Local Choice:  A Good Idea, But It’s All about the Details

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A bipartisan group of Senators is promoting an interesting idea to reform the video market.  It's called "Local Choice."  The idea has been circulating on the Hill for the past month, and it was just introduced as part of a broader video bill last week.

Under Local Choice, TV stations would set their own rates directly to consumers, who would then decide what stations are worth paying for.  Cable and satellite systems would only handle the billing.  Local choice would replace the current "retransmission consent" system, where cable and satellite systems pay broadcasters, and then decide what rate to charge viewers.  Under the current system, cable and satellite systems are not permitted to offer broadcast stations to viewers on an individual basis.  (Local Choice wouldn't apply to broadcast stations that don’t seek a payment (“must carry” stations), or noncommercial stations like public broadcasters.)

As an analogy, think of how different stores work.  In some, the retail store buys products and then sets the price.  This is the traditional retail model. In others, the manufacturer (or content creator, or app developer) sets the price itself, and the retailer just works as an “agent.” (Most major app stores, eBay, and third-party sales on Amazon work this way, for instance.)  Both models have their place.  Right now, however, viewers are ill-served by the traditional “retail” model for broadcast programming--prices keep going up, bundles are mandatory, and viewers have few alternatives for programming. Under Local Choice, broadcast programming rates, like most other things in our economy, would be set by the market, not presented to viewers as a "take it or leave it" bundle.

Local Choice would be a partial step toward full à la carte.  It would get rid of the retransmission consent battles that frequently disrupt their channel line-ups--like we saw this past weekend with DirecTV and stations controlled by Raycom Media. Blackouts would be a thing of the past, since broadcast stations would just set rates directly to viewers, instead of through a middleman.  The only viewers that would be "blacked out" would be those that feel the rates a broadcaster is charging for programming (which is also available over the air) are too high, and who chooses not to subscribe.  Since cable and satellite companies and broadcasters would no longer negotiate over rates, those negotiations could not come to an impasse.

Two kinds of viewers would benefit from Local Choice.  The first category is viewers who don't watch, so shouldn't have to pay for some broadcast stations.  The second category is people who like broadcast programming but don't mind using an antenna.  Using an antenna is a great option for a lot of people but might not be for everyone. Not every antenna can get every station, for one.  Even with crystal-clear reception, over-the-air digital TV can stutter, drops out, and show picture artifacts. Also, because there's no market for them, there are not many devices that pull in cable and broadcast content into a single channel guide and DVR interface available today.  A viewer that relies on these features or finds an antenna impractical would probably be best off paying for a broadcast signal even when there are alternatives.

On balance, Local Choice should be a step toward more viewer control, and lower cable bills.  But there still might be some "gotchas" and fine print that policymakers must attend to.

First, policymakers should be humble enough to recognize that it's impossible to predict what all the effects of this small step toward unbundling would be.  Contracts in the video marketplace are complex.  Large programmers often bundle their cable and broadcast properties to pay TV providers as packages, and while there may be dollar amounts associated with each channel, these are to an extent accounting fictions.  There's no real way to know what something is worth unless it's sold on its own.  After Local Choice, the price of some broadcast (and cable) might go up, and the price of others might go down.  However, the prices that result will be a lot closer to reflecting the actual demand for and value of the content, since the government will no longer be forcing viewers to pay for channels they might not want.

Second, we need to make sure that viewers, not cable and satellite providers, see any savings benefits.  If broadcast-related charges are removed from a cable bill, providers need to reduce the rest of the bill by that same amount, and not use the opportunity of a transition from one billing system to another to impose a stealthy rate hike. The current draft of Local Choice does require that cable and satellite operators lower their bills by the amount corresponding to broadcast fees, but there are still questions about exactly how this would work and how enforceable it is.  Overall, the best way to ensure that the transition works for viewers is through transparency and temporary price freezes. Transparency as to what broadcast stations cost today, and a gradual phase-in, will prevent wild price fluctuations and will prevent pay TV operators from cutting their costs without cutting prices.

Third, Congress should consider other reforms to cable and satellite billing that complement Local Choice.  It should take action against the unadvertised, below-the-line service, rental, and "regulatory" fees that can push a subscriber's bill well above advertised rates.  It could also introduce more competition to the video distribution market by extending this new "broadcast pass-through" function to online providers, not just traditional pay TV providers--either by recognizing that online providers can be "multichannel video programming distributors" under current law, or with a new, narrow provision. This bill is already about viewers, not about taking sides in the ongoing war of words between the cable and broadcast industry.  Measures like these could help underscore that.

Local Choice could be  a win for viewers, cable and satellite operators, and broadcasters.  Viewers should get lower prices and more choice.  Pay TV providers should be able to offer their subscribers a better and cheaper product.  (And they won't be able to blame price hikes on broadcasters!)  Finally, broadcasters--though they're the most reluctant to support this proposal, since laws requiring that people pay for your product can be very nice--could also benefit, since they will be able charge what the market will bear for the programming, and will keep all of it, with no middleman taking a cut.  They will have much better information on how much the public values their programming, and will be able to improve their service, as well.

While there are inevitable complicated details, in broad strokes Local Choice is the beginning of a great idea for TV viewers and, if adjusted appropriately to protect consumers,  a significant step toward video reform.

Photo by Flickr user Joey Lax-Salinas.

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