Milwaukee Biz Blog

Wisconsin lawmakers are scheduled on Thursday to consider legislation that would regulate cable TV programming. Such regulation may appeal to subscribers dissatisfied with the current lineup. But state government interference in programming decisions would prove costly and unconstitutional, and should be rejected.

The primary proponent of the legislation, Senate Bill 343, is the National Football League, which claims that cable companies aren't being "fair" in negotiating the terms and conditions for broadcasting its NFL Network. Specifically, the NFL wants government to force cable service providers into binding arbitration - in place of private negotiation - in hopes of fattening team owners' broadcast revenues.

This would be laughable were it not so serious. The NFL already enjoys an enormous advantage in negotiating broadcast rights by virtue of its exemption from anti-trust law. Under the Sports Broadcasting Act of 1961, all 32 teams are permitted to negotiate as a single block for both over-the-air and cable TV contracts, which vastly increases their leverage.

Cable companies such as Comcast, Charter and Time Warner have so far rejected the League's demand that the pricey NFL Network be offered as part of a basic tier of service, believing that subscribers simply don't want to absorb a rate hike for an additional eight live games this season. (The rest of the network lineup consists of replays, news and features.) The cable service providers are offering instead to air the NFL Network on a sports tier for which subscribers are willing to pay a premium.

The team owners insist that fans are thus "being held hostage" by the cable companies. But to claim that more government muscle is necessary to settle the dispute is both an invitation to higher cable rates and an insult to both the First and Fifth Amendments of the U.S. Constitution.

Cable networks are private property, plain and simple. If the cable companies are misjudging their subscribers' preferences, they will be duly punished by a loss of market share. Indeed, never before have viewers enjoyed so many choices in video services at such affordable rates.

Wisconsin consumers, in particular, will reap even greater benefits from video competition should Gov. James Doyle sign the cable franchise reform legislation recently approved by the Legislature.

If NFL officials believe there remains unmet market demand, they can either shop their programs to other video service providers or build their own network.

As it is, the NFL will rake in $24 billion from long-term contracts with ESPN, CBS, Fox and NBC to broadcast a total of 248 games each season. There's also a $700 million annual deal with DirecTV satellite service for the exclusive rights to a series of Sunday games. All of which translates into about $120 million annually in TV revenue for each NFL team.

These broadcast revenues will exceed those collected by the National Basketball Association, the National Hockey League, Major League Baseball and NASCAR combined, according to The Wall Street Journal.
So broadly is SB 343 written that virtually any producer could trigger the arbitration mandate. The bill states: "If a video programmer believes that a multichannel video programming distributor has not treated the video programmer in a fair, reasonable, and nondiscriminatory manner concerning the amount proposed to be paid by the multichannel video programming distributor for the addition or renewal of a video channel that is owned by the video programmer, the video programmer may request arbitration regarding that treatment."

But existing law does not permit state regulation of cable programming, which falls under the exclusive purview of federal statute. Nor does the Federal Communications Commission have the authority to intervene, as the NFL has sought, simply because the team owners aren't getting their way. There's been no violation of law, and thus FCC involvement would be prohibited.

Perhaps the team owners may be forgiven their impulse to seek government favors. After all, along with the anti-trust exemption, the majority of teams - including the Green Bay Packers - play in stadiums that have been partially or fully financed by the public. But Wisconsin consumers would be forced to sacrifice a great deal more if the Legislature concedes to the NFL's self-indulgent pleas for yet more special favors.

Diane Katz is director of science, environment and technology for the Mackinac Center for Public Policy, a Michigan-based research and education institute. She serves on the Telecommunications and Information Technology task force of the American Legislative Exchange Council and has testified on cable issues before the Wisconsin Legislature.

Telecommunications firms are pumping hundreds of millions of dollars into states throughout the Great Lakes region to upgrade broadband networks. The investment boom is a direct result of franchise reforms that promote competition in cable TV services.

Unfortunately, Wisconsin has yet to capitalize on reform in large part because special interests are lobbying hard to preserve the status quo. But the only interests that lawmakers ought to protect are those of consumers, who would benefit greatly from competition in video services.

Franchise reforms were approved by a wide margin in the Wisconsin Assembly on May 9, but the legislation has yet to reach the Senate floor. As currently written, the bill would allow video service providers to obtain a statewide franchise to operate from the Wisconsin Department of Financial Institutions rather than having to negotiate a franchise with each of hundreds of municipalities.

The benefits of a streamlined process are undeniable. Easing market entry promotes competition which, in turn, spurs investment, reins in rates and improves service quality. The need for competition is plain: Since 1999, cable rates have increased 236 percent in Green Bay; 76 percent in Kenosha; 62 percent in Milwaukee; and 61 percent in Madison.

The pending legislation would, if enacted, prohibit municipalities from forcing video service providers to subsidize the production of local programs - the costs of which ultimately are paid by cable subscribers. However, the subsidies would not end abruptly, but instead would be phased out over several years. Video operators would continue to pay franchise fees of up to 5 percent of gross revenues to each municipality as well as to provide channel capacity for public, educational and governmental programming (PEG).

Alarmed by the prospect of reform, the folks who produce PEG programs are employing false claims and twisted facts in their attempt to block the legislation. But lawmakers and citizens must recognize that these PEG subsidies were established when few, if any, alternatives for local programming were available. That's no longer the case.

In the 1970s, when PEG became a standard feature of municipal franchising, video production systems could cost $100,000 or more. Nor was there an Internet on which local programming could be cheaply posted. Today, a high-definition portable camcorder can be had for less than $3,500, and there exist thousands, if not tens of thousands, of Web sites where video can be uploaded and viewed at no cost, as well as an increasing number of distribution alternatives such as iPods and cell phones.

PEG advocates say the subsidies are needed to give local citizens access to the airwaves. In fact, many of the programs aired on PEG channels do not originate locally - when programs air at all. For example, Stevens Point Community Access TV, like many others, simply posts a bulletin board for several hours each day. Wausau Public Access Cable airs several hours of church services daily. Meanwhile, the Alliance for Community Media, a PEG advocacy group, reports that River Falls Community Communications and New London Cable 6 each produce only 10 hours of local original programming each year.

Subsidies for some of the local access programs that do air is tough to justify, such as the Scientology Program on WPAC Channel 10; Unarius ("the physics of reincarnation") on Chippewa Valley Community Television; or, Past Life Therapy on Madison's WYOU Channel 4.

That may explain, in part, why the PEG audience is so small. According to research by cable TV executive Paul Olivier, more than 50 percent of cable viewers never watch PEG channels. Those who do tend to watch only sporadically, and most hardly need subsidized programming. A 2005 survey by the Madison City

Channel found that 82 percent of respondents obtained information about local government from sources other than PEG channels, such as newspapers, radio and the Internet. Moreover, more than 47 percent of viewers earned annual household incomes exceeding $70,000.  

The notion that public access groups are starving artists is largely a fiction. The annual budget for Madison City Channel exceeds $529,000; for Western Reserve Cable 9, it's $400,000; and the budget of Milwaukee City Channel is more than $385,000.

If local programming is truly valued by the public, municipal officials can allocate to PEG operations some or all of the considerable revenue generated from franchise fees. PEG advocates could also go directly to voters and ask for additional tax revenue. 

But it's long past the time for the PEG hold-up - literal and figurative -  to end, and for lawmakers to put consumers' interests first with franchise reform.

Diane Katz is director of science, environment and technology policy with the Mackinac Center for Public Policy, and a member of the American Legislative Exchange Council's Telecommunications and Technology Task Force. Prior to joining the Mackinac Center, Katz served for nine years on The Detroit News editorial board, specializing in science and the environment, telecommunications and technology, and the auto industry.