Cable Television: Keeping it Competitive, Affordable and Accessible

Time Warner Cable and broadcast giant CBS settled their high profile contract dust up just in time for the start of the lucrative NFL football season. Time Warner consumers in major markets were without CBS programming for almost a month as their lawyers fought about the tariffs that providers pay to networks for the rights to broadcast to individual subscribers. This can range from pennies per subscriber for many smaller channels to upwards of $4 for the popular sports programming network ESPN. CBS reportedly settled for a tariff with Time Warner that doubles the rate from $1 to $2.

Cable fees have risen much faster than inflation. The FCC reports that they climbed 6.1 percent on average since 1995. Lawmakers are anxious to keep competition robust and costs affordable for consumers. The price consumers pay is much more complicated than the tariff networks charge providers. It is driven by a complex network of agreements between cable providers, networks large and small, municipalities and in a growing number of cases individual states. In the states, lawmakers have focused their attention on the Cable Franchise Fee, or the contract negotiated between local governments and cable providers for the privilege of using public rights of way, infrastructure and the right to broadcast in a specified area.

Historically cable providers were required to negotiate contract terms with individual municipalities to secure franchise rights to broadcast to consumers in that locality. This is a costly and time consuming process and critics argue it is a barrier to competition. Starting in 2005 a new paradigm emerged that was intended to promote competition, simplify the process and lower costs. The new model allows cable providers to negotiate a single contract to provide television service to the entire state rather than a patchwork of individual contracts.

To date 21 states plus the District of Columbia have enacted legislation creating a statewide franchise including: California, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Missouri, Nevada, New Jersey, North Carolina, Ohio, South Carolina, Tennessee, Texas and Washington. Virginia has enacted its own unique statute which requires cable distributors to negotiate on a municipal level, but allows for a statewide ‘default’ franchise to be awarded if agreement cannot be reached within 45 days.

The U.S. Congress has considered but not advanced similar legislation in the Senate and House. Massachusetts, one of the few states still in session, is currently considering a statewide franchise bill. HB 2982 will be considered before the Joint Telecommunications, Utilities and Energy committee in October. New York, one of the most lucrative cable television markets without a statewide franchise law, did not advance legislation this year. AB 5947, a bill that would allow statewide cable franchise contracts, languished in Albany and has been held over for further consideration in the 2014 session.

The issue is divisive with municipalities and local cable providers typically fighting for the status quo and national providers pushing for the right to negotiate a statewide agreement. But the debate stalled in Albany when the national cable companies opposed the statewide agreement in favor of what was considered a lucrative deal with New York City.

The debate will continue in 2014 and evolve as technology changes the marketplace. Internet television and other video service providers will be looking for states to help reduce the barriers to entering the markets now dominated by cable and broadcast companies.