Senator McCain’s “A La Carte” Bill
Senator John McCain (R-Az) has introduced legislation that would allow consumers to choose which cable channels, channel by channel, they would like to receive. Called the Consumers Having Options in Entertainment (CHOICE) Act of 2006, it would also encourage more Internet cable programming. Senator McCain’s statement and a summary of the bill are reproduced below.
STATEMENT OF SENATOR JOHN MCCAIN ON THE INTRODUCTION OF THE CONSUMERS HAVING OPTIONS IN CABLE ENTERTAINMENT (CHOICE) ACT OF 2006
June 7, 2006
MR. MCCAIN. Mr. President, today I am introducing the Consumers Having Options in Cable Entertainment (CHOICE) Act of 2006. This bill would encourage broadcasters and cable companies that own cable channels to sell their channels individually to subscribers. It would also promote cable programming distribution over the Internet.
For almost ten 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. Cable companies have resisted this and have continued to give consumers all the “choice” of a North Korean election ballot. There is only one option available: buy a package of channels, whether you watch all the channels or not. The alternative is to not receive cable programming at all. Why have cable companies and cable programmers refused to give consumers the ability to buy and pay for only those channels consumers watch? Simply because they do not have to. They are the only game in town. But not for long, I hope.
Telephone companies 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, are also ready to offer consumers the ability to purchase channels a la carte. Such companies will offer two crucial benefits to consumers: more competition in the video service provider market, and more options for programming packages. Together, these two offerings will allow consumers to have greater control over the content that enters the home and the ability to manage their monthly cable bills.
According to a Government Accountability Office (GAO) report, in communities where there are two cable companies competing for customers, cable rates are 15 percent less than in communities without any competition. A subsequent GAO study suggests that in some markets the presence of another cable competitor may reduce rates by an astounding 41 percent. Unfortunately, today less then five percent of communities have two companies competing to provide consumers cable television service.
The CHOICE Act would help bring competition to the cable television market. Choice in cable television delivery is long overdue for consumers who have suffered steep rate hikes year after year. Since 1996, cable rates have increased 58 percent or nearly three times the rate of inflation. The Federal Communications Commission (FCC) has found that rates increased seven percent in 2001 and 2002, and five percent in 2003. The FCC’s most recent report found that rates again rose five percent in 2004, double the rate of inflation, but only 3.6% where the local cable company faced competition. I can only imagine the savings consumers could reap if presented with a choice of providers of cable service and a choice of channels. For this reason I call on Congress to pass the CHOICE Act.
A recent USA Today/Gallup poll found that a majority of Americans would like to buy cable channels individually and an AP/ Ipsos poll found that a remarkable 78 percent of Americans would like to do so. According to Nielsen Media Research, households receiving more than 70 channels only watch, on average, about 17 of these. Consumers know that they could have greater control over their monthly bill if given the ability to choose their channels. This was recently confirmed by the FCC. This year the FCC found that consumers could save as much as 13 percent on their monthly cable bills if they could buy only the channels they want.
Mr. President, consider the situation of a senior citizen on fixed income living in Sun City, Arizona, who watches only a few news and movie channels, but continues to pay for high priced channels such as ESPN, Fox Sports, and MTV – channels that other consumers enjoy, but channels that certain seniors may not want and possibly cannot afford. In fact, the general manager of the Sun City cable system has told my staff that he has tried to drop several expensive music video channels from the company’s channel lineup to make room for channels his viewers want to receive and to decrease costs, but the owners of the music video channels have forbid him to do so without serious repercussions. So the residents of Sun City continue to subsidize the cost of these channels for viewers around the country. That is why AARP, representing 35 million senior citizens, supports the ability for viewers to buy channels on an a la carte basis. But again, cable companies don’t have to listen to these 35 million viewers because there is no real threat of losing them. They have nowhere to turn.
The CHOICE ACT, Mr. President, 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. In exchange, video service providers would receive the right to obtain a national franchise; would be permitted to pay lower fees to municipalities for the use of public rights of way; would benefit from a streamlined definition of “gross video revenue” for the calculation of such fees; and would gain a prohibition on the solicitation of institutional networks, in-kind donation, and unlimited public access channels.
In addition, broadcasters that have an ownership stake in a cable channel would get the benefit of the FCC’s network non-duplications rule if the broadcaster does not prohibit the channel from being sold individually. The FCC’s network non-duplication rule provides exclusivity for broadcasters by not allowing another broadcaster with the same network affiliation from broadcasting in the same community. The bill would also modify Section 616(a) of the Communications Act that currently prohibits video service providers from using coercion or retaliatory tactics to prevent cable channels from making their services available to competing companies to extend this provision to distribution over the Internet.
For example, if Time Warner Cable offered CNN, a cable channel it owns, on an a la carte basis to its cable subscribers and allowed other cable companies, satellite companies, and video programmers who choose to distribute CNN to make it available on an a la carte basis, Time Warner Cable would be eligible for a national franchise and other regulatory relief. If Disney, which owns ESPN, allowed other cable companies, satellite companies, and video programmers who choose to distribute ESPN to make it available on an a la carte basis, the Disney’s ABC broadcast stations would have the benefit of the FCC’s network non-duplication rule.
Mr. President, contrary to what some might want the American people to believe, the CHOICE Act does not force video service providers or broadcasters to do a single thing. It is their choice whether to act or not act. The bill provides them with such a choice even though they currently don’t provide meaningful choices to their customers. This bill is incentive-based legislation that would encourage owners of cable channels to make channels available for individual purchase and would do nothing to prevent cable companies from continuing to offer a bundle of channels or tiers of channels.
The cable industry regularly touts the value of its package of channels, noting that it costs less than taking a family of four to a movie or professional sporting event. However, watching cable television is not always a family event. Several channels have programming that consumers find objectionable or that parents believe is unsuitable for young children. Complaints about indecent cable programming have increased exponentially in recent years. In 2004, the FCC received 700 percent more cable indecency complaints than it received in 2003. Most of the cable programs about which indecency complaints have been filed with the FCC aired during hours when many children are watching television.
Cable and satellite companies currently provide subscribers with a variety of methods of blocking the audio and video programming of any channel that they do not wish to receive. However, subscribers are still required to pay for these channels that they find objectionable. The “v-chip” does not effectively protect children from indecent programming carried by video programming distributors. Most of the television sets currently in use in the United States are not equipped with a v-chip; of the 280 million sets currently in United States households, approximately 161 million television sets are not equipped with a v-chip. Households that have a television set with a v-chip are also likely to have one or more sets that are not equipped with a v-chip.
Again, Mr. President, I am aware that not all consumers want to block and not pay for certain channels, but shouldn’t all consumers should have the choice to do so? Cable programmers and broadcasters have started offering individual television programs for download on the Internet. This is the purest form of a la carte – where one can watch and pay for only specific programs they choose. In addition, many of these same broadcasters and cable programmers make their channels available for individual purchase in Hong Kong, Canada, and other countries. Why do these cable programmers treat the American cable subscriber differently than a subscriber in Hong Kong or Canada or an Internet user? It remains unclear.
Lastly, Mr. President, I know that the cable programmers and broadcasters will not be the only group that may have some concerns with this bill. Many of my friends in local government are also likely to be interested in the reduced “rights of way” fee and streamlined definition of “gross video revenue” under this bill. Cable companies pay these fees to municipalities to use the right-of-way land under sidewalks, streets and bridges to reach customers’ homes and then pass these fees on to subscribers. However, these fees often surpass the costs of managing “rights of way” land and municipalities use these funds for other expenditures. Just last month at a hearing before the Senate Commerce Committee, Michael A. Guido, Mayor of Dearborn, Michigan, confirmed that these fees are often used to pay for other city expenses, such as emergency vehicles.
In 2004, state and local governments collected approximately $2.4 billion in these fees, slightly more than $37 per year from every household subscriber. Americans for Tax Reform believes that the “franchise fee is just a stealth tax on our consumption of the cable television,” as do other economists and tax payer advocacy groups. To this end, the legislature in my home state of Arizona just recently passed a bill to reduce such fees and taxes on cable television subscribers.
The Phoenix Center, a non-partisan legal and economic think tank, has found that the introduction of competition to cable companies could allow the fee to be lowered “significantly without doing any harm to local governments.” Based upon this research, the CHOICE Act would reduce the fee from 5 percent to 3.7 percent for eligible video service providers and allow local governments to petition the FCC for a higher fee if it is necessary to cover the costs of managing “rights of way” land. I believe this would provide some real cost savings to cable subscribers.
I remain open to working with municipalities on this issue and look forward to working with all interested parties to ensure that American consumers receive greater options for affordable and acceptable television viewing. Mr. President, I hope the introduction of the CHOICE Act furthers the debate on the issue of a la carte channel selection and I look forward to the Senate’s consideration of the bill.
Summary:
The CHOICE Act“Consumers Having Options in Cable Entertainment Act”
This bill would grant significant regulatory relief to video service providers who agree to both offer cable channels on an a la carte basis to subscribers and not prohibit any channel owned by the video service provider from being sold individually.
In exchange for offering consumers cable channels on an a la carte basis, video service providers would receive the right to obtain a national franchise, would be permitted to pay lower fees to municipalities for the use of public rights of way, would benefit from a streamlined definition of “gross video revenue” for the calculation of such fees, and would gain a prohibition on the solicitation of institutional networks, in-kind donation, and unlimited PEG channels.
Broadcasters with an ownership stake in a cable channel would get the benefit of the FCC’s network non-duplication rule if the broadcaster does not prohibit the channel from being sold individually. Lastly, the bill would extend Section 616(a) of the Communications Act to extend this provision to distribution over the Internet.
Below is a more detailed summary of the bill.
Section One
Sets forth the title of the bill, “Consumers Having Options in Cable Entertainment Act.”Section Two
Defines the terms “a la carte,” “video service,” “video service provider” and “eligible video service provider.”
o A “video service provider” is defined as a provider of video services that uses a public right of way. This definition would cover all wired providers, including cable companies and telephone companies such as Comcast, Cox, Verizon, and AT&T. This definition would not apply to direct broadcast satellite (DBS) providers such as Dish Network and DirecTV who are not required to seek a franchise under current law.o An “eligible video service provider” is defined as:
(1) a video service provider that (i) has an attributable interest in a cable channel offered on the basic tier of a digital cable system, (ii) makes available that cable channel available to its subscribers individually, (iii) does not prohibit other providers from offering this channel individually and (iv) files with the FCC a declaration of its intent to offer its subscribers on an individual basis any cable channel provided to it on an individual basis.
OR
(2) a video service provider that does not have an attributable interest in a cable channel and files with the FCC a declaration of its intent to offer its subscribers on an individual basis any cable channel provided to it on an individual basis.Section Three
Sets forth the regulatory relief for Eligible Video Service Providers:
o Dissolution of a local franchise, in favor of a national franchise;
o Termination of a “franchise fee” set at 5% of gross revenues in favor of a “rights of way fee” set at 3.7% of “gross video revenues;”
o Prohibition on in-kind contributions or institutional networks, unless such donations are credited against the calculation of “gross video revenues;”
o Streamlining of definition of “gross video revenues” from current statutory definition of “gross revenues;”
o Establishment of a dispute resolution process for disputes regarding the use of a municipalities’ “rights of way;”
o Modification of FCC’s rules on “public, educational, or governmental” (PEG) channels to require video service providers to make available at least three PEG channels and to necessitate municipalities who program PEG channels to provide at least eight hours of programming a day with four hours of non-repeat programming; and,
o Establishes an effective date of six months after enactment.Section Four
This section states that broadcasters with an ownership stake in a cable channel would get the benefit of the FCC’s network non-duplication rule only if the broadcaster permits the cable channel to be sold individually. The FCC’s network non-duplication rule states that upon the request of a local television station with exclusive rights to distribute a network or syndicated program, a cable operator generally may not carry a duplicating program broadcast by a distant station. The Commission’s rules generally provide stations such protection within a station’s 35-mile geographic zone.Section Five
Amends Section 616(a) of the Communications Act that currently prohibits video service providers from using coercion to prevent cable channels from making their services available to competing companies to extend the prohibition to other distribution systems, including the Internet.Section Six
This section states that the FCC has the authority to prescribe any rules and regulations to carry out the CHOICE Act.Section Seven
Sets forth a severability clause.