Friday, March 17, 2006

This week's FCC fines for indecent content of TV broadcasters just a cost of doing business

You may have seen on Wednesday that the FCC fined CBS as well as some local broadcasters a total of about $4 million for violations of decency standards. This included instances of violence as well as impermissible sex.

Though the headlines were about the fines, the broader subtext is about equity: First Amendment equity. The larger issue is the double standard that is applied to broadcast television—even though only a handful of households even obtain their signal via traditional broadcast—is different than that applied to the other hundreds of channels we can view. Any programming that does not start out life from a broadcast station has the same First Amendment privileges as the print media. In short, the boundary is obscenity and libel. Broadcasters have a tighter reign, called indecency.

Adam Thierer has a concise review of the history of the legal rationale for why programs on television have fewer content rights than others. If it was cable network ESPN that carried the 2004 Super Bowl in which Janet Jackson had her infamous “wardrobe malfunction” there would have been no cause for FCC action. But it was broadcaster CBS, and it was hit with a $550,000 levy. In today’s video world, such a distinction is ludicrous.

The time is right to level the playing field for content. Broadcasters, however, will need to pay a price to buy themselves out of what Thierer describes as “asymmetrical regulatory policy that unfairly singles out one set of speakers [i.e., broadcasters] relative to all others.” The asymmetrical regulation is an artifact of three rationales created by Congress and the courts: 1) spectrum was perceived as scarce, 2) broadcast signals were considered “pervasive” and 3) in return for being allowed to use this scare spectrum broadcasters had to serve in the “public interest.” So the bargain was free spectrum in return for some public service obligations.

In the last 15 years or so, however, the level of public service obligations eroded. The fairness doctrine has been rescinded, as have old regulations on network ownership of programming and prime time access limits. Despite the recent fines, the scope for sex and violence on broadcast programs is far more liberal today than 20 years ago. In effect, just about the only limit today’s license holders have is the modern boundaries of indecency, a boundary that is restrictive only when compared to the nearly anything goes content permitted print and non broadcast video.

In 1996 the broadcasters could have bought their way out of their asymmetry. That was when they lobbied hard and successfully to be given new spectrum to make the transition to digital from analog. A few lonely voices in Congress, Sen. Robert Dole being the most prominent, thought it was time to make broadcasters pay for the spectrum the same way satellite providers, cell phone operators and the like all must bid for the spectrum they use.

There should be a price for broadcasters to win full First Amendment rights

Broadcasters want it both ways. The cable operators had to invest tens of billions of dollars to build and upgrade their systems. DBS providers have to launch satellites and often subsidize user hardware beyond the TV set. Broadcasters have none of these expenses. (In reality most broadcasters today have paid for their spectrum in buying it from someone else, but that is not relevant here). Broadcasters have also been given the benefit of “must carry” rights on cable and DBS, whereas nonbroadacst networks must negotiate with those carriers for a space on their systems. In many cases they also must pay dearly to get such carriage.

To remove all content restrictions specific to broadcasters, as logical as it seems when looking at the greater freedom of everyone else in the video universe, should not be a one-sided deal. It would seem that symmetry would be achieved only when broadcasters must pay for their transmission pipeline the way their competitors do and negotiate with the cable and DBS providers for carriage. Then it would be equitable to admit that their remaining public service obligations are moot and content regulation can be made a level field with other video providers.

My guess is that when push comes to shove, broadcasters would be willing to put up with their few limits on content if the alterative was paying billions for spectrum and losing their must carry rights. If content equality is really important to them, then they could go to Congress and offer to give up their current benefits in exchange for a level playing field. In the meantime a few hundred thousand dollars here and there is simply one of the costs of doing business.

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Friday, March 03, 2006

The "non-media monopoly" as seen by the smart money

Among the worst performing publicly owned companies over the past three years are a collection of media companies, all associated with the popular misconception of “media monopoly.” This turns into an oxymoron when these so-called monopolies have such poor financial performance that they are among the bottom of the barrel among all sorts of competitive companies in other industries.

The reason we have laws prohibiting business monopolies (dating back to the 1890 Sherman Antitrust Act) is that capitalist economics don’t work when there is no competition. Prices can be set higher than they would be if there were competitors in the market. This pricing effect starts to be measurable even before there is literally one supplier: an oligopoly, where two or three suppliers dominate a market, can also set prices higher than they would be in a competitive market.

I count myself among a handful of voices that not only hold that all the trends and forces have been moving media in the opposite direction—away from concentration-- and back it up with empirical research, not merely a handful of anecdotes and speculations of what “could” happen. Adam Thierer has added more data in his Media Myths in contrast to the rhetoric of the “sky is falling” crowd.

In the case of the media, the most vociferous of those who fear concentration of ownership in few hands are not particularly concerned with the economic consequences of ownership. Indeed, Ben Bagdikian, in his book The Media Monopoly, does not discuss the economic concept of monopoly at all. According to the index of the fourth edition, he devotes part of two pages to a discussion of profits. He, as well as Robert McChesney and other critics make their argument on the presumed negative influence on civic discourse and culture that could be an outcome if a handful of individual owners did indeed set the agenda and determined what we all read, heard and viewed.

But there is a nexus between the two concepts of monopoly. Because if there were in fact a handful of big media companies that precluded competition in the marketplace of ideas, that would be reflected in the success of those same entities in the marketplace for products—the economic marketplace. That is, if you and me and everyone else could only go to Time Warner, News Corporation, CBS, Gannett, Disney, Bertelsmann, Viacom, Clear Channel, Comcast (geez, it gets to be a long list for a concentrated industry…) then presumably these companies would be raking it in. Can a small number of media companies—out of tens of thousands that are players in the U.S. alone— be truly dominant without that translating to the bottom line?

So let’s go to the ticker tape. Last year Adam Thierer and Dan English published a paper, “Testing ‘Media Monopoly’ Claims: A Look at What Markets Say” that I wrote about in September. They asked “If the media market were indeed full of monopolists, wouldn’t a lot of people be investing in media stocks?” In brief, Thierer and English found that Time Warner, Viacom, News Corp., Clear Channel, and Comcast lost a combined 52 percent of their value (in terms of market capitalization) over the previous five years.

The latest evidence along these lines is the recent compilation in The Wall Street Journal identifying the best and worst performing stocks (subscription required). Among the 50 poorest performers were six media companies, four with major holdings in the fading newspaper segment, but also two major broadcasters, including the largest owner of radio stations. Among the best performing media companies were younger and thus more volatile entrants.

Worst and Best Performers, Total Return, Past 3 Years
Source: The Wall Street Journal, Feb 27, 2006, R1. Compiled by L.E.K. Consulting LLC.

Although one might criticize Wall Street as being obsessed with last quarter's and the next quarter's earnings, over the longer haul the financial markets tell a story of substance. Out of 76 industry sectors (from home construction to computer hardware), the publishing industry was 72nd over the three year period, broadcasting and entertainment was 63rd. This is not the stuff of a concentrated industry ownership. Time to move on.

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