Should the Government Control Cable Negotiations?

Last Sunday, Cablevision customers in the certain areas of New York were denied the first 12 minutes of the Oscars. This was the breaking point in negotiations between ABC and the cable company, after talks stalled for the fee ABC would be paid for its content. Reports indicate that ABC mostly conceded, mostly due to political pressure. But service providers see the incident as an opportunity to call for change. Now they are banding together to push for legislation to prevent such negotiations from resulting in another denial of service like this in the future.

The coalition is a robust one. The Financial Times reports:

The coalition cuts across systems and platforms, bringing together rivals that include DirecTV, Dish Network, Verizon, Cablevision and Charter, according to one person familiar with the matter.

That covers satellite, broadband and cable TV services -- basically everyone. According to sources, one major request is for government arbitration to resolve stalled negotiations. I don't think this is a sensible idea.

Right now, the system is as it should be: broadcast networks can negotiate directly with these service providers. There's significant competition that makes these negotiations fair: several broadcast networks, hundreds of cable networks and dozens of service providers make for a robust market. What's at stake if negotiations stall? Really, very little.

First of all, we're talking about entertainment here -- not necessity. The Oscars, for example, can be enjoyable to watch. But the idea that viewers would somehow be harmed if deprived of watching Hollywood stoke its own ego is kind of ridiculous. It's rather absurd that the government needs to swoop in to save Americans from a lack of missing television entertainment.

In reality, anything truly vital will remain uninterrupted. First, it's highly unlikely that all broadcast stations would all be locked out at the same time. So the public will always have access to important news if some catastrophe hits. That's the kind of concern the government should have. If it wants to step in during such a scenario -- when all local broadcast networks are in stalemate simultaneously -- then I might be able to live with that. Of course, that would almost certainly never occur.

But the problem with government arbitration between service providers and networks has to do with bias. The government will almost certainly side with the service providers. That's what we saw with the ABC-Cablevision dispute. The service providers know this, which is why they're recommending government arbitration in the first place. If they didn't have some confidence that their lobbyists were more influential than those of the broadcast networks, then they wouldn't have suggested such legislation. As a result, government arbitration would weaken networks' bargaining power in getting what they should be paid for their content.

The market forces in these situations are already sufficient to conduct reasonable negotiations. Broadcasters know they can't charge absurd fees, because they need a service provider's subscribers to boost the ratings of its content. Service providers want the broadcast channels, because they have unique and entertaining programming. This government arbitration demand is like if the supermarkets banded together because broccoli producers wanted too much money for their vegetables. Customers could just eat spinach in the meantime, while market forces eventually result in a solution both parties can live with.