Menu System for Cable TV Makes Comeback
ALISON STEWART, host:
All right, pop math quiz. Didn't know this would happen so early on a Monday, did you? What's 70 percent of 70 percent of 300 million?
MIKE PESCA, host:
PESCA: It's 147 million.
STEWART: Well, that answer is the heart of the FCC's fight to change the rules about cable TV regulation. Okay, here's this whole 70-70 bet. Seventy percent of the homes in America can get cable. The FCC says 70 percent of that 70 percent do subscribe to cable, and that number - which Mike just hammered off -will trigger a 23-year-old law at the heart of a fight over whether FCC can change the rules governing cable TV.
Here to explain a little bit more for us is Amy Schatz, a reporter covering this for The Wall Street Journal. Hi, Amy.
Ms. AMY SCHATZ (Reporter, The Wall Street Journal): Hey. How's it going?
STEWART: Good. Thank you. So how is it a law from 1984, this thing containing the 70-70 rule, has surfaced now? What's the logic of it all?
Ms. SCHATZ: Yeah. Kind of a nightmare to explain, right?
STEWART: It's hard.
(Soundbite of laughter)
PESCA: That's why we have you on.
(Soundbite of laughter)
Ms. SCHATZ: So, basically, back in 1984, Congress deregulated the cable industry, but they put this 70-70 rule in there. It's basically a safeguard so if cable companies got too powerful and too big, that the FCC would be able to step in and stop them. And so basically what's happening this year is that there's been - there's literally no dispute over whether enough households in the country get cable to hit 70 percent.
STEWART: That's the first 70.
Ms. SCHATZ: Probably more than that, actually, hit 70 percent. But the real dispute is over how many households actually subscribe to cable because, as you guys know, cable companies have competition from satellite companies, and also now from phone companies who are offering TV service. And so actually, over the last couple of years, cable subscriber rates have been going down a little bit. And so there's a big dispute right now over at the FCC about how they came up with this number that says that this many people are now subscribed to cable.
STEWART: Okay. So the first 70 is for sure. It's the second 70 which is in dispute.
Ms. SCHATZ: That's kind of the (unintelligible).
STEWART: All right. So one of the big concerns seems to be that this could create a a la carte cable system down the road. So does this mean I could buy just HBO and Discovery and forget the rest?
Ms. SCHATZ: Yeah, you might be able to. I mean, basically, what they're going to be doing this week is setting the groundwork that would give the agency the ability to force cable companies to allow people to buy channels on a sort of a menu basis. So you could buy Discovery. You could get HBO. You could skip ESPN if you didn't want it. And it would give consumers a lot more ability to decide what comes into their houses.
STEWART: So that sounds pretty great for me, but I understand that there are some small groups, sort of odd bad fellows in the story. For example, the Rainbow Coalition is aligned with rural groups are very concerned that this will limit diversity in the cable universe.
Ms. SCHATZ: You know, because basically what happens now is, you know, we all know that basically everybody watches, what, 10, 15 channels. They all watch the same ones. But everybody - all the other channels are on there because they're being subsidized, essentially, by these sort of bigger ones. And the idea is that if consumers are allowed to just buy a channel, essentially, you know, they're not going to buy, you know, some of the religious broadcasting channels. They may not buy BET. They may not buy, you know, Outdoor Network or some of these others.
And so there's a lot of concerns in the minority communities and also religious conservatives and just the religious community in general that, you know, some of their channels are not going to survive if, in fact, the FCC goes to this rules, you know, consumers can choose model. And another problem is that, you know, it's not entirely clear that consumers' bills would go down because, you know, the way you're doing it now is, basically, you're buying the extra value meal from McDonald's. Everything comes in one big package. But if you buy all those little elements individually, they can sometimes cost more.
PESCA: Well, I wanted to ask you about that, because, you know, it does seem logical. A la carte, hey, I only get what I want. But imagine the - we did that with the Wall Street Journal. Hey, I like Amy and I like Jared Sandberg, and I'm not going to pay for anything else.
Well, A, I'd be missing out on a lot of news, and, B, it would probably wind up costing me a lot more because Joe Nocera, who is writing in The New York Times, made this point that the first study of the a la carte pricing system by the former FCC commissioner, he found out it would cost consumers a lot more. And that it was the current commissioner who's in favor of a la carte went in and said, no, it'll cost them less. So there's a debate. But doesn't it seem that there's a pretty logical case that it really could wind up costing consumers more if we want like six channels?
Ms. SCHATZ: Yeah, it definitely could. And that's one of the reasons why Congress asked the FCC to do that report. The one - actually, the FCC did two reports. They did the one under a former chairman Michael Powell has found that, in fact, it would consumers a lot more to do this. And then the current chairman, Kevin Martin, came in and actually just redid that report with different numbers, and said, in fact, no, no. It would actually, you know…
STEWART: You can do that?
(Soundbite of laughter)
Ms. SCHATZ: Well, you know. And that's what they're actually…
PESCA: Different numbers. We're not going to be using number two.
(Soundbite of laughter)
PESCA: Let me ask you something there, Amy. If the FCC monitors cable, is a big reason behind this so they could ban the seven dirty words and other words like they do on network?
Ms. SCHATZ: Yeah. In fact, that's why a lot of people think that Kevin Martin, the current chairman, has been so strange about this. And he has been pushing this for two years that he's been chairman, because he really believes that consumers shouldn't have to pay for some of those maybe racier channels that come into your home. Because one of the facts of the law is that even though you can't say dirty words on Broadcast stations like the one we're on, you can say them on cable, because the law doesn't apply to cable. And so, you know, you could get away with a lot more, frankly, on cable than they do right now. And Kevin Martin really wants to give parent and religious conservatives and social conservatives the chance to not have to have those channels come into their home.
STEWART: But this is another odd twist in this story. Some of the most conservative editorial pages and some Republican congressmen, they oppose what the FCC head Kevin Martin is doing, saying he's overstepped this bounds and he doesn't understand the business aspect of it. Yet, some of Martin's support on this five-person commission comes from the two Democrats. Can you explain this odd line up of allegiances?
Ms. SCHATZ: Yeah. The FCC can turn into a political mess sometimes. And, you know, I think one of the things that is really clear here is that it's not clear that Kevin Martin - that any FCC have the ability to force a la carte on everybody. That really has to come from Congress. And the last couple of years, there have been bills that were, you know, introducing Congress to do that sort of thing, and they failed miserably because of these weird coalitions we've been talking about, that there really is sort of bipartisan support, in a weird away, against this idea. And so, you know, no matter what they try to do at the FCC, this thing is ultimately going to end up in court because the cable industry is absolutely furious, and is vowing to fight this in every venue that they can find.
STEWART: And Comcast is the one that's going to take the biggest hit, right?
Ms. SCHATZ: Right. I mean, one of the ideas under this is that the FCC under Kevin Martin is also asking to have a cap on how large companies can get once they hit a certain number of subscribers, and Comcast is about at that 30 percent cap right now, which means that they wouldn't be able to get any bigger.
STEWART: So what's the plan? What's happening this week? I've seen Tuesday as one date that they're voting, Wednesday. What's the actually calendar?
Ms. SCHATZ: Yeah. So it's actually happening on Tuesday, and the weird thing about the FCC is that things get changed all the time. They have an agenda, but things fall off the agenda day all the time. If they don't feel like they have enough votes - there's side people who vote. And if they don't feel like - if the chairman doesn't feel like he's got the votes that's going to pass this item, those items tend to disappear off the agenda and kind of punt it forward.
STEWART: That could happen? That could still happen tomorrow?
Ms. SCHATZ: That could definitely happen. If fact, that's pretty likely to happen, actually, the way that things are going over there right now. It's very difficult sometimes to sort of start doing the vote counts over there, because people change all the time. But, you know, it could very easily fall off the agenda and move to December or January.
STEWART: Amy Schatz is a reporter for The Wall Street Journal.
Amy, thank you for explaining that. That was impressive.
Ms. SCHATZ: Thanks so much for having me on.
PESCA: I just know one thing. People maybe will ignore the highway bill or the farm bill or the military spending bill. They do not ignore their cable bill. And if a politician says, hey, pass this plan, your bill's going to go down and your bill winds up going up, that politician will be punished and they know it. So these dueling surveys, it's - what really matters, and the politicians know it, is not that you could make the case and fool someone…
STEWART: But none of those commissioners are running for office.
PESCA: Well, actually, Martin might be running for office.
STEWART: You think he is?
PESCA: He might be running in his native North Carolina, they're saying. And if he does run, he could say, hey…
PESCA: …I was the guy who cleaned up the cursing on the FX network.
STEWART: Why pick on my favorite network?
PESCA: Yeah, me too. I love "The Shield." (unintelligible)
STEWART: I love "Nip/Tuck." It's really weird to see them, though.
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