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McSlarrow on Cable and the FCC

On the eve of the NCTA's annual convention in Las Vegas, National Cable & Telecommunications Association President Kyle McSlarrow talked with B&C's John Eggerton about the FCC's “fundamental disconnect,” retransmission consent, and what he thinks of the government's proposal to make cable operators carry TV stations in both digital and analog: “Not much.”

Top House Energy & Commerce Committee Republicans Joe Barton(Texas) and Fred Upton (Michigan) think the FCC is picking on cable, while FCC Chairman Kevin Martin says it is the natural tendency of an industry to feel picked on when it disagrees with FCC policies. Which is it?

The leadership of this commission clearly embraces regulation, so that puts us on the opposite side of a lot of issues. I'm sure it's true that every industry gnashes its teeth about various decisions, but I do think there is a fundamental disconnect about the cable industry with this particular leadership in this particular commission that wasn't present in the past.

We are an industry that benefits from a very deregulatory regime, whether it is statutory or otherwise. That is what we are going to argue for. We think our customers benefit from that. We think we're the poster child for how leaving most decisions to the marketplace works.

The FCC has asked for comment on its proposal to require cable to carry TV stations in analog and digital after their transition to DTV. Here's your chance.

With the qualifier that we have seen the summary but the FCC has not yet written the order, I don't really understand it. I'm not sure what the problem is that they are trying to solve. If you step back and think what's the digital transition all about: The government has made a decision that every analog signal over the air goes away and you'll only get a digital signal.

No one then immediately leapt to the conclusion that every broadcaster in the country had an obligation to go buy a box to convert those digital signals to analog and give them away to consumers or make them available. Basically, consumers are on their own. They have to go get [converter boxes] at retail. Yeah, [the government will] help them with a voucher program of some sort.

Now, on the cable side, from the very beginning we said we embrace the transition and we get that there are challenges. We have every obligation and every incentive to make sure that consumers are protected, and we'll try to make it as seamless as possible. Not every operator is going to do it the same way. We just need the flexibility to do this, but we can do it, thank you very much.

Suddenly, the FCC starts down a road worrying not about what happens to broadcasters' customers but to cable customers and comes up with two ideas that just strike me as very odd. One idea is to reverse its previous two unanimous decisions on dual carriage despite the fact the FCC has already found it unconstitutional and without any statutory basis.

Or we are going to insist that you do go all-digital and you are obligated to deploy boxes to every single device to every single cable household in the country and, oh, by the way, we just made all those boxes more expensive because we weren't willing to waive the integration ban despite the fact that we told [the FCC] that it would be really helpful to the transition if we could get lower-cost boxes out in the market.

So, bottom line to your question. What do we think of it? Not much.

The FCC just released its TV-violence report. Is TV too violent?

There are certainly shows that I think are too violent.

Like what?

I'm not going to name shows. I'll end up annoying someone. I'll just tell you as a parent that there are shows that I wouldn't want my children to watch. I think the issue for us, and for me at least in this job, is what do we do about it and what is the best way to balance providing the people the tools to manage content in their home with the First Amendment?

I have skimmed the violence report and plan to read the whole thing, but based on what I have seen, nothing about the conclusion of the effects of violence on TV on children naturally lead to the recommendations they put forth.

Well, Chairman Martin said that what he wants is for cable to voluntarily provide à la carte. They did it in Canada. Why not here?

At various times, he has said voluntary and at others mandatory. But, taking “voluntary,” I have said from almost literally the first day that the changes that are taking place in the marketplace are happening so quickly that we can't really even know what the television-viewing experience is going to be like five years from now let alone 10.

There does seem to be a greater drive in the marketplace to on-demand viewing, whatever the platform. So it is quite possible that, over time, in this age of on-demand and DVRs and day-and-date windows, a different marketplace model emerges. And if so, then that is the right answer.

A more à la carte model?

It could be. I don't know. If the marketplace drives it that way, I'm not prepared to say that is the wrong answer. Where I have always drawn the line is the idea that the government somehow mandates it. That is the first issue.

But the second issue is whether the à la carte regime is actually helpful to the point raised, which is that it itself is a solution to content on TV, whether it is violence or indecency.

It strikes me that there are three reasons why à la carte is a very poor answer. It clearly cuts down on diversity. No question about that. Not even the FCC has said differently. They dismissed it, but they acknowledged that it would have that effect.

Two, I have never seen a study that suggested the economics were very good with à la carte unless you had someone who was interested in watching a very few channels.

Three, if you are being sold à la carte and the incentives for marketing and market share become really overwhelming in a way you don't have to worry about when you are part of the expanded-basic package, it strikes me the incentives are for content to become even edgier to break through that kind of à la carte world.

I don't know this, but it is possible that à la carte would produce exactly the opposite result from that stated in the violence report. The real problem is that there is literally no analysis in that violence report that supports the assertion that à la carte would be a good solution. None.

What, if anything, is wrong with the retransmission-consent regime?

I think that, broad brush, the problem is that it is not a free market. It's a “heads you win, tails I lose” proposition.

Retransmission consent is part of a very complex, very regulatory regime that includes the fact that you have exclusivity to particular stations and markets that are then protected by laws that actually affirmatively prevent people from importing competing signals, whether it is the network–non-duplication rules or the syndicated-exclusivity rules. It includes the fact that broadcasters, before they even begin a negotiation with a cable operator or satellite operator, know that value potentially can only flow in one direction.

When a broadcaster walks into a negotiation with cable—and this is probably the place where I think it is most egregious, unlike with satellite—all a broadcaster has to worry about is the value that's going to be exchanged for that signal. They don't have to worry about placement. They know they are guaranteed that their broadcast signal will be viewed by every single cable customer by law before that cable customer can proceed to buy any other cable network [“must-buy”].

No one else has that kind of advantage going into a negotiation. So, looking at it narrowly and just saying it's two people sitting at a table discussing retransmission consent and then saying that's a free market at work is nonsense.

Should the FCC have authority to mandate baseball-style arbitration in retransmission impasses.

I don't think so. We should be trying to drive this toward a free market. I understand when I say that that you are going to have winners and losers, potentially, though I would hope that most broadcasters and multichannel platforms would understand that there is a win-win here and that they have a symbiotic relationship. But to outsource the outcome of those negotiations, first to the government who then proceeds to outsource it to an arbitrator regardless of whether it's baseball-style or anything else, that is going in the direction of having even more government involvement directly in these negotiations, and I think it should be left to a free market.

So is the answer to get the court to strike down the 1994 and '97 Supreme Court decisions on Turner Broadcasting v. FCC upholding must-carry rules?

Wouldn't make me unhappy. I think there is a real legitimate question. Turner was a 5-4 decision based narrowly on their conclusion that there was a compelling interest because the actual survival of the broadcast industry was at stake. It was based on a fairly old record. It is 2007, and the world has changed. I think it is an open question as to whether or not if you went back with a new record that [must-carry] could survive a First Amendment challenge. No one is doing that now, but I think we should be looking at the entire broadcast regime.

So would you encourage Turner to step up again and challenge the rules?

I don't think it is a question of a court challenge at the moment. I think, if Congress was of a mind to examine the broadcast-carriage rules, that should be part of the discussion.

It's election season already, and the presidential candidates are multiplying like mayflies. Cable is a geographically targeted medium. Why doesn't it get more political ad dollars?

We actually put together a panel at the convention on that issue. I think that we have not done as good a job as we could have at leveraging what we can deliver, and a part of that is marketing.

There is a bit of a legacy perception of that in the political realm. I don't think that the people making media decisions necessarily understand the reach and targetability of cable as well as they should, which is something we need to work on. But I also think their perception is that you can get an ad up faster on broadcast TV than you can on cable, and so I think there is a question, particularly late in the campaign, about how nimble the platform can be.

What do you TiVo?

It is an embarrassingly long list, which shows you how much I consume television, but Lost, Medium, 24, Battlestar Galactica, Stargate, Shark, CSI, Monk, The Closer.