March 18, 2014

Letter to Senate Committee on Commerce, Science and Transportation Concerning Current Television Law and Programming Agreements

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March 17, 2014

Dear Senators Rockefeller, Thune, Pryor, and Wicker:

Thank you for the opportunity to respond to the Committee’s questions on these important topics. The Technology Policy Program of the Mercatus Center at George Mason University is dedicated to advancing knowledge about the effects of regulation on society. As part of its mission, the program conducts careful and independent analyses that employ contemporary economic scholarship to assess legislation and regulation from the perspective of the public interest. Therefore, this response does not represent the views of any particular affected party or special interest group but is designed to assist the Committee as it explores these issues. Some questions I have not answered because the question presumes the continued existence of most television regulations and, since my position is that the television marketplace needs comprehensive regulatory reform, my answer would be largely hypothetical and only marginally helpful. Other questions I did not answer because the dynamic video marketplace makes predictions difficult.

Current television law makes programming agreements circuitous and distorts market forces. The Congressional Research Service says that “the negotiations between programmers and distributors, although private, are strongly affected by statutory and regulatory requirements and cannot be properly characterized as free-market.” Every television industry segment has received some regulatory favors though the decades. Most concerning is that there is “a thicket of communications law requirements aimed at protecting and supporting the broadcast industry,” as the Copyright Office has said. This thicket arises largely because Congress and the FCC have aspirations for broadcast—namely localism, free television, competition, and diverse voices—that are often in tension with each other. These conflicting goals also tend to disadvantage pay-TV providers, particularly smaller operators. Incremental or minor reforms tend to simply create the need for yet more fixes in the future, further distorting market processes. My comments below rely on the premise that Congress will reexamine its public interest obligations for broadcast television and overhaul several television policies, including compulsory licenses, retransmission consent, and network nonduplication.

1. Should Congress reauthorize STELA? If so, for how long?

Congress should sunset the compulsory license portion of Satellite Television Extension and Localism Act of 2010 (STELA). The purpose of the Satellite Home Viewer Act of 1988 (SHVA) and its later iterations, including STELA, was to grow the then-fledgling satellite television and direct broadcast satellite (DBS) industry and extend television signals to unserved households. After 26 years, that goal has been achieved and STELA can and should be repealed. With the 2010 passage of STELA, Congress directed the Copyright Office to issue a report regarding the possible phase-out of compulsory licenses. The Copyright Office responded with a report encouraging Congress to eliminate the compulsory copyright provisions. Today, Dish provides local broadcast channels to every media market and DirecTV provides local broadcast channels to around 99 percent of households. DBS providers now serve about one-third of MVPD subscribers. Clearly, DBS providers provide local broadcast television to the vast majority of households and provide a significant competitive check to cable systems.

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