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Viodi View Newsletter - February 16th, 2005 Issue

Indie Telco Local Content Workshop Advertisement

Must-Carry Decision - Boon for the IOC?

By Ken Pyle, Viodi, LLC

The original must-carry rules for analog broadcast stations were traditionally a sore point for the cable television Multi System Operators (MSOs). The cable industry considered it the ultimate form of command and control economics, as the Federal Government essentially forced cable companies to carry local broadcast channels. The broadcaster had the choice to require a retransmission consent agreement (typically stronger broadcast stations would exercise this option and receive some sort of implicit or explicit compensation) or force cable carriage by invoking “must-carry” (typically weaker broadcasters would choose this option).

Cable companies fought these rules and lost. The cable companies wanted to maximize their “bandwidth portfolio” by putting channels that they thought would have the most value. In many instances, this meant they did not want to carry all of the local broadcast channels. In the long run, carrying all of the local channels was probably of benefit, as it allowed the cable operators to provide a breadth of local channels that was difficult for its satellite competitors to meet; a negative for the cable industry turned into another positive.

So, why are the cable companies fighting digital must-carry rules, given the success they have seen with local channels? It all comes down to economics. To distribute the signals to their analog basic subscribers, they would have to convert all of the digital channels into analog equivalents. In markets where there are 20 or so off-air channels, this could translate into the equivalent of 80 additional analog channels, a huge cost in bandwidth.

Another alternative would be to give every basic subscriber a low-cost digital set-top. Even if the MSOs could make their low-cost, $50 digital set-top dream a reality, this would cost over $2 Billion just to outfit one television per household. With the average household having 2.4 televisions, this capital expenditure could be much higher if the mandate was for all televisions to be covered.

Of course, the National Association of Broadcasters is going to try to go over the FCC’s head by going to the courts. In parallel, it is a certainty that NAB will use the legislative process to influence the next rewrite of the Telecom Act so that Must-Carry is written to their liking.

So, How Can Independent Telco’s Benefit From This???

Independent telcos that are putting in all-digital networks can offer all of the broadcasters’ digital channels at virtually no marginal cost; positioned properly, this could be a competitive advantage for the independent telco Given the previous example of a market with 20 broadcasters, an independent telco could offer 100+ channels in a very basic line-up. The independent telco could price their “basic line-up” at a premium over the MSO offering of only the broadcasters’ analog channels.

The other advantage to this approach is that it will help the independent telco build a stronger relationship with local broadcasters. The local broadcaster, much like the other local businesses, could be an important ally to the independent telco in the creation of offerings that are unique to a region and difficult for the MSO to replicate.
In the next issue, we will take a look at the possible impact of a service like USDTV on the approach outlined in this article.

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