News Analysis Cable Networks Sue FCC Over “Must Carry” Rules

By: Gary Kim Wolter

Six national cable networks — C-SPAN, Discovery Communications, The Weather Channel, TV One, A&E Television, and Scripps Networks — have filed a lawsuit against the Federal Communications Commission challenging the legality of “dual must carry” rules. Those rules require cable operators to carry on their networks both an analog and digital version of programming provided by a local commercial broadcaster, for a period of three years after February 2009, when the over-the-air broadcasting system changes to an all-HDTV format.

The current rules allow cable operators to avoid the dual format if they have provided all their customers with digital decoders. Local broadcasters also have the option of negotiating with cable operators for payment for use of the local signals, as an alternative to “must carry,” which allows the local cable company to retransmit the broadcast signal without payment of fees, in return for carriage.

As a rule, broadcasters support the rules while cable operators oppose the rules. As always is the case, commercial concerns underlie the strife. Cable operators object to the dual must carry rules as this requires that channel capacity be provisioned twice for a single broadcaster, one digital and one analog version. And since channel capacity is a scarce resource, cablers would rather deliver one feed rather than two.

Broadcasters have the opposite point of view, for obvious reasons. Channels are “shelf space” and having two feeds means “two shelves” rather than one.

The FCC’s thinking on the matter is that cable or other providers might decide to carry a significant amount of programming in analog format, for business reasons. And the dual carriage mandate therefore is a consumer protection measure.

First, the availability of an analog tier means some customers can continue to watch much of their programming the way they do now, using a cable-compatible TV and no decoder. That’s seen as a consumer value: no immediate disruption of viewing and no additional cost.

Oddly enough, cable companies will voluntarily carry two feeds of the highly-viewed local broadcast stations. The reasoning is simple enough. They want to provide viewers with the popular content viewers want. And that generally includes the top four or five broadcasters in a local market.

But cable operators don’t want to be required to carry every local broadcaster’s feed in two formats, as some of those stations might not have high viewership. Again, the business logic rules. Cable operators do not earn advertising or get paid carriage fees for retransmitting a local broadcast signal. It is a cost of doing business (an important cost), not a revenue item.

If a cable operator can redeploy bandwidth in some other way, it might earn carriage fees from a smaller cable network and create a local advertising opportunity for itself. The cable operator might otherwise deploy that bandwidth for new services (voice, on-demand programming or broadband access).

From the cable operator perspective, it is one thing to voluntarily program a local broadcast feed in digital or analog format. It is quite another to have the programming decision taken away and given to the FCC. There are sound business reasons for retaining an analog tier, at least for a while.

No cable company really wants to be in the position of telling a current customer they no longer can get service unless they buy a decoder, a new HDTV set or rent a decoder from the cable company, for every TV device in the home. Again, the issue is not the analog tier, but the ability to program the analog tier.

Second, as decoders are expensive, no cable company wants to put that incremental capital into a home that isn’t buying incrementally more services. And basically, the HDTV transition means some customers have to be equipped with decoders just to keep viewing what they currently have. The “more cost, no new revenue” proposition doesn’t make business sense.

The current “must-carry” rules were enacted in 1992, largely for public policy reasons: as more and more viewers shifted to cable, there was concern that the over-the-air broadcast business would be harmed. Must-carry rules were seen as a way of ensuring broad access to broadcast programming and diversity.

Digital must-carry is a specific concern for cable programmers, as capacity mandated for broadcast feeds necessarily makes it harder to gain carriage for the affiliated networks any single company would like to provide. In the past, ABC has been able to use its leverage as the owner of ESPN to gain carriage for other ABC cable networks with less potential viewership. That task is harder if there is less shelf space.

Telcos might take a different path, as their “all digital” signal format means a decoder has to be provided to each customer in any case. In those cases, video providers are free to carry the single digital feed. Verizon Communications is taking this path, for example.

The National Association of Broadcasters opposes any modification of this rule as it represents smaller broadcasters – ethnic language and religious broadcasters, for example – who benefit from must carry. If the rules are modified, many smaller broadcasters who will still be on the digital tier will not be viewable on the analog tier, which over time will carry only the most-popular programming.

Gary Kim is a TMCnet Contributing Editor.

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