The Cost of Multicasting

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The Biography Channel is currently seen in about 25 million pay-TV homes. Whether the channel can double or triple distribution in coming years could depend on the outcome of a raging policy battle in the nation's capital.

Biography wants to become another The History Channel, but new Federal Communications Commission rules could mean the diginet will become mere history.

The contest involves a clash between cable and broadcasting over the carriage of digital TV signals.

The FCC is expected to rule in December, very likely to be followed by years of litigation, with the U.S. Supreme Court the final stop.

At issue is whether the nation's 1,730 TV stations may demand cable carriage of more than one programming service after surrendering their analog licenses. Digital technology allows a broadcaster to squeeze as many as six programming services into the same amount of space occupied by a single analog channel.

Broadcasters are calling on the FCC to require carriage of every programming service that consumers would receive for free with an off-air antenna. Cable operators and programmers, who are resisting, predict that such a dramatic escalation in the must-carry burden would chew up capacity and inflict considerable harm on cable programmers.

"I think it seriously prejudices cable programmers who compete in the open market for carriage," said A&E Networks president and CEO Nick Davatzes, who launched Biography in November 1998.

Broadcasters, refusing to entertain ideas that cable systems have finite capacity, insist that the industry's opposition is rooted in resistance to greater competition from local TV stations.

"If your primary interests lie in cable, you naturally don't want more competition," said National Association of Broadcasters spokesman Dennis Wharton.

Cable and broadcast interests have been fighting over carriage rules for nearly four decades. In 1965, the FCC imposed must-carry rules for the first time; they remained on the books for 20 years until a federal court declared the regime unconstitutional. In 1986, new must-carry rules were again rejected by the courts.

In 1992, Congress finally stepped in. It passed a cable re-regulation law containing TV-station carriage provisions that permitted stations either to negotiate their way onto cable systems or to demand carriage. Public stations could elect only must-carry.

The law required cable systems to devote 30% of channel capacity for local TV stations.

'92 Act at Heart

Cable sued, spawning five years of litigation that included two visits to the Supreme Court. In 1997, the Supreme Court ruled 5-4 in support of must-carry, effectively saying that the governmental interest in perpetuating free, over-the-air television through guaranteed access to cable systems trumped cable's First Amendment rights to select the programming services offered to subscribers.

Interpretation of the 1992 Cable Act is at the heart of the current debate over whether the FCC should craft new carriage rules appropriate for the digital age. In the key section of the law, cable operators are required to carry a TV station's "primary video."

The cable industry interprets "primary" to mean mandatory carriage of a single programming service that would not take effect until after every TV station has surrendered its analog TV license. Such an interpretation of primary would allow all-digital cable systems to reclaim loads of bandwidth.

"We are not arguing that the primary signal could not be subject to must-carry, if that's what they want," said Insight Communications Co. CEO Michael Willner. "Beyond that, all they are doing is giving themselves a financial award from the pockets of cable operators and, in turn, cable customers, to be in a better position for distribution than cable networks that have to earn carriage by the content they are proposing."

Broadcasters assert that defining "primary video" to mean one channel is too rigid. Primary, they say, can mean more than one, as in "primary colors" and "primary evidence."

A New FCC

In 2001, the FCC voted to interpret "primary video" in cable's favor. But only one current FCC member — FCC Chairman Michael Powell, who was not chairman at the time — participated in that vote. Powell joined then-Chairman William Kennard and Commissioner Harold Furchtgott-Roth in icing multicasting.

In recent weeks and months, the NAB, public TV stations, ABC and NBC have pressed the FCC to reconsider that decision. Fox, which has never supported must-carry, and CBS have remained on the sidelines during the multicast debate.

Broadcasters have been blunt with the FCC. Without a multicast mandate, local TV stations say they can't survive in a digital world against dozens and dozens of choices on cable and direct-broadcast satellite.

The knowledge today that cable must carry all its free programming services in the future would provide the necessary incentive to invent new programming geared to local interests.

"Without full digital multicast must-carry, there will be no DTV transition," said Lowell Paxson, chairman and CEO of Paxson Communications Corp., owner of 63 local TV stations in which NBC holds a 32% interest that it's trying to divest.

Paxson's stations — which carry Pax TV, home to religious programming and family-friendly shows such as Candid Camera
and Bonanza
— has also made the point to FCC officials that rejecting a multicast mandate would mean his wholesome programming would lose out to cable networks that offer excessive violence and explicit sex.

PBS Deeply Interested

Public TV stations have been deeply engaged in the multicast debate.

"It's life or death for us," said John Lawson, president of the 356-station Association of Public Television Stations.

APTS members raised more than $1 billion to fund their digital transition, the majority of it from state governments on the basis that the investment would yield public-interest benefits besides an HDTV version of the incumbent broadcast.

"The money was raised on some very specific programming plans. Stations made commitments to provide not only PBS programming but dedicated children's channels, dedicated K-12 channels, dedicated government public-affairs channels," Lawson said.

Unless cable companies pass through multiple services, public stations won't be able to attract funding for the new services on the drawing board, he added.

"If we have a very expensive digital buildout, and all we are doing is delivering one channel, then that expense wouldn't have been justified," Lawson said. "We end up with white elephants on the media landscape that aren't sustainable."

PBS Has Some Deals

Some PBS stations have reached digital-carriage deals with cable companies, including Comcast Corp., Time Warner Cable and Insight. But Lawson described those deals as "transitional" and expire at the end of the DTV transition.

In recent weeks, NBC and ABC spelled out their multicasting plans to FCC officials. NBC promised to help its affiliates launch three digital networks focusing on news, weather and traffic during dayparts when network programming wasn't transmitted in HDTV, a format which consumes nearly all 19.4 megabits in the signal.

ABC's Fresno, Calif., station has been multicasting three services, including repurposed local news and a local weather channel. ABC plans to export the multicast model to its owned-and-operated stations in nine other markets "in the near future," according to ABC TV Stations president Walter Liss.

Although NBC and ABC opt for retransmission consent, they are pushing for the multicast mandate to support affiliates that rely on must-carry.

"The network could handle the negotiations for its own stations, but you've got to worry about your affiliate in Wichita — whether they have enough leverage to get the whole signal carried," a broadcast-network source said.

Many cable-industry leaders view broadcasters' multicasting ambitions at the FCC as a naked attempt to extract corporate welfare from a federal agency. No industry has been more successful than broadcasting at exploiting its own vulnerabilities to obtain paternalistic regulation.

It coaxed the FCC into imposing a DTV tuner mandate on the consumer-electronics industry and broadcast-flag technology, which prevents consumer routing of TV shows over the Internet, on an assortment of players, including computer original-equipment manufacturers.

Multicasting Boon

The multicasting mandate could be a huge boon to broadcasters, particularly in large markets where one company may own up to three TV stations under new FCC broadcast-ownership rules and control as many as 18 programming services on a local cable system.

"That, conceivably, could be a very large giveaway. That's the reason why it matters," an MSO source said.

NCTA president Robert Sachs said one cost of a multicast mandate would be a cable company's inability to control the quality of the programming it would be forced to carry. He noted that TV stations could flood cable systems with cheap infomercials and home-shopping offerings.

"If the government were to require carriage of multiple channels per broadcast station … it could make the appearance of the cable lineup less attractive to consumers," Sachs said. "Cable operators are competing every day with two national satellite providers who might not be saddled with the same requirements, so that would put cable at a competitive disadvantage."

Broadcasters could stunt the growth of cable networks by using their multicast rights to offer copycat versions of existing cable services. The Weather Channel, owned by Landmark Communications Inc. in Norfolk, Va., took its national service and spawned a 24-hour local-market service that now reaches 7 million pay-TV homes with digital set-top boxes.

"If the cable operator already has that, in the real marketplace would they want another one? Probably not," said Landmark president and COO Decker Anstrom. The mere idea that broadcast can gain access to many cable slots by default would have a "chilling effect" on MSO-cable programmer relations, he added.

Insight's Willner said local TV stations' authority to occupy several cable channels would be disruptive even if they never used more than one.

"If I were a broadcaster and I was able to take the beachhead of 3 MHz or 6 MHz on a cable system, it would be a win for me if I invest zero money in the content, took the frequencies and blocked somebody else from being able to compete with me," Willner said. "Just by blocking somebody else it's a net gain."

Ask cable and broadcast lobbyists who have the votes at the FCC, the answer that comes back is that the situation is "fluid" — even though a vote could be just a few weeks away.

With Powell backing cable and FCC member Kevin Martin in the broadcasters' column, two votes have cancelled each other out.

The decision is in the hands of the three other FCC members: Republican Kathleen Abernathy and Democrats Michael Copps and Jonathan Adelstein. Abernathy supports the idea that the definition of primary video is not limited to one channel, but she is concerned that a multicast mandate would violate cable's First Amendment rights. Regulatory agencies have an obligation to adopt rules that avoid constitutional problems.

Copps and Adelstein have been less forthcoming, though both have said the FCC should adopt public-interest obligations for digital TV stations at the same time the multicasting issue is decided.

One network-TV source suggested the FCC was about to hand cable a defeat.

"I think there is more sympathy today than there was a year ago for carriage of the whole digital signal," the source said. "I think they have figured out at the commission that carriage of the whole digital signal is a key part of the effort to get the digital transition going."

As history has shown, the FCC's must-carry pronouncements never have the last word.

"I think it's fair to say that whoever loses at the FCC is going to end up in court," said Landmark's Anstrom.

AETN's Davatzes, who participated in the fight against analog must-carry all the way to the Supreme Court, said a new legal contest initiated by cable could be avoided if the FCC refrains from going beyond one-channel must-carry rules.

"I'm for the free market and that's what I want to see happen," he said. "I would rather see the free market decide who the winners and losers are rather than some government agency."

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