Cable Customers Are Being Held Hostage

It seems as if every few months we're talking about another dispute between cable companies and broadcasters. The latest such conflict, affecting over 3 million subscribers, is playing out between Time Warner Cable and CBS-owned stations in New York, Los Angeles, and Dallas.

As usual, the disagreement revolves around retransmission fees -- the fees paid by cable operators like Time Warner to broadcasters like CBS for the right to carry programming. When contracts come to an end, there's often an impasse in the negotiations, as broadcasters often demand much higher fees than the cable companies are willing to pay, and a blackout of the channel can ensue. That is what happened (for about 30 minutes) on Monday night.

The channel was quickly turned back on, as the parties agreed to set the deadline for a deal for Friday night. Crisis averted, at least so far.

According to Time Warner, CBS is asking for rates seven times higher than affiliates are getting in other markets for the same programming. CBS claims it's only asking to be fairly compensated for its programming.
These disagreements can be detrimental to both parties involved. According to a survey conducted by Park Associates, upwards of 7 percent of subscribers can end up switching their cable service as a result of these disputes. And broadcasters might start losing business as well, as Time Warner has been encouraging its customers to use Aereo, a new free service available in many cities.

Aereo, as we've discussed in the past, allows you to watch broadcast television over the Internet and does not pay fees to the broadcasters -- it's completely legal, as many courts have affirmed, because its content comes from the free programming available on the public airwaves.

Bear in mind that these broadcasters get their spectrum for free from the government, give their content away for free to customers who watch broadcast instead of cable TV, and make billions selling advertising. In addition to these earnings, broadcasters are making billions each year from these retransmission fees while sitting on valuable spectrum -- spectrum that could be used instead for wireless Internet service, which is running out of space. Interestingly, only 7 percent of consumers get their programming exclusively from over-the-air channels.

The negotiations that take place between broadcasters and cable providers are anything but free, as scholars from the Free State Foundation have explained. The rules and regulations built up over the years place many restrictions on cable operators, giving a major advantage to broadcasters.

By our estimate, cable TV's programming costs are increasing at least four times faster than the rate of inflation, resulting in higher prices for consumers.

Consumers rely on programming to be there when their televisions are turned on. And when these negotiations take place outside the confines of a free market, as they do now, costs go up and service quality goes down.

The antiquated rules governing retransmission negotiations are impeding the progress of television. It's time for the negotiations take place on a level playing field.

Zack Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research, an educational and research nonprofit organization.

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