Cable operators that offer channels on a per-channel or a la carte basis would be exempt from local franchising and pay less in franchise fees to local governments, according to legislation introduced Wednesday by Sen. John McCain (R-Ariz.).
The bill would not mandate a la carte, but it would reward cable operators that chose that route by eliminating state and local franchising obligations and by reducing franchise-fee payments from 5% of gross revenue to 3.7%.
McCain, in a prepared statement, said he hoped that the ability of cable operators to receive national franchises would spur the sale of channels a la carte, which, he said, consumers are clamoring to receive in lieu of large programming packages that include channels they don’t want to buy or consider indecent for children to experience.
“For almost 10 years, I have supported giving consumers the ability to buy cable channels individually, also known as a la carte, to provide consumers with more control over the viewing options in their home and their monthly cable bill,” he added. “Cable companies have resisted this and have continued to give consumers all the ‘choice’ of a North Korean election ballot.”
Federal Communications Commission chairman Kevin Martin -- who has urged cable to offer a la carte programming in response to concerns about indecency and rising nominal monthly cable rates -- called on Congress to pass McCain's bill.
“I support Sen. McCain's efforts to increase cable competition and choice for consumers, as well as to remove regulations that keep potential competitors out of the video business,” Martin said in a prepared statement.
McCain is planning to offer the bill as an amendment to sweeping telecommunications legislation sponsored by Sen. Ted Stevens (R-Alaska), chairman of the Commerce Committee.
"I think that it is his intent -- to offer this bill or a version close to it as an amendment," a McCain aide said. Stevens is planning a June 20 committee vote on his big telecom bill (S. 2686).
The National Cable & Telecommunications Association issued a statement opposing McCain’s bill, called the Consumers Having Options in Cable Entertainment (CHOICE) Act of 2006.
"It is completely unnecessary for the federal government to disrupt a competitive marketplace and engage in the pricing and packaging of video services. Most studies show that a la carte will diminish diversity in programming and result in higher prices for fewer channels -- hardly a positive result for consumers,” the NCTA said.
In his statement, McCain said the fusion of franchising relief and a la carte would likely spur phone-company entry into cable markets, giving consumers more options in selecting channels and more opportunity to pay less for programming.
“Telephone companies,” he added, “have realized that consumers want more and are poised to provide consumers across the nation with an alternative to the local cable company. Many of these telephone companies, including AT&T [Inc.], are also ready to offer consumers the ability to purchase channels a la carte.”
When a draft of McCain's bill leaked out a few weeks ago, Verizon Communications Inc. embraced the legislation.
Verizon supports national cable franchising as a way to avoid negotiating with thousands of local governing bodies before providing cable service.
“The Parents Television Council is applauding Sen. John McCain for introducing a bill that brings consumers one step closer to having real cable choice and lower cable prices,” PTC president Brent Bozell said in a prepared statement.
“The forced subsidy of graphic and explicit content on basic cable must end,” he said, adding that the current industry “solution” of family tiers “does nothing to give families choice and control over the content that comes into their homes.”
Concerned Women for America endorsed McCain's bill, claiming that it would save consumers money and help parents to exile indecent programming without first having to pay for it.
“The [McCain bill] would take control away from cable powerhouses and put it where it belongs -- in the hands of cable consumers,” CWA director of government relations Lanier Swann said.
Consumers Union, while endorsing “the spirit of the legislation,” declined to back McCain, arguing that the bill would go “too far in eliminating important public obligations of video-service providers to ensure nondiscriminatory delivery of cable service, diversity of local programming and essential consumer protections, including the timely and successful resolution of consumer complaints.”
McCain’s bill would encourage new cable entrants to build out entire communities, but would not mandate it. However, denial of service based on the income of subscribers would be prohibited.
The bill also provides a la carte incentives both for cable operators and broadcasters that own cable networks.
To be eligible for a national franchise, cable operators would have to sell affiliated programming a la carte and allow other distributors to do so, too. Cable operators that don’t own programming -- in a provision aimed at phone companies planning to enter the cable market and small incumbent cable operators -- would simply have to declare to the FCC their intent to sell channels a la carte if allowed to by program owners.
“The [bill] … is not a mandate on cable providers. Instead, it is designed to encourage choice and competition by granting significant regulatory relief to video-service providers, such as telephone and cable companies, that agree to both offer cable channels on an a la carte basis to subscribers and to not prohibit any channel owned by the video-service provider from being sold individually,” McCain said.
Many cable operators have told McCain that they would sell programming a la carte if they were not barred by program owners from doing so. Under McCain’s bill, a local TV station affiliated with a network would lose FCC network-nonduplication protections if the parent network refused to permit the a la carte sale of affiliated programming. Network-nonduplication rules bar cable operators from importing the signal of network affiliates from other markets.
“If [the Walt] Disney [Co.], which owns ESPN, allowed other cable companies, satellite companies and video programmers that choose to distribute ESPN to make it available on an a la carte basis, Disney’s ABC broadcast stations would have the benefit of the FCC’s network-nonduplication rule,” McCain said.
Small cable operators have asked for permission to import distant network signals so that they can negotiate for access to broadcast-network programming with more than one supplier.
In a prepared statement, Disney rejected the a la carte model as a win for consumers.
"The overwhelming weight of expert analysis concludes that under a la carte, consumers will pay more and get less. Decisions about the pricing and packaging of cable programming are best left to the market -- free from government intervention," Disney said.
“Consumers want more control over the content they purchase in pay TV packages,” EchoStar Communications Corp. said in a prepared statement. “Dish Network wants the flexibility to respond to consumer demands.”
The DBS provider continued, “Today, Sen. McCain introduced a bill that moves in the right direction. Content owners are given an extra incentive to sell programming to video providers outside of a bundled package. We applaud Sen. McCain for his leadership, and we hope other policymakers will help to provide Americans with more choice over their TV-viewing experience."
In other McCain provisions, cable operators with national franchises would pay franchise fees based on a scaled-back definition of gross revenue and would be exempt from providing institutional networks and in-kind contributions to local franchising authorities.
