Mr. Dolan: Mischief on Martin's Mind

12/12/2008 7:00 PM Eastern

Memo to: Cablevision chairman Charles F. Dolan

Re: FCC chairman Martin's war on ESPN

The rumors are that Federal Communications Commission chairman Kevin Martin will take up residence in Silicon Valley when the clock runs out on the Bush administration in January. That's a not a bad location for him, actually, in that Martin has clearly been functioning a few Pentium chips short of a motherboard.

In recent weeks, you apparently became the first person to convince Martin that cable operators can be trusted to keep their rates steady.

It appears that you and Martin have worked out a deal. We'll know on Dec. 18 if an FCC majority will go along for the ride.

The agreement with Martin is that going forward, no cable programmer may demand access to the vast majority of cable subscribers as so many programmers do today. The same for TV stations that demand compensation for carriage.

Martin's rationale is that cable operators should be able to take The Walt Disney Co.'s ESPN and Disney Channel and sell them a la carte, forcing consumers who value those channels most to shoulder all the costs directly.

That is supposed to take pressure off cable's expanded basic tier, leading to year-to-year stability in retail cable rates.

Martin's plan would be comical if the stakes weren't so high for all cable programmers. It's based on a number of false assumptions about the motivations of cable operators and the likely direction of monthly cable bills when only half the market (programmers) is regulated by the feds.

Suppose Cablevision could put ESPN in a sports tier. Question: Will Cablevision reduce the price of expanded basic to reflect the absence of ESPN, expected to cost $4 per month wholesale in 2009?

Answer: Martin's plan wouldn't force a price cut. ESPN could be replaced by less valuable fare and the tier charge could be left unchanged.

Question: Won't rates for sports fans go up?

Answer: Rates could go down, but only if Cablevision allowed its customers to buy a reasonably priced sports tier and nothing else. But Cablevision could require the buy-through of one or more programming tiers before someone can qualify to buy a sports tier. Think of the revenue hit if 15%-20% of subscribers purchased just the sports tier, assuming the standalone price of the sports tier didn't turn out to be $150 a month.

The most vulnerable cable subscriber is the one who wants to maintain the same level of service after ESPN is ripped from expanded basic. She/he has to buy expanded basic and then the sports tier to remain whole. If her/his cable bill didn't go up in that case, then there was no reason to break up expanded basic in the first place.

So, the only way for wholesale a la carte mandates to produce stable retail rates is for the FCC to freeze retail rates and prohibit all tier buy-throughs.

Are you for that, Mr. Dolan?

Martin says his wholesale a la carte plan is all about the consumer. In reality, it's just one more chapter in history's dark, lamentable catalog of bureaucratic mischief.

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