The Political Endurance Test

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If ever there was a cable-industry advocate for the concerns of children, Geraldine Laybourne is certainly it. So people sat up and took notice when she made a point of lambasting proposed legislation that aims to protect children from questionable content during one of the keynote sessions of the National Cable & Telecommunications Association annual convention last month.

Laybourne is currently chairman and CEO of Oxygen Media, sits on the board of The National Council for Families and Television and was the guiding force behind Nickelodeon in its formative years. And at the session, she picked up on a thought that had already been suggested by Time Warner chairman and CEO Richard Parsons in another keynote session the day before.

“I don’t think we should be using the word indecency, we should use the word … censorship,” said Laybourne, in referring to the controversy over so-called indecent content that is the impetus behind the proposed legislation that would create so-called “family friendly” channel tiers, or mandatory a la carte pricing models.

“Oxygen could never have raised money in the private equity market if it was going to be an a la carte channel … It’s bad for American audiences and it’s bad for business,” said Laybourne, who was one of 20 female cable executives who signed an open letter to Congress urging them to reject a la carte proposals.

The battle they’re fighting was certainly sparked by Janet Jackson’s wardrobe malfunction at the Super Bowl, but the controversy has probably been around for decades.

“Everyone needs a little kick sometimes to see how far we’ve gone,” says Father Edward Beck, a priest of “The Passionist” community within the Catholic Church, who preaches at retreats and workshops on spirituality. “It’s a wake-up call. People are really fed up about [indecent programming],” he says.

But the wake-up call this time is more alarming than the ones that came before it. While such brouhahas tend to surface during election years, as this one has this time around, usually the free over-the-air broadcasters take a bullet for everyone else.

“It was different 20 years ago when you didn’t have to buy trash,” says Laura Mahaney, director of corporate and entertainment affairs of the Parents Television Council, in speaking of what cable has to offer.

Regardless of whether one agrees with that view, this time around, there’s definitely a confluence of two lobbying forces — those actually concerned about content, and others concerned about cable rates. “There were people fired up about the rates issue years ago who are just using indecency to bring up the a la carte thing again,” says one cable industry official in Washington. “It is the same exact people.”

Indeed, Sen. John McCain (R-Ariz.), a long-time critic of the 1996 Telecommunications Act that led to cable deregulation, is among those leading the fight. McCain already has held hearings to explore ways to give consumers more control over the cable programming they receive. Other lawmakers are also contemplating measures to break out cable programming from its rigid tier system. Why, many critics ask, should people have to pay for offensive fare they don’t want? Why not let customers buy a “family-friendly tier” of programming or, better yet, customize their own family-friendly tier by choosing a set number of channels on their own via the a la carte model?

ECONOMICS 101

The answer from the cable industry is, quite simply, economics. “Some networks would not survive in that environment,” says Jill Luckett, vice president of program network policy at the National Cable & Telecommunications Association.

Over the years, smaller, fledgling networks have managed to gain mass reach because they were readily available for viewers to sample whenever they wanted. Would the raunchy youngsters on Comedy Central’s South Park ever have reached cult status if the channel had not been part of large basic or standard tiers at the time the show was introduced?

Operators and networks say “no.” And they don’t draw much distinction between the affects of an a la carte environment and one in which a family-friendly tier would be required. “A small tier of 10 channels would have a lot of the same challenges you would face in the a la carte world,” says Cox spokeswoman Amy Cohen.

Because small tiers would have fewer viewers, the cable industry argues that advertisers would demand lower rates. That would eventually put upward pressure on license fees, which would trickle down to consumers.

“You start losing eyeballs, and the cost you have to recoup is enormous,” says Andy Heller, Turner Broadcasting System’s president of domestic distribution.

Without at least 30 to 40 million households, programmers “can’t even get advertisers to call them back,” Luckett adds.

It’s not just the cable industry that forecasts advertising doom. Last October, the General Accounting Office released a report that failed to endorse the a la carte model and said it would result in lost advertising revenues.

Discovery Networks spokesman David Leavy says that the network group would never have been able to launch such family-friendly channels as Discovery Kids or The Science Channel in an a la carte or mini-tier world. “No media company is going to be able to launch channels in that environment,” Leavy says. “There’s just no business there.”

Just ask Doron Gorshein, CEO of The America Channel, a still-to-be-launched network that prides itself on family-friendly reality fare focusing on “real people” rather than celebrities. “A la carte, for us, would be a death knell,” he says. “A new network that has no relationship with the consumer will be a failure.”

Gorshein, however, says some hybrid in which cable operators still offered a large tier but allowed consumers to opt out and buy channels separately might be workable. But he contends that fledgling networks need three to five years in a basic package to compete with established channels in an a la carte world

OPPOSING ARGUMENTS

Of course, advocates of a family-friendly tier argue that forecasts of gloom and doom are greatly exaggerated.

“I just don’t buy the economic-model argument,” says Mahaney. Rather than reduce advertising dollars for programmers, Mahaney says niche tiers of programming (in which viewers would pay a flat rate for a certain number of channels from an a la carte menu) could give advertisers far more targeted information about viewers — raising what they pay on a per-subscriber basis.

An advertiser would know, for example, that viewers were specifically interested in family-oriented programming because they requested those channels rather than taking them as part of a larger package. Conversely, someone targeting a fan of adult-oriented programming could more easily find the right audience if it were segregated on separate tiers. “I think it would be best for advertisers because they would know how many were watching the individual channels,” she says.

While Mahaney’s theory may someday prove correct, industry sources say smaller audiences — no matter how targeted — seldom add up to larger overall ad revenues. After all, an advertiser might pay more per viewer to reach a targeted audience of golfers on a sports tier — “but that’s going to be balanced by the fact that the audience is smaller,” says Steve McKee, president of McKee, Wallwork & Henderson, an advertising firm in Albuquerque, N.M.

THE WASHINGTON PULSE

It is unclear whether a la carte or mini-tier legislation will become a reality at some point, but McCain and other lawmakers in Washington are clearly testing the waters.

In March, the cable industry bought itself some time when it agreed to voluntarily provide free channel blocking to customers who want to shut out indecent programming from their homes.

That commitment came only days after the Senate Commerce Committee passed an indecency bill (S. 2056) that almost included a requirement that cable operators offer some form of a la carte programming.

In April, during the markup by the House Telecommunications and the Internet Subcommittee of a bill reauthorizing the Satellite Home Viewer Improvement Act (SHVIA), Rep. Nathan Deal (R-Ga.) offered — but quickly withdrew — an amendment that would have encouraged voluntary a la carte carriage by cable operators. Under the amendment, programmers and cable operators wouldn’t be able to sign programming agreements that precluded the operator from offering channels a la carte (although the operator could also offer its standard tiers in addition to the a la carte option).

Deal is working on the amendment’s language and plans to reintroduce it when the bill reaches the full committee level. However, House rules governing the germaneness of legislation may force him to only apply voluntary a la carte provisions for the satellite industry, at least in the context of SHVIA. EchoStar has said it would support the idea, but programmers worry that Deal’s amendment would hamstring them when negotiating carriage agreements.

“When you lose that right in a negotiation, it gets very complicated,” says Turner’s Heller. “If someone has the right to not carry some of your channels, then you have to have multiple rate cards.”

Most insiders expect any a la carte-like provisions to continue to come in the form of amendments to related bills rather than comprehensive, stand-alone legislation. “The cable lobby may be too strong for that,” admits one Senate staffer.

The cable industry has already started piling on the public pressure, with the letter from 20 women cable executives to Congress a strong case in point. “Government efforts to dictate how our programming is packaged or marketed would be bad for consumers, because it would give them less choice and less diversity in programming, and it would increase the price they would pay for this inferior set of offerings,” the letter stated.

Such concerns aren’t lost on McCain, who, according to one source close to him, has recently warmed to a proposal by Gene Kimmelman, public-policy director for the Consumers Union, to first test a full a la carte system in a local market before trying to implement it nationally.

If cable rates continued to rise despite consumers’ ability to choose channels on an a la carte basis, the idea could then be abandoned.

McCain is also “intrigued” by the idea of offering cable operators incentives to go a la carte rather than necessarily mandating changes to the current cable-programming tier structure. Such incentives could even take the form of tax breaks.

While McCain has not specifically pushed for “family-friendly tiers,” his a la carte ideas would have the effect of allowing customers to design their own family-friendly packages.

Further fuel was thrown on the family-friendly fire when Lowell “Bud” Paxson, chairman and CEO of Paxson Communications Corp., pointed out in February testimony to the House telecommunications subcommittee that cable operators use FCC-licensed microwave frequencies known as Cable Television Relay Service (CARS) to relay signals from the headend to other points within their systems.

But short of specific legislation, policymakers would be hard pressed to use the CARS angle to apply broadcast-like regulations to the cable industry. “That’s not something we would do without Congress getting involved,” says a senior staffer for FCC Chairman Michael Powell.

The National Association of Broadcasters has mostly stayed out of the debate over a la carte and family-friendly tiers—even though it continues to push for more regulatory parity between broadcasters and cable and satellite providers. “We think self-regulation is preferable to government regulation when it comes to First-Amendment issues,” says NAB Spokesman Dennis Wharton.

THE RATINGS BAROMETER

Whether the general public is as concerned about cable’s content as the advocates of family tiers is somewhat questionable. Needless to say, many of cable’s more edgy programs pull in good ratings.

“There’s a lot more support for family-friendly programming than people who watch it,” contends Robert Thompson, a professor at Syracuse University who studies popular culture.

Thompson says the marketplace often doesn’t match public opinion, noting, for example, how many people came out in support of Ted Koppel’s Nightline when ABC was considering replacing it with a late-night comedy show. “Thousands of people who bemoaned the possible loss of Nightline went home at 11:30 and watched [Jay] Leno or [David] Letterman,” he says.

But advocates of a family-friendly tier say that cable operators shouldn’t read too much into the public’s apparent thirst for coarser television fare. If anything, the uproar that occurred after the Janet Jackson incident was evidence that the public is more put off by indecency than it indicates by its viewing habits.

“The culture has to be blamed for responding to what’s out there by watching it,” says Father Beck. “But just because you’re appealing to the lowest interests doesn’t make it right.”

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