The Dereg Blues Brothers

Adelstein bands with Copps in quesitoning media consolidation

Why This Matters

Groups Push À La Carte Cable

Groups Push À La Carte Cable

Cite post-deregulation price hikes; NCTA disputes claims

Consumer groups last week officially launched their bid to re-regulate cable prices, hoping to piggyback on press coverage of growing opposition to media consolidation.

The groups claim that recent cable mergers and resulting monopoly pricing power are to blame for what the critics say are outsized rate hikes during the past seven years.

Gene Kimmelman, head of Consumers Union's Washington office, called on Congress to turn cable-rate regulation over to the states or to require à la carte sale of individual cable channels outside the bare-bones basic tier, after allowing upper-tier rates to rise unchecked since 1999. "It's time for Congress to come back in."

Kimmelman complained that the FCC's latest video-competition report, released on New Year's Eve, understated rate hikes by showing only a 6% increase through the year ended in June. For calendar 2002, hikes were closer to 9%, he said. "FCC Chairman Michael Powell is coddling price-gouging cable monopolists," he said, "and it's time to put an end to it."

Consumer Federation of America economist Mark Cooper attempted to debunk cable's explanations for the hikes. Many in the industry have said that the increases are needed to cover increased programming costs and to pay for infrastructure build-outs bringing high-speed Internet services. But, if covering programming costs were to blame, he said, cable companies' net income wouldn't have climbed $8 billion since passage of the deregulatory 1996 Telecommunications Act.

As for infrastructure buildouts, revenue from advanced services is covering that bill, Cooper said.

Instead, he blamed the high prices cable companies have paid to acquire each other in the recent merger wave—upwards of $5,000 per sub. Cable companies paid these "phenomenal amounts" in order to gain enough market power to protect monopoly pricing, he said.

The National Cable & Telecommunications Association strenuously dismissed the consumers groups' attacks as "misleading and factually inaccurate" for failing to account for the full costs of programming, labor and buildout costs. The NCTA also noted that cable rates rose at a faster clip while regulated than during the three years since upper-tier–pricing oversight expired. During that time (1999-2002), annual cable-rate increases have average 5.15%, the association said. In the previous three years, rates climbed 7.6% annually.

Cable officials also noted that competition from satellite has helped slow cable-subscriber growth to a trickle and the new number may show a decline for calendar year 2002, proving that customers have an alternative to cable. Furthermore, they said, most cable mergers have been paid for by stock deals that don't cut into operating costs.

—Bill McConnell

After hosting new FCC Commissioner Jonathan Adelstein's coming-out party last week, opponents of media consolidation are turning their efforts toward cultivating some unlikely, but critical, allies among the ranks of the GOP.

Democratic Commissioner Michael Copps has for some time been a lone voice against consolidation on the panel. Now, with Democrat Adelstein ensconced, unions, public-interest groups and music-industry players have become emboldened.

On the top of their wish list for potential friends: Senate Commerce Committee Chairman John McCain (R-Ariz.) and FCC Commissioner and potential swing vote Kathleen Abernathy, both generally favorable to deregulation.

Abernathy was set to meet Jan. 10 in Los Angeles with union officials representing screen writers, directors, actors and musicians, who say the consolidation wave of the last few years is stifling creativity and limiting the content choices of audiences by putting a troubling amount of radio, TV, cable, recording and concert promotion outlets in the hands of a few conglomerates.

The same groups are pressing McCain to rethink his longstanding inclination to lift media-ownership restrictions, pointing to the impact of radio con- solidation since the 1996 Telecommunications Act. McCain will hold a hearing on the radio industry, tentatively scheduled for Jan. 30.

The fight for Republican alliescomes as Adelstein made it easy to read where he stands. Last week, the rookie regulator indicated he opposes broad relaxation of media-ownership limits and hinted that he would favor some tightening of radio-ownership limits. The FCC also is examining current rules limiting TV station ownership and local crossownership of radio, TV and newspapers.

A Friend in Frist?

Consolidation's critics also hope to find a friend in new Senate Majority Leader Bill Frist (R-Tenn.), whose Nashville constituency makes him sympathetic to the plight of the recording industry. Record companies are increasingly irked by a practice that requires labels to pay freelance promoters/consultants to win airplay.

Frist hasn't spoken out on consolidation, though he has backed the record industry on copyright and piracy issues. But he doesn't have the personal ties that predecessor Trent Lott had with fellow Mississippian and National Association of Broadcasters President Eddie Fritts.

As for Adelstein, in a speech to the Future of Music Coalition (FMC) last week, he said the massive concentration of the radio industry following elimination of national radio-ownership limits in 1996 has been a "canary in the mine," testing whether the country should follow with similar deregulation of TV. The coalition, which held its annual policy summit last week, is composed of musicians and others opposed to media—particularly radio—deregulation.

"The FCC better carefully consider the health of that canary before we proceed further, because changes to the FCC's media-ownership rules potentially could alter the media landscape as much [as] or more" than the 1996 Act, Adelstein said in his first address since being sworn in Dec. 3.

As a prelude to his keynote speech, Adelstein jammed on harmonica with Lester Chambers on the R&B legend's classic "People Get Ready." Dressed in suit and tie and sporting wire-rimmed shades, Adelstein looked more like a bad guy from The Matrix
than a bluesman (or even a Blues Brother) but held his own during his harp solos.

On the state of radio since the 1996 Telecommunications Act, Adelstein suggested the ownership cap might need to be "modified." He noted that, in tiny Yankton, S.D., under current FCC market measurements, one company could own eight stations. Ostensibly, ownership of eight radio outlets is permitted in only the largest markets. "Clearly, there is something wrong with how the FCC currently draws market boundaries." Adelstein also called a recent FMC report critical of the 1996 law "a truly impressive study."

In examining the impact of radio consolidation, he said, the FCC should not rely solely on traditional antitrust analysis and measurements of ad revenue concentration and format diversity, as some industry players contend. He added that the loss of localism, the level of local public-affairs coverage and the impact on artists are among other factors the commission should review.

Adelstein also sympathized with the coalition's contention that radio consolidation has led to a decrease of station formats, which runs counter to the industry's contention. "Adult Contemporary, Hot Adult Contemporary, and Urban Adult Contemporary are considered three separate formats. But, clearly, they will play many of the same artists," he said. And when it comes to local news and public affairs, one owner is likely to speak with a single voice across all stations, he added.

The target of most of the creative community's antipathy is Clear Channel, which owns the country's two largest stables of radio stations and billboards, as well as the dominant concert-promotion business. Clear Channel critics charge that the company has a lock on airplay and concerts that can make or break artists.

'Clear'-ing the air

Company Chairman Lowry May is expected to testify at McCain's hearing, along with an owner of a single station or small radio group and a representative of consumer organizations.

"We're looking forward to addressing these allegations and dispel the myths," said Andrew Levin, Clear Channel's new lobbyist.

Whether the critics can actually build Washington support beyond Adelstein and longstanding allies, such as Copps and consolidation critic Sen. Russell Feingold (D-Wis.), is unclear.

Abernathy hasn't yet signaled her views, but industry forces believe that FCC Republican Kevin Martin is "to the right" of Chairman Michael Powell on deregulation and she makes a more enticing target for the essential third FCC vote. For his part, Powell has never endorsed wholesale deregulation but opposes what he calls the current "prophylactic" ownership limits. Instead, he is expected to seek a market-by-market approach similar to traditional antitrust rules.

Broadcasters insist that McCain hasn't backed off his deregulatory stances, but consolidation's foes are optimistic, given his anger over station owners' opposition to campaign-finance–reform and avoidance of having to pay for digital TV spectrum. "In light of campaign-finance–reform. we hope he's receptive to our ideas," said Thomas Carpenter, news and broadcast director for the American Federation of Television and Radio Artists.

Will McCain change?

"During the fight over low-power radio [McCain supported it], McCain learned a great deal about what's going on in local radio," said Media Access Project President Andrew Schwartzman. "I wouldn't be surprised if his thinking [on deregulation] is revised to some degree."

Certainly, maverick McCain has been willing to change his position on media issues. He backed cable-rate regulation in 1992, voted for deregulated rates in 1996 and today talks about resurrecting price controls.

Feingold told the FMC last week that he was encouraged by McCain's "intentions" regarding the radio-merger wave of the past seven years. "I was awfully pleased with his sense on this issue as well as other consolidation issues," he said. "He gets it beyond belief, and I think you'll be pleased about his intentions." Feingold plans to reintroduce legislation from last year that would tighten FCC oversight of radio.

Some industry observers speculate that McCain has called the hearing to tweak broadcasters for opposing legislation that would require free airtime for federal candidates and as a favor to campaign-finance–reform partner Feingold.

Nevertheless, the NAB isn't taking the FMC's effort lightly. Last week, NAB attacked the coalition's Nov. 18 economic analysis of radio consolidation's impact in a two-page letter to the group that was circulated to the press.

According to NAB, the coalition overestimated conglomerates' share of ad revenue and relied on loaded questions in a survey purporting to show public unhappiness with the current state of the airwaves. FMC officials stood by their report.