News Articles

Don't Regulate Cable Prices

1/11/2004 07:00:00 PM Eastern



Author Information
Brown is president of Washington-based think tank Alexis de Tocqueville Institution.

National cable rates went up, depending on who does the analysis, approximately 8.2 % in 2003. In response, Sen. John McCain (R-Ariz.) a proponent of reregulating the cable industry, has demanded that the U.S. Senate have a full-scale hearing to look into why the Nickelodeon channel and his other favorite cable-TV shows are going up in price. While the senator may have good intentions, there are a number of reasons why using Congress is a bad idea to control cable TV prices.

First, market forces are enabling competition to work, thanks to Congress. The 1996 Telecommunications Act loosened the regulatory reins, which enabled new entrants to rapidly pursue market share. Today, DBS has not only captured 20% of the marketplace but is widely credited for the contraction in the cable-industry subscriber base. Last year, while the number of cable-TV subscribers declined 8%, the number of DBS subscribers went up 10%.

Another problem is that cable-TV prices reflect a number of variables, particularly the cost of programming, which Congress would subsequently have to control as well to regulate cable prices. For example, cable operators are actively debating ESPN executives over the sports net's 20% price hike last May. Agree or disagree, cable rates reflect not only the rising cost of broadcasting sports but the spiraling costs of operating professional sports teams as well.

Sen. McCain has suggested that cable operators be forced to provide programming "à la carte," meaning that consumers could opt in or opt out of buying a particular channel, such as ESPN, theoretically lowering the cost of their cable bill. However, in an unbundled world, cable providers that couldn't sell enough HBO would increase the price of Noggin, etc., which would ultimately mean higher prices. In addition, mandatory unbundling would be a slippery slope. Unbundling arguments would be used to address every consumer complaint for lower product prices, putting Congress in the middle of debating hundreds of consumer pricing models.

Regardless of economics, the more serious problem is the question of priorities. Whether the price goes up or down is irrelevant. The real question is when did cable TV become an essential purchase, a right for every American? Critics are actively contrasting the price of cable TV with economic indicators such as the consumer price index (CPI) and inflation, a sign that the discussion is getting out of control. Cable TV is not oil, gas or a commodity. Entertainment, vis-à-vis cable TV, is merely a fantastic privilege, and that's about it.

Congress has had hearings on whether movies are too violent, whether children are watching too much television, and whether entertainment altogether is healthy. If cable prices force Americans to watch less TV, it seems that Congress itself is now conflicted whether this outcome is better or worse for Americans.

The reality is that basic TV, which still includes both local and national programming, is still free. It's the price for additional specialty programming that Sen. McCain is upset about. When the federal government's time spent on national security has to compete with the price of entertainment on cable TV, America is clearly regressing.



Author Information
Brown is president of Washington-based think tank Alexis de Tocqueville Institution.

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