  But when I announce how much I'm charging for the right to carry my programming, unless that amount is zero or close enough to zero as to be negligible in the eyes of the other services, some of them will cut me off.  But many of my viewers don't watch me as a broadcast service; they watch me as a cable channel or a satellite channel.  So that loss of services carrying me immediately converts to a loss of viewers.  Even if a few viewers on the cable line or satellite system which has dropped me complain to their service, these viewers will receive a nice letter explaining that the decision was made to hold the line on costs by eliminating this additional expense, and that most of the programs can still be seen on another identified channel.  Perhaps the number of homes in which I can be seen has been reduced by only one percent.  But this will cut across all of my viewing statistics, and my ten percent audience for my newscast slips to nine-point-nine percent; and as it does so, that convinces other services that I am not worth what they are paying to carry me.  I have to reduce what I charge to keep as many of these as I can, but I will still lose a few, and my numbers will slip further, causing me to lose more.  It is a hopeless spiral.  And remember--my advertisers are paying me because of the number of viewers I have.  The fewer homes can receive my programming, the fewer viewers I have, and the less I can charge for commercial time.  This further complicates the matter, because the less I can charge, the less I can spend on programming, and the quality of my broadcast service begins to slip.  As the quality slips, the viewers move to other outlets, and my numbers spiral downward until there is no cable or satellite service who will pay to carry me, and few who will carry me for free, in view of the fact that there are expenses in maintaining the antennae and channel lines for each channel they carry.  Even if I'm a public station, I am adversely affected, since as I reach fewer viewers I have fewer subscribers, and less reason for corporations to send money to support my programming.

  So clearly this policy can only hurt the vast majority of broadcast stations.

  I have nothing but sympathy for broadcasters.  The business in which they are engaged is capital-intensive--even the small AM/FM radio station in the middle of nowhere at which I once worked is rumored to have sold for several million dollars a few years back.  Television stations cost a fortune to own and to operate.  Cable delivery systems are also expensive, but not nearly so much so; and cable stations have very different economic realities.  But the solution to the problems of broadcasters does not lie in restricting the rights of the new services to carry their programs, but in enhancing them.

  For several years our cable company carried a local Chicago station.  I admit that I rarely watched it.  This was partly because the programming did not appeal to me personally, but also because it was not listed in the television listing to which I subscribed, so I never knew what was airing.  However, on those occasions on which I did watch it, I noticed that nearly all of the commercials were for companies and services in the Chicago area.  I do not remember seeing even one national product commercial on that station at any time.  I thought then, and I think now, that this station was unable to take advantage of its position in the national market--a single station carried in many cities.  Local broadcast stations who want to survive into the next generation do not have to give up their local broadcasts, or even their local advertisers.  But they do need to move beyond their local identities into a national identity.  Stations on cable thrive on attracting small audiences from wide areas; local stations try to survive by attracting large audiences in a small area, and are thus much more vulnerable to anything that reduces that audience.  But the Philadelphia channels which get national cable and satellite coverage will build a national audience, starting with displaced Philadelphians who found it necessary to move to other markets for work, school, or family reasons, and spreading to those who find something on the Philadelphia stations which is especially appealing to them.  Not all of the local stations will survive--and few will survive unchanged.  But radio survived the introduction of television, and AM survived the rise of FM.  Changes were made, but something continued, different in many ways from what was there before (and not all of the necessary changes were good changes).  The economic realities of the situation are that broadcast television stations will have smaller local audiences.  The legal realities cannot at this point prevent that, and the law as it stands can only hasten that.

  No, I am not a broadcaster.  If I were, I would be attempting to get my channel on as many cable and satellite systems anywhere in the world that would take me, and at no charge to them.  I am not a cable or satellite distributor; but if I were, I would be looking for channels which would entice my viewers at a minimal cost to me.  It seems to me that there is an opportunity here on both sides, and that the law will not prevent this if the broadcasters recognize their position.  But beyond that, it seems to me that broadcasters and lawmakers need to wake up and recognize that the law in place at the current time can only enhance the demise of local broadcast television.

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