When is it appropriate for the government to step-in?

While the most contentious dispute of the last 100 years may be Yankees vs Red Sox, the second most contentious, but no less vitriolic, is the dispute between free marketers and economic interventionists. Free marketers think that government should only intervene in a market to prevent collusion, theft, fraud, and coercion, while interventionists think governments should act to correct deficiencies and balance the playing field.

The decision as to whether the government should intervene was put on full display on March 7th, or “Oscar Night”, as it is known in some circles. In my television market, the dispute between Avatar and The Hurt Locker was preceded by the dispute between Cablevision and ABC 7. In a dispute over retransmission consent fees, ABC 7 pulled its broadcasting stream from Cablevision until the cable company agreed to pay the television station $1 per customer for their 4 million customers for the right to broadcast its transmission. In this instance, Democratic Senator John Kerry of Massachusetts asked the FCC to intervene to resolve the dispute, while Republican Representative Joe Barton of Texas feels the government should refrain.

Under cable television’s “must-carry” rules, which were enacted by Congress in 1992 and affirmed by the Supreme Court in 1994, local television stations have to option of either electing “must-carry” rights with the cable and satellite television operators or electing retransmission consent, which grants the cable provider permission to transmit their signal. So, our local television affiliates of ABC, CBS, NBC, and FOX, as well as other smaller local television stations have the option of asking cable providers for retransmission consent, where the local stations opt out of the “must-carry” option and negotiate compensation from each cable provider granting them the right to carry the station. But, if the station opts for retransmission consent, the cable company does not need to carry the station. So, if you’re a large local affiliate of one of the major networks, you’re going to opt for retransmission consent, where you have the option to make some additional money. If you’re a smaller station with limited leverage, you will opt for the “must-carry” option.

So, if you’re a cable provider, you’re in a tight spot. Either you are forced to carry a marginal local television station or, if you want to carry the station, you may have to pay for retransmission consent. We have to remember that this law was enacted twenty years ago when there were far fewer cable television channels that could be broadcast, and the cable providers had the leverage in choosing which stations it would carry on its lines. If the cable provider didn’t think that it would add viewers or subscribers by adding the local CBS affiliate, it didn’t carry the station. These regulations reversed that abuse.

But I’m not an apologist for either side. This regulation is being used today by cable providers and national broadcast networks to generate more revenue and higher profit margins. As national networks are using their local stations to negotiate higher fees from each local affiliate (fees which should stay with the local station), media experts fully expect for more retransmission consent battles across the country, as broadcasters look to make up for low advertising sales and cable providers look to preserve their profit margins.

So, should government intervene in a dispute between a television station with a federal broadcast license and cable service provider, both of which are regulated by the FCC? It certainly isn’t a matter of national security or economic stability. One could argue that this is simply the market attempting to correct a problem. Another perspective, however, holds that this dispute will result in the end of local television, the market that this regulation was designed to protect in the first place.

Economists will never agree on what constitutes an appropriate government intervention, and both sides are trying to persuade lawmakers to enact legislation in their favor. But, while it may seem absurd to take umbrage with a dispute between billion dollar companies over a self-congratulating Hollywood awards show, it seems clear that a government intervention designed to correct a 20-year old market problem is resulting in reduced choice for the every-day American, and, potentially, increased fees to access a critical tool of media communication. Perhaps government intervention should be limited to those options that expand choice and reduce cost for the citizens rather than the corporations. But wait, the Supreme Court already struck that down .