By Brent Skorup and Melody Calkins

Recently, the FCC sought comments for its Media Modernization Initiative in its effort to “eliminate or modify [media] regulations that are outdated, unnecessary, or unduly burdensome.” The regulatory thicket for TV distribution has long encumbered broadcast and cable providers. These rules encourage large, homogeneous cable TV bundles and burden cable and satellite operators with high compliance costs. (See the complex web of TV regulations at the Media Metrics website.)

One reason “skinny bundles” from online video providers and cable operators are attracting consumers is that online video circumvents the FCC’s Rube Goldberg-like system altogether. The FCC should end its 50-year experiment with TV regulation, which, among other things, has raised the cost of TV and degraded the First Amendment rights of media outlets.

The proposal to eliminate legacy media rules garnered a considerable amount of support from a wide range of commenters. In our filed reply comments, we identify four regulatory rules ripe for removal:

• News distortion. This uncodified, under-the-radar rule allows the commission to revoke a broadcasters’ license if the FCC finds that a broadcaster deliberately engages in “news distortion, staging, or slanting.” The rule traces back to the FCC’s longstanding position that it can revoke licenses from broadcast stations if programming is not “in the public interest.”
  Though uncodified and not strictly enforced, the rule was reiterated in the FCC’s 2008 broadcast guidelines. The outline of the rule was laid out in the 1998 case Serafyn v. CBS, involving a complaint by a Ukrainian-American who alleged that the “60 Minutes” news program had unfairly edited interviews to portray Ukrainians as backwards and anti-Semitic. The FCC dismissed the complaint but DC Circuit Court reversed that dismissal and required FCC intervention. (CBS settled and the complaint was dropped before the FCC could intervene.)
  “Slanted” and distorted news can be found in (unregulated) cable news, newspapers, Twitter, and YouTube. The news distortion rule should be repealed and broadcasters should have regulatory parity (and their full First Amendment rights) restored.


• Must-carry. The rule requires cable operators to distribute the programming of local broadcast stations at broadcasters’ request. (Stations carrying relatively low-value broadcast networks seek carriage via must-carry. Stations carrying popular networks like CBS and NBC can negotiate payment from cable operators via “retransmission consent” agreements.) Must-carry was narrowly sustained by the Supreme Court in 1994 against a First Amendment challenge, on the grounds that cable operators had monopoly power in the pay-TV market. Since then, however, cable’s market share shrank from 95% to 53%. Broadcast stations have far more options for distribution, including satellite TV, telco TV, and online distribution and it’s unlikely the rules would survive a First Amendment challenge today.


• Network nonduplication and syndicated exclusivity. These rules limit how and when broadcast programming can be distributed and allow the FCC to intervene if a cable operator breaches a contract with a broadcast station. But the (exempted) distribution of hundreds of non-broadcast channels (e.g., CNN, MTV, ESPN) show that programmers and distributors are fully capable of forming private negotiations without FCC oversight. These rules simply make licensing negotiations more difficult and invite FCC intervention.

Finally, we identify retransmission consent regulations and compulsory licenses for repeal. Because “retrans” interacts with copyright matters outside of the FCC’s jurisdiction, we encourage the FCC work with the Copyright Office in advising Congress to repeal these statutes. Cable operators dislike the retrans framework and broadcasters dislike being compelled to license programming at regulated rates. These interventions simply aren’t needed (hundreds of cable and online-only TV channels operate outside of this framework) and neither the FCC nor the Copyright Office particularly likes being the referees in these fights. The FCC should break the stalemate and approach the Copyright Office about advocating for direct licensing of broadcast TV content.

Title II allows the FCC to determine what content and media Internet access providers must transmit on their own private networks, so the First Amendment has constantly dogged the FCC’s “net neutrality” proceedings. If the Supreme Court agrees to take up an appeal from the DC Circuit Court of Appeals, which rejected a First Amendment challenge this summer, it will likely be because of Title II’s First Amendment deficiencies.

Title II has always been about handicapping ISPs qua speakers and preventing ISPs from offering curated Internet content. As former FCC commissioner Copps said, absent the Title II rules, “a big cable company could block access to an investigative report about its less-than-stellar customer service.” Tim Wu told members of Congress that net neutrality was intended to prevent ISPs from favoring, say, particular news sources or sports teams.

But just as a cable company chooses to offer some channels and not others, and a search engine chooses to promote some pages and not others, choosing to offer a curated Internet to, say, children, religious families, or sports fans involves editorial decisions. As communications scholar Stuart Benjamin said about Title II’s problem, under current precedent, ISPs “can say they want to engage in substantive editing, and that’s enough for First Amendment purposes.”

Title II – Bringing Broadcast Regulation to the Internet

Title II regulation of the Internet is frequently compared to the Fairness Doctrine, which activists used for decades to drive conservatives out of broadcast radio and TV. As a pro-net neutrality media professor explained in The Atlantic last year, the motivation for the Fairness Doctrine and Title II Internet regulation is the same: to “rescue a potentially democratic medium from commercial capture.” This is why there is almost perfect overlap between the organizations and advocates who support the Fairness Doctrine and those who lobbied for Title II regulation of the Internet.

These advocates know that FCC regulation of media has proceeded in similar ways for decades. Apply the expansive “gatekeeper” label to a media distributor and then the FCC will regulate distributor operations, including the content transmitted. Today, all electronic media distributors–broadcast TV and radio, satellite TV and radio, cable TV, and ISPs–whether serving 100 customers or 100 million customers, are considered “gatekeepers” and their services and content are subject to FCC intervention.

With broadband convergence, however, the FCC risked losing the ability to regulate mass media. Title II gives the FCC direct and indirect authority to shape Internet media like it shapes broadcast media. In fact, Chairman Wheeler called the Title II rules “must carry–updated for the 21st century.”

The comparison is apt and suggests why the FCC can’t escape the First Amendment challenges to Title II. Must-carry rules require cable TV companies to transmit all local broadcast stations to their cable TV subscribers. Since the must-carry rules prevent the cable operator editorial discretion over their own networks, the Supreme Court held in Turner I that the rules interfered with the First Amendment rights of cable operators.

But the Communications Act Allows Internet Filtering

Internet regulation advocates faced huge problem, though. Unlike other expansions of FCC authority into media, Congress was not silent about regulation of the Internet. Congress announced a policy in the 1996 update to the Communications Act that Internet access providers should remain “unfettered by State and Federal regulation.”

Regulation advocates dislike Section 230 because of its deregulatory message and because it expressly allows Internet access providers to filter the Internet.

Professor Yochai Benkler, in agreement with Lawrence Lessig, noted that Section 230 gives Internet access providers editorial discretion. Benkler warned that because of 230, “ISPs…will interject themselves between producers and users of information.” Further, these “intermediaries will be reintroduced not because of any necessity created by the technology, or because the medium requires a clearly defined editor. Intermediaries will be reintroduced solely to acquire their utility as censors of morally unpalatable materials.”  

Professor Jack Balkin noted likewise that “…§ 230(c)(2) immunizes [ISPs] when they censor the speech of others, which may actually encourage business models that limit media access in some circumstances.” 

Even the FCC acknowledges the consumer need for curated services and says in the Open Internet Order that Title II providers can offer “a service limited to offering ‘family friendly’ materials to end users who desire only such content.”

While that concession represents a half-hearted effort to bring the Order within compliance of Section 230, it simply exposes the FCC to court scrutiny. Allowing “family friendly” offers but not other curated offers is content-based distinction. Under Supreme Court RAV v. City of St. Paul, “[c]ontent-based regulations are presumptively invalid.”  Further, the Supreme Court said in US v. Playboy, content-based burdens must satisfy the same scrutiny as content-based bans on content. 

Circuit Split over the First Amendment Rights of Common Carriers

Hopefully the content-based nature of the Title II regulations are reason enough for the Supreme Court to take up an appeal. Another reason is that there is now a circuit split regarding the extent of First Amendment protections for common carriers.

The DC Circuit said that the FCC can prohibit content blocking because ISPs have been labeled common carriers.

In contrast, other courts have held that common carriers are permitted to block content on common carrier lines. In Information Providers Coalition v. FCC, the 9th Circuit held that common carriers “are private companies, not state actors…and accordingly are not obliged to continue…services of particular subscribers.” As such, regulated common carriers are “free under the Constitution to terminate service” to providers of offensive content. The Court relied on its decision a few years earlier in  Carlin Communications v. Mountain States Telephone and Telegraph Company that when a common carrier phone company is connecting thousands of subscribers simultaneously to the same content, the “phone company resembles less a common carrier than it does a small radio station” with First Amendment rights to block content. 

Similarly, the 4th Circuit in Chesapeake & Potomac Telephone Co. v. US held that common carrier phone companies are First Amendment speakers when they bundle and distribute TV programming, and that a law preventing such distribution “impairs the telephone companies’ ability to engage in a form of protected speech .” 

The full DC Circuit will be deciding whether to take up the Title II challenges. If the judges decline review, the Supreme Court would be the final opportunity for a rehearing. If appeal is granted, the First Amendment could play a major role. The Court will be faced with a choice: Should the Internet remain “unfettered” from federal regulation as Congress intended? Or is the FCC permitted to perpetuate itself by bringing legacy media regulations to the online world?

On Wednesday morning, the U.S. House of Representatives Energy & Commerce Subcommittee on Communications and Technology will hold a hearing on “The Future of Video.”

As we Tech Liberators have long argued on these pages (1, 2, 3, 4, 5, 6, 7), government’s hands have been all over the video market since its inception, primarily in the form of the FCC’s rulemaking and enforcement enabled by the Communications Act. While the 1996 Telecommunications Act scrapped some obsolete video regulations, volumes of outdated rules remain law, and the FCC wields vast and largely unchecked authority to regulate video providers of all shapes and sizes. Wednesday’s hearing offers members an excellent opportunity to question each and every law that enables governmental intervention—and restricts liberty in—the television market.

It’s high time for Congress to free up America’s video marketplace and unleash the forces of innovation. Internet entrepreneurs should be free to experiment with novel approaches to creating, distributing, and monetizing video content without fear of FCC regulatory intervention. At the same time, established media businesses—including cable operators, satellite providers, telecom companies, broadcast networks and affiliates, and studios—should compete on a level playing field, free from both federal mandates and special regulatory treatment.

The Committee should closely examine the Communications and Copyright Acts, and rewrite or repeal outright provisions of law that inhibit a free video marketplace. Adam Thierer has chronicled many such laws. The Committee should, among other reforms, consider:

• Restoring traditional copyright protection to broadcast signals, instead of the compulsory license created by the 1976 Copyright Act;
• Abolishing the “must-carry” rule that requires pay-TV providers to transmit certain broadcast signals without compensation;
• Ending syndication exclusivity, network non-duplication, and sports blackout rules;
• Repealing programming availability mandates and set-top box regulation;
• Undoing broadcast/cable ownership restrictions and media cross-ownership rules;
• Eliminating program access rules;
• Stripping the FCC of the authority to intervene in and promulgate rules regarding retransmission negotiations;
• Ending special regulatory treatment for public, educational, and governmental channels.

Here’s to the success of Sen. Jim DeMint, Rep. Steve Scalise, and other members of Congress who are working to achieve real reform and ensure that the future of video is bounded only by the dreams of entrepreneurs.

Unshackling a market from obsolete, protectionist regulations can be a very challenging undertaking, especially when the lifeblood of a regulated industry is at stake. The latest push for regulatory reform to encounter the murky waters of modernization is the “Next Generation Television Marketplace Act.” The ambitious and comprehensive bill, introduced by Rep. Steve Scalise and Sen. Jim DeMint in their respective chambers of Congress, aims to free up the broadcast television market. The federal government’s hands have been all over this market since its inception, overseen primarily by the FCC, pursuant to the Communications Act.

The Next Generation Television Marketplace Act (“DeMint/Scalise”) is a bold and laudable bill that would, on the whole, substantially free up America’s television marketplace. But one aspect of the bill—its abolition of the retransmission consent regime—has sparked a vigorous debate among free marketers. This essay will explain what this debate is all about and why policymakers should think twice before getting rid of retransmission consent.

Toward a Free Market in Television

The DeMint/Scalise bill takes an axe to many of the myriad rules that stand in the way of a free market in television programming. As Co-Liberator Adam Thierer recently explained on these pages, the bill’s many provisions would among other things get rid of the compulsory licensing provisions in the Copyright Act that empower government to set the rates cable and satellite (“pay-TV”) providers must pay to retransmit distant broadcast signals. It would eliminate the “network non-duplication” rule, which generally bars pay-TV providers from carrying out-of-market signals that offer the same programs as local broadcasters. The bill would also end the “must-carry” rule that forces pay-TV providers to retransmit certain local broadcast signals without receiving any compensation.

These are just a few of the many provisions of the DeMint/Scalise bill that would substantially reform the Communications and Copyright Acts to foster a free video marketplace and bring television regulation into the 21st century. (For a more in-depth assessment of the positive aspects of the DeMint/Scalise proposal, see Adam’s informative Forbes.com essay, Toward a True Free Market in Television Programming; Randy May’s superb Free State Foundation Perspectives essay, Broadcast Retransmission Negotiations and Free Markets;” and Bruce Owen’s FSF essay, The FCC and the Unfree Market for TV Program Rights.)

What DeMint/Scalise Means For Retransmission Consent

While most of the DeMint/Scalise bill’s provisions are unequivocally pro-market and pro-consumer, some free marketers have criticized the bill because it would repeal the current statute that provides for “retransmission consent.” Retransmission consent, which Congress enacted by overriding President George H.W. Bush’s veto of the 1992 Cable Act, affords broadcasters an attenuated property right that entitles them to bar local pay-TV providers from retransmitting their signals without broadcasters’ permission—thus forcing negotiation over whether broadcasters should be paid for their content. Some broadcasters don’t elect to exercise this right, and instead demand that local pay-TV operators carry their signals pursuant to the “must-carry” rule. (Many unaffiliated broadcasters that transmit low-value programming elect to exercise must-carry because they recognize pay-TV operators are unlikely to pay retransmission fees.)

The current retransmission consent regime, which Congress created in 1992, is plagued with complex regulations that undermine free market negotiations. As Adam and Randy have explained, many of these regulations—including network non-duplication, syndication exclusivity, and must-carry—tilt the playing field in broadcasters’ favor, enabling them to earn hefty retransmission fees from cable and satellite providers that almost certainly exceed the fees they’d earn in a free market. This wealth transfer translates into higher monthly bills for pay-TV subscribers, and may enable some broadcasters to reap profits (economic rents) they would not otherwise enjoy.

The DeMint/Scalise bill would eliminate many of the existing rules that distort retransmission negotiations between broadcasters and pay-TV operators. In doing so, however, the bill would also eliminate the retransmission consent regime in its entirety. This has invoked the ire of some conservatives, such as the American Conservative Union (ACU), which recently sent a letter to Congress opposing the bill’s retransmission consent provisions.

But two venerable free market tech policy icons disagree with the ACU: Adam Thierer, writing on these pages, and Randy May, writing on The Free State Foundation blog. Adam argues that “ACU has mistakenly equated the retransmission consent regulatory process with an actual free market contracting process.” Randy argues that if the DeMint/Scalise bill were adopted, “[b]roadcasters would . . . continue to be paid for carriage of their signals – unless they choose to withhold the carriage rights because they don’t like the amount of compensation offered.”

I wholeheartedly agree with Adam and Randy that ACU’s characterization of the current regime as a “functioning market” is inaccurate. Nonetheless, ACU is right to worry that the retransmission consent provisions of the Next Generation Television Marketplace Act may undermine private bargaining. In particular, the bill appears to strip broadcasters of the authority to withhold carriage rights from pay-TV providers. Page 2 of the bill (PDF of bill text) states that:

Section 325 of the Communications Act of 1934 (47 U.S.C. 325) is amended . . . by striking subsections (b) and (e)

In striking these two subsections, the bill would restore 47 U.S.C. § 325 to its state prior to the enactment of the 1992 Cable Act—the law which established retransmission consent as it exists today.

On one hand, this would eliminate many onerous provisions, including the must-carry rule and the “good faith” negotiation requirement. But striking these subsections would also eliminate the legal authority that underlies broadcasters’ ability to withhold carriage rights from pay-TV operators. Under pre-1992 law, as the Senate Commerce Committee’s report on the Cable Act explained, “cable systems need not obtain consent from broadcast stations for retransmission of their signals, based on the reference in section 325 of retransmission by broadcasting stations.” S. Rep. No. 102–92, at 35 (1991). In other words, if 325(b) goes away, so does retransmission consent as we know it.

Retransmission consent is not without its critics. Some argue that broadcasters don’t deserve the right to exclude local pay-TV operators from retransmitting their signals, as subscribers can already freely watch over-the-air broadcast signals by simply putting up an antenna. Pay-TV providers simply retransmit broadcast signals without alteration and with advertisements intact, the argument goes, so why should broadcasters be able to demand compensation from pay-TV providers?

While this argument has rhetorical appeal, it ignores the economic realities of the modern television market. Today, unlike in the 1970s, a tiny percentage of viewers watch broadcast television over-the-air. The tiny minority of households with antennas pay no subscription fees, unlike the majority of viewers who pay a fee for a cable or satellite subscription. Broadcasters that demand retransmission fees from pay-TV operators are simply charging viewers who are willing to pay more than viewers who aren’t. This practice, known as price discrimination, ultimately benefits low-income families who rely on over-the-air signals by allowing them to view programming subsidized by pay-TV subscribers.

Copyright Versus Retransmission Consent

So what about content owners? Their legal rights, unlike those of broadcasters and pay-TV providers, arise primarily out of the Copyright Act, not the Communications Act.

While the DeMint/Scalise bill would eliminate the Communications Act’s retransmission consent provisions, it makes only minor changes to the Copyright Act—which, of course, prohibits most unauthorized public performances of copyrighted works, including television broadcasts. So copyright owners would retain the right to bar pay-TV providers from retransmitting their television shows without permission. (Indeed, in one sense, content owners would enjoy greater copyright protection under the bill, as it eliminates several limitations on copyright liability currently provided to secondary transmissions by cable and satellite providers.)

If the bill is enacted, therefore, pay-TV operators wishing to retransmit broadcast signals may no longer need to get permission from the broadcaster—but they’d still need permission from program owners to retransmit signals that contain copyrighted content. While broadcasters themselves own the rights to some of the programs they typically air—including local news shows and, in some cases, exclusive syndication rights for their area—the vast majority of broadcast television content is owned by third parties such as broadcast networks, production companies, syndicators, sports leagues, and the like. (Although the Copyright Act confers protection on compilations of copyrighted works in certain cases, whether broadcasters’ programming choices enjoy copyright protection is unclear. See 2 Patry on Copyright § 3:64.)

Before 1976, cable providers were free under federal law to retransmit local and distant broadcast signals without permission from the broadcaster or the rights holder. In 1976, Congress overhauled the Copyright Act to define public retransmissions of broadcast signals as “public performances” (which if containing copyrighted material generally require permission from the rights holder).

At the same time, however, Congress also created a compulsory license permitting cable providers to retransmit certain distant broadcast signals so long as they paid royalties to the Copyright Office (which in turn doles out payments to rights holders as it sees fit). The law also permitted cable providers to retransmit broadcast signals locally without paying any royalties to rights holders.

The DeMint/Scalise bill would leave intact the 1976 Copyright Act’s definition of “public performance,” while repealing not only the compulsory licensing system that currently governs retransmissions of distant signals but also the provision exempting pay-TV providers’ retransmissions of local signals from copyright liability. If the bill were enacted, owners of broadcast programs would gain the ability to freely negotiate rates with pay-TV providers, instead of relying on the rates set by the Copyright Office.

Consensual Retransmission—Or Unjust Enrichment?

How would the dynamics of the video marketplace shift if DeMint/Scalise were the law? For one thing, broadcasters would hold far fewer cards, losing the regulations that benefit them, such as syndication exclusivity, network non-duplication, and most importantly, retransmission consent. Pay-TV operators, many of which currently pay substantial retransmission fees to broadcasters, might seek out less costly sources of popular network television shows—perhaps by dealing directly with major networks. But would the networks play ball? Or would they rather leave today’s market structure intact and continue dealing exclusively with broadcasters? It’s hard to say.

Imagine that some large pay-TV providers succeed in inking deals with networks and other rights holders to publicly perform the same programs that broadcasters carry. On one hand, this disintermediation of broadcasters might benefit consumers, especially if it translates into lower fees (and, hence, more content choices and/or lower television bills). Indeed, a major selling point of the DeMint/Scalise bill is that it would enable an array of creative economic arrangements between pay-TV providers and content owners that are verboten under current law.

But disintermediating broadcasters in this manner may have a dark side.

Imagine cable provider CableCo reaches a licensing deal with commercial network NetworkCo to display the network’s primetime content to CableCo’s subscribers nationwide. CableCo, recognizing that its subscribers are accustomed to watching primetime network content originally transmitted by their local broadcaster, decides to continue retransmitting the local signals that independent NetworkCo affiliate stations broadcast in each market.

Although CableCo’s paid subscribers derive some value from these local signals, CableCo doesn’t compensate the local broadcasters whose signal it retransmits, since the Communications Act no longer enables broadcasters to demand retransmission fees. (To avoid copyright infringement liability, CableCo might replace all timeslots that contain local news shows—which are created and owned by each affiliate station—with syndicated programming.)

Is this scenario—which could conceivably occur if DeMint/Scalise were the law—an acceptable free market outcome? Absolutely, argues Professor Bruce Owen, a veteran telecommunications policy guru, who wrote the following in a recent Free State Foundation Perspectives essay:

Unlike program producers and networks, TV stations do nothing to “earn” this right, and the benefits to them are not rewards for innovation or production of valuable services. The economic value of a retransmission right comes solely from the ability of its owner to extract cash (or carriage) from cable systems and other multi-channel video program distributors (MVPDs). In fact, now that nearly everyone gets all TV signals by cable or satellite or Internet, broadcast stations are largely useless relics of a bygone technology, and the spectrum that is still reserved for their use has far better and more valuable uses.

But if Professor Owen is correct in arguing that broadcasters “do nothing to ‘earn’” the right to exclude others from retransmitting their signal, why is abolishing retransmission consent necessary? If broadcasters do nothing to enhance the value of the content they carry, the proper public policy response is to repeal the regulations (e.g., network non-duplication, syndication exclusivity, must-carry) that empower broadcasters to take a cut of exchanges that would otherwise occur directly between pay-TV providers and content owners. Without such rules in place, retransmission consent would be a dead letter (albeit technically intact) because pay-TV providers would simply obtain programming directly from the source.

What if Professor Owen is mistaken? Consider that many broadcasters work to differentiate their broadcasts from those carried by distant stations affiliated with the same network. For instance, some broadcasters overlay localized messages warning of impending perilous weather during primetime programming. Broadcasters sometimes display tickers (or “crawlers”) underneath network and syndicated shows, displaying such information as local sports scores, school closings, and election results. Some broadcasters select and display local ads during commercial breaks (in addition to national ads selected by networks). Although these alterations may in some cases enjoy copyright protection, facts cannot be copyrighted, nor can works that lack “originality” or “creativity.”

Unfortunately, we don’t know how much economic value (if any) these “signal enhancements” add to the underlying programming. Fortunately, the market can answer that question—assuming, of course, well-defined property rights exist and regulations do not mandate exclusive dealing or otherwise obstruct voluntary marketplace negotiations.

If retransmission consent is abolished, however, broadcasters’ ability to exclude others from free riding on their efforts will be severely diminished. Is this a problem? To the extent that broadcast signals possess some incremental value beyond that embodied in the programming they carry, the DeMint/Scalise bill tilts the scales in favor of pay-TV providers, and may enable them to reap economic rewards that would otherwise accrue to broadcasters.

This form of free riding offends the longstanding common law equitable principle of unjust enrichment, which holds that “[a] person who is unjustly enriched at the expense of another is subject to liability in restitution.” If pay-TV providers are free to monetize the efforts of broadcasters without permission or compensation, broadcasters may under-invest in signal enhancements. (For more on this issue, see Shyamkrishna Balganesh, The Social Costs of Property Rights in Broadcast (and Cable) Signals, 22 Berkeley Tech. L.J. 1303 (2007)).

If, as Randy May argues, consumers are best served by “[p]rivate bargaining, in which the parties know their own interests, and can contract freely,” then Sen. DeMint and Rep. Scalise should consider reforming the retransmission consent law, instead of gutting it in its entirety.

To do so, instead of repealing 47 U.S.C. § 325(b), DeMint and Scalise could rewrite the subsection to get rid of the must-carry and the good faith negotiation requirements while leaving retransmission consent intact. They could also strip the FCC of its existing authority to meddle with retransmission negotiations and instead create a private right of action for broadcasters to obtain recourse in federal court for unauthorized retransmissions. That way, if a pay-TV provider were to retransmit a broadcaster’s signal without permission, the aggrieved broadcaster could recover any profits the pay-TV provider earned as a result of the unauthorized retransmission.

The Long Run: Spectrum Liberalization

As policymakers work to liberalize the airwaves to ensure market participants put spectrum to its most highly valued uses, there may come a day when television broadcasting as we know it ceases to exist. Meanwhile, however, policymakers would be loath to lose sight of the basic principles that underlie free markets—voluntary exchange, property rights, and regulatory neutrality—in governing the television marketplace. Whatever one thinks about broadcasters’ public policy advocacy in general, two wrongs don’t make a right; the merits of protecting attenuated property rights in broadcast signals should stand on their own.

Broadcasters have long argued their efforts serve consumers and generate value for society. If they’re right, they deserve to reap the rewards of the value they create. Retransmission consent provides the means by which they may do so.

It’s high time for Congress to liberalize the television marketplace to bring it into the 21st century. Sen. DeMint and Rep. Scalise’s bill would, if enacted, mark a major step toward a freer video market. However, their bill could be improved by leaving retransmission consent intact.

Just a reminder that PFF is hosting a panel discussion on “Cable, Broadcast & the First Amendment: Will the Supreme Court End Must-Carry?” this Tuesday (April 27th) from 10:00-11:45 a.m at Hogan & Hartson LLP (555 13th Street NW, Washington, DC). To hold a seat, please RSVP for the event here.

The event features an all-star cast representing all sides (cable, broadcast and programming) of the fight over the FCC’s must-carry rules, which require cable television systems to dedicate some of their channels to local broadcast television stations. The Supreme Court narrowly upheld these “must-carry” rules in the mid-1990s. But last year’s DC Circuit decision striking down the FCC’s 30% cap on cable ownership lead Cablevision to challenge the must-carry rules. The Supreme Court will soon announce whether it will review the Second Circuit’s decision last June upholding the rules. Speakers at our event include:

• Dan Brenner, Partner, Hogan & Hartson LLP; former director of regulatory and legal affairs at the National Cable & Telecommunications Association (NCTA)
• Matt Brill, Partner, Latham & Watkins LLP; counsel for Discovery Communications, amicus in Cablevision case; former Senior Legal Advisor to FCC Commissioner Kathleen Abernathy
• Jack Goodman , Counsel, WilmerHale; former general counsel of the National Association of Broadcasters (NAB)
• Howard Symons, Member, Mintz Levin; counsel for Cablevision; former Senior Counsel to House Subcommittee on Telecommunications

Berin Szoka and I will co-moderate the session. Hope to see you Tuesday. Register for the event here.

There was a hearing today in the House Energy and Commerce Committee on “Reauthorization of the Satellite Home Viewer Extension and Reauthorization Act,” which got into the sticky of issue of whether must carry mandates should be applied to satellite television (DBS) operators. My boss, Ken Ferree, president of the Progress & Freedom Foundation, testified in opposition to that notion. Here’s what he had to say about proposals that would require satellite operators to carry local broadcast TV stations from even the smallest markets:

Because Congress cannot repeal the laws of physics, there are only two ways in which a satellite company might comply with such a mandate: 1) it may add capacity (i.e., launch new satellites and build associated ground equipment), or 2) it may convert capacity currently used for other purposes to local television carriage in the most sparsely populated parts of the country. Neither approach makes economic sense. That is, these proposals, if they were to become law, would impose considerable costs on satellite operators while generating no appreciable revenue.

Building and launching new satellites in order to carry local television stations in the smallest markets would of course cost hundreds of millions of dollars, while the return on such an investment, without any doubt, would be negligible. On the other hand, satellite television operators make capacity decisions in order to maximize net revenue. If they are required to delete program services that are profitable to make room for those that are less so, they necessarily lose in the transaction. Indeed, if delivering local television signals in the smallest markets made sound business sense, the satellite companies would be doing so already and no legal mandate would be necessary. Moreover, and fatally for any such proposal, requiring DBS companies to provide local signals (effectively adopting a satellite must-carry requirement) would almost certainly be unconstitutional. Cable must-carry was upheld by the Supreme Court by a bare majority only because there was a voluminous record suggesting that weaker broadcast stations would fail absent a cable must-carry requirement, thus depriving over-the-air viewers of additional video programming choices. There is no similar record, nor any reason to believe that one might be assembled, suggesting that the same would hold true absent some enhanced satellite carriage rule. Carriage requirements impose significant burdens on the commercial and First Amendment rights of those bound by them. In the current environment, imposing enhanced carriage mandates on DBS operators would be unwarranted, economically indefensible, and unconstitutional.

President-elect Barack Obama will soon be naming Cass Sunstein, an old friend of his from their University of Chicago Law School days together, the new head the White House Office of Information and Regulatory Affairs (OIRA). OIRA oversees regulation throughout the U.S. government. Basically, Sunstein’s position is the equivalent of the federal regulatory czar.

Sunstein certainly possess excellent qualifications for the job. During his time at the University of Chicago and Harvard Law School, Sunstein has established himself as a leading liberal thinker in the field of law and economics. And, as I have joked in writing about him before, he is so insanely prolific that it seems every time I finish reading one of his new books a new title by him lands on my desk. I am quite convinced that both he and Richard Posner are actually cyborgs. I just don’t understand how two humans can compose words so rapidly!

Anyway, Professor Sunstein’s new position as head of OIRA gives him the ability influence federal regulatory decisions in both a procedural and substantive way. In terms of substance, it gives him an important platform to subtly “nudge” the regulatory philosophy and direction of the Obama Administration on many matters, including Internet policy. So, what has Professor Sunstein had to say about Internet policy in his recent work? Sunstein has developed his thinking about these issues primarily in his two recent books: Republic.com (2000) and Infotopia: How Many Minds Produce Knowledge (2006). But he’s also had a few relevant things to say about Internet issues in his recent book with Richard Thaler, Nudge: Improving Decisions About Health, Wealth, and Happiness (2008).

There are 3 Internet policy-related things from his work that I’d like to focus on here because I find them all quite troubling.

(1) Is the Net Creating Anti-Democratic Man?

The first is Sunstein’s general outlook about the Internet and what it is doing to society. In Republic.com , Sunstein argued that the Internet is destroying opportunities for a mingling of the masses and shared social experiences. The hyper-customization that specialized websites and online filtering technologies (blogs, portals, listservs, political websites, etc.) offer Americans is allowing citizens to create the equivalent of a highly personalized news retrieval service that Sunstein contemptuously refers to as “The Daily Me.”

Actually, the phrase “The Daily Me” was coined by Nicholas Negroponte in his brilliant 1995 book Being Digital to describe what he argued would be a liberating break from traditional, force-fed media. But what irks Sunstein about “The Daily Me” is not the amazing new array of choices that the Internet offers Americans, it’s that the Internet and all these new technologies allow citizens to filter information and tailor their viewing or listening choices to their own needs or desires. While Negroponte welcomed that filtering and specialization function, Sunstein seems to live in fear of it, believing that it creates extreme social isolation and alienation. He argues that unrestrained individual choice is dangerous and must be checked or countered in the interests of “citizenship” and “democracy.” In his own words: “A system of limitless individual choices, with respect to communications, is not necessarily in the interest of citizenship and self-government. Democratic efforts to reduce the resulting problems ought not be rejected in freedom’s name.”  In other words, as I noted in my review of his book in Regulation magazine back in 2000, Sunstein is essentially saying that the Internet is breeding a dangerous new creature: Anti-Democratic Man. And government should not hesitate to act to counter it.

Sunstein’s argument is highly elitist. To Sunstein, the Internet is apparently guilty of the unspeakable crime of offering citizens and consumers too much of exactly what they want! But, according to his logic, the masses just don’t know what’s good for them so they must be aggressively encouraged (and potentially forced) to listen to things that others — namely, Sunstein — want them to hear. As Thomas Krattenmaker and Lucas Powe, authors of Regulating Broadcast Programming, argue: “Sunstein has dressed an older argument in more modern garb, but at bottom it is the persistent belief of some elites that if only they could gain power, they would use it to impose their views of the good on those who are less enlightened.” It’s what my favorite political scientist Thomas Sowell refers to as “The Vision of the Anointed.”

And a look at the world around us shows that Sunstein’s view that the Net is leading to close-mindedness, homogenization, and the death of deliberative democracy is generally overblown. (Although Lee Siegel and Andrew Keen would agree with him). Indeed, I think quite the opposite is the case. While it’s true that citizens do face an overwhelming number of media and informational choices today, that isn’t really such a lamentable development. The very fact there are so many distinct media and informational options available to citizens is better for a healthy democracy than a limited range of media options, even if some people flock to sites they find more agreeable.

Finally, it is simply impossible for me to believe the argument that citizens are somehow exposed to fewer viewpoints today than in the past. Such a suggestion is simply revisionist history. Never before have we humans been exposed to such a cornucopia of informational inputs of all flavors.

(2) A Fairness Doctrine for the Internet

Sunstein’s views about the Internet and what it is doing to society are troubling enough. Far more problematic, however, is what Sunstein has suggested we should do to deal with this supposed problem. After Sunstein worked himself up to a boil about all this in Republic.com, he tossed out what I believe is the single most dangerous public policy idea for the Internet suggested in the past 10 years: mandatory “electronic sidewalks” for cyberspace.

Sunstein called for popular or partisan websites to be forced to carry links to opposing viewpoints. Think of it as a combination of must carry mandates and the Fairness Doctrine for the Internet. Thus, the National Rifle Association (NRA) would be forced to run links or editorials by anti-gun groups, and abortion rights groups would be forced to contend with links and editorials from pro-life organizations. Apparently in Sunstein’s world, people have many rights, but one of them, it seems, is not the right to be left alone or seek out the opinions one desires.

Problems abound with such a philosophical paradigm. It is impossible to know how or where to draw regulatory lines under such a regime. For example, under Sunstein’s model, how many links to opposing viewpoints should citizens be subjected to on the Net before he believes they are fully assimilated into democratic society? If the NRA only offered one or two links to anti-gun groups, would that be enough? Moreover, it remains unclear who in government is really in the a position to dictate or referee all of this and how they will go about enforcing it. Whether any of this will pass constitutional muster is another question not explored by Sunstein.

Importantly, in his 2006 book Infotopia, Sunstein seemed to pull back from these views and proposals somewhat, although he still bemoaned the supposed dangers of “The Daily Me.”  But in this November 2007 interview with Salon, Sunstein seemed to completely abandon his old proposal:

I have thought over the years of whether it makes sense for the government to have a regulatory role [for the Internet]. But the Internet is too difficult to regulate in a way that would respond to these concerns. The first book [“Republic.com”] had suggestions that government should consider fairness-doctrine-type mandates on Web sites. It suggested that it’s reasonable for government to think about creating the equivalent of linking obligations and pop-ups, so that you’d be on one site — say, a conservative site — and there’d be a pop-up from a liberal site. I now the believe that the government should not consider that — that it’s a stupid and almost certainly an unconstitutional suggestion.

Salon then asked him: “What changed your thinking?” Sunstein responded:

Hearing counter-arguments and seeing the nature of the Internet as it unfolded over time. “Republic.com” made a mistake of applying to the Internet some ideas that were developed in a world of three or four television networks. … But the kinds of regulation that would respond to my concerns [about deliberative democracy], they’re not really feasible and they probably wouldn’t help. Most problems are best solved privately, not through government. There’s a problem of discourtesy in the world, which is best handled through social norms, which are indispensable. But you wouldn’t want the government to be mandating courtesy.

Thus, I have to give Prof. Sunstein credit for recognizing the complexities and dangers associated with his old ideas.

(3) A Cooling Off Period Before Posting on Blogs

In Nudge, a book about how small proposals or policies can have major social influences, Sunstein and his co-author Richard Thaler describe as their “favorite proposal,” a so-called “Civility Check” for online speech and interactions. Here’s what they say:

The modern world suffers from insufficient civility. Every hour of every day, people send angry emails they soon regret, cursing people they barely know (or even worse, their friends and loved ones). A few of us have learned a simple rule: don’t send an angry email in the heat of the moment. File it, and wait a day before you send it. (In fact, the next day you may have calmed down so much that you forget even to look at it. So much the better.) But many people either haven’t learned the rule or don’t always follow it. Technology could easily help. In fact, we have no doubt that technologically savvy types could design a helpful program by next month. We propose a Civility Check that can accurately tell whether the email you’re about to send is angry and caution you, “warning: this appears to be an uncivil email. do you really and trulywant to send it?” (Software already exists to detect foul language. What we are proposing is more subtle, because it is easy to send a really awful email message that does not contain any four-letter words.) A stronger version, which people could choose or which might be the default, would say, “warning: this appears to be an uncivil email. this will not be sent unless you ask to resend in twenty-fourhours.” With the stronger version, you might be able to bypass the delay with some work (by inputting, say, your Social Security number and your grandfather’s birth date, or maybe by solving some irritating math problem!).

When I first responded to Sunstein and Thaler’s “Civility Check” notion, I went a little hard on them calling that idea “absurd and horrendously elitist.” What I should have made clear is that there is a difference between suggesting this sort of thing as an industry “best practice” as opposed to mandating it by force of law.

Indeed, in October of last year, Google launched a new Gmail feature called “Mail Goggles” that, according to the launch message on Google’s Gmail Blog, will help users “stop sending mail you (will) later regret.” The feature — perhaps better labeled a “Drunk Check” — “will check that you’re really sure you want to send that late night Friday email” by asking you to “solve a few simple math problems after you click send to verify you’re in the right state of mind.” It’s not identical to what Sunstein and Thaler have in mind, but it’s close. And I’m fine with Google adding such a feature to their Gmail service, especially since you don’t have to use it if you don’t want to.

Sunstein and Thaler aren’t really clear about how far they would go in forcing their Civility Check on Internet operators, however. For example, would they alter Section 230 immunity standards to hold the threat of liability over the necks of website operators who refused to play ball? They just don’t say. But with rising concerns about online cyberbullying, harassment, and defamation, the really interesting question going forward becomes just how far the law should go to encourage or demand that site operators better police their sites for poor “Netiquette.”

The danger here is that, if the liability equation was to tip in the other direction, it would have a profoundly chilling effect on online free speech and expression. While Sunstein and Thaler obviously hope that chilling effect associated with such a Civility Check would only be freezing caustic, offensive, or potentially libelous forms of speech, much more speech would likely be affected.

Conclusion

Will Sunstein continue to push any of these views in his new position as Obama’s regulatory czar at OIRA? If so, how much impact will Sunstein’s views have on others in the Obama Administration, especially at the FCC? Or, have his views changed enough that we really shouldn’t worry?

Who knows. It may be that Sunstein will be too busy trying to mediate fights between agencies and other “czars” in the Administration — of which there seems to be no shortage these days! If, however, Sunstein’s views on the supposed dangers of the Internet and his proposals about how to address them do come to hold sway with others in the Obama Administration, we may be looking at even more insidious Internet regulation than I expected from this new crew. Sunstein’s thinking and proposals would have a profound impact on online freedom and the First Amendment rights of all online sites and speakers.

Back in the mid- and even late 1990s, I was engaged in a lot of dreadfully boring telecom policy debates in which the proponents of regulation flatly refused to accept the argument that the hegemony of wireline communications systems would ever be seriously challenged by wireless networks. Well, we all know how that story is playing out today. People are increasingly “cutting the cord” and opting to live a wireless-only existence. For example, this recent Nielsen Mobile study on wireless substitution reports that, although only 4.2% of homes were wireless-only at the end of 2003…

At the end of 2007, 16.4 percent of U.S. households had abandoned their landline phone for their wireless phone, but by the end of June 2008, just 6 months later, that number had increased to 17.1 percent. Overall, this percentage has grown by 3-4 percentage points per year, and the trend doesn’t seem to be slowing. In fact, a Q4 2007 study by Nielsen Mobile showed that an additional 5 percent of households indicated that they were “likely” to disconnect their landline service in the next 12 months, potentially increasing the overall percentage of wireless-only households to nearly 1 in 5 by year’s end.

And one wonders about how many homes are like mine — we just keep the landline for emergency purposes or to redirect phone spam to that number instead of giving out our mobile numbers.  Beyond that, my wife and I are pretty much wireless-only people and I’m sure there’s a lot of others like us out there.

Anyway, I’ve been having a strange feeling of deva vu lately as I’ve been engaging in policy debates about the future of the video marketplace.  Like those old telecom debates of the last decade, we are now witnessing a similar debate — and set of denials — playing out in the video arena.  Many lawmakers and regulatory advocates (and even some industry folks) are acting as if the old ways of doing business are the only ways that still count.  In reality, things are changing rapidly as video content continues to migrate online.

I was reminded of that again this weekend when I was reading Nick Wingfield’s brilliant piece in the Wall Street Journal entitled “Turn On, Tune Out, Click Here.”  It is must-reading for anyone following development in this field.  As Wingfield notes:

In the past two years, nearly every major network show and many of the biggest cable programs have become available on the Internet. The virtual library of content includes everything from “Desperate Housewives” and “CSI” to “The Colbert Report” and “Mad Men.” Some of the biggest hits online are memorable TV moments. More than half of the people who saw recent “Saturday Night Live” skits featuring comedian Tina Fey as vice presidential candidate Sarah Palin watched the skits over the Internet, according to a survey of 500 viewers on Monday by Solutions Research Group. Nearly a quarter saw them on YouTube and 21% saw them on NBC.com or Hulu.com. Many shows can be viewed for free and are accompanied by a dollop of ads that’s small when compared with the number of commercial breaks on television. As a result, some cost-conscious consumers are ditching their cable subscriptions altogether.

And the migration of video online is really picking up speed as a result.  According to Wingfield, “Complete episodes of about 90% of prime-time network television shows and roughly 20% of cable shows are now available online, according to Forrester Research analyst James McQuivey.”  However, Wingfield points out that “the number of people watching all of their programs online is still small; some estimates put the number at just 1% of the total television audience. In part, that’s because watching online isn’t as easy as channel surfing on the couch, TV remote in hand. Viewers must either watch shows on their personal computers, or use a device like Apple TV, which allows them to download shows from the Internet onto their television sets.”  That being said, he goes on to note that:

Within the next several years, however, media and technology executives say that a host of new technologies will make television access to online video a mainstream phenomenon. Vudu Inc. already sells a $299 set-top box with a remote control that allows users to download television shows for $1.99 per episode. Microsoft and Sony both sell television shows that users of their Xbox 360 and PlayStation 3 videogame consoles can download over the Internet for viewing on television sets. Netflix subscribers can buy a $99 set-top box from Roku Inc. that streams videos on their television sets. The service is included at no extra charge in the monthly Netflix fee for renting DVDs.

And that’s just what’s happening today.  There will be a lot more options coming online soon.  Remember, most of these changes have all taken place in just the past couple of years.  If you look at the FCC’s last “Annual Video Competition Report” from two years ago, you won’t find much discussion of these new developments. But, if the FCC ever gets around to releasing another annual report, the regulators won’t be able to ignore these trends and developments any longer.

OK, so the point is clear: The video marketplace is changing rapidly. Meanwhile, however, back in the surreal regulatory la-la land of Washington, DC, it remains business as usual.  As Brian Anderson and I point out in our new book, A Manifesto for Media Freedom, policymakers are still trying applying a host of unique regulations to “old media” providers, including: various censorship rules, educational programming mandates, special campaign finance advertising laws, must carry regs, media ownership caps, broadcast “localism” requirements and various other “public interest” obligations, and much more.

At what point does this charade end?  When do we realize that substitution is occuring and giving people alternative places to camp their eyeballs?  Or doesn’t that make any difference?  Should we just continue to regulate the old platforms and players the same was as always?  Or, worse yet, should we “level the playing field” by regulating the Internet and online video providers the same way?  I hope most people would understand what a disaster that would be in practice.  The Internet and digital video delivery is offerning society an unprecedented abundance of media riches.  They last thing we need to do is screw it up by laying on reams of regulation.