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Free cable coupons: A disruptive innovation

June 21st, 2007

A small cable operator wants the federal DTV coupon program to change—in a big way. Under the proposal,

a broadcast-only home that obtained a $40 coupon to buy a digital-to-analog converter box under the federal subsidy program would receive free analog-basic cable for seven years on every TV set in the home, with free installation.

Providing free cable, instead of inexpensive DTV converter boxes, would constitute a radical overhaul of the coupon program. The plan, from Massillon Cable TV of Massillon, Ohio, is utterly thought-provoking. It merits serious discussion, I would argue, ignoring for the moment the small fact that it is doomed.

If you just want to participate in the coupon program, it almost certainly won’t change because of this proposal. Have a look at our DTV coupon section instead:

DTV converter box coupons

But if you care to reimagine the future of local television, read on.

Why is this a idea, unlikely as it seems, worth our time? Four reasons, one of which is also an idea that challenges the existing TV paradigm:

1. A safer DTV transition: Offering consumers the option of free cable in place of digital TV converters would confront one of the digital transition’s significant unknowns: We still don’t know just how well DTV reception will work for the average over-the-air viewer. I worry about this less these days, because the best DTV tuners are now very good. What we still don’t know is this: How good is the average digital tuner? We don’t actually know how the typical $50-$70, coupon-eligible DTV converter box will perform with an indoor antenna, because no such box is on the market yet. (Broadcaster involvement in producing prototype digital TV adapters is reassuring, of course, because their business plan depends on a successful conversion. Still, we need real-world evidence.)

2. Consumer choice: The plan gives more options to viewers, including those who will find digital TV service cumbersome to set up compared with just-plug-it-in analog TV.

3. Better use of government funds: Because the cable company would return the DTV coupon instead of cashing it in, the cable option could save the government money or make converter coupons available to more households.

4. Rethinking the status quo: Here’s what really strikes me, and it has little to do with the DTV coupon program itself: The Massillon proposal is a highly creative, big-picture idea. It highlights inherent absurdities of existing federal regulatory policies that shape the television industry.

The key absurdity: While 85 percent of Americans have abandoned over-the-air TV, the FCC still favors broadcasting as the essential means of delivering local television programming. Despite talk of fostering a free-market approach to communications, what the Republican-led FCC actually delivers is an industrial policy that tips the scales in favor of broadcast TV.

I’m not saying we should do away with broadcasting, which still serves an important public purpose. Rather, I think we need to reexamine its role, instead of just doing things the way we always have simply because that’s the way we have always done them.

What’s so special about broadcast TV? Two characteristics, in particular, recommend it: Over-the-air TV is free, and it is (sometimes just barely) local. Of course, the delivery of free, local TV no longer requires hundreds of giant towers. Local TV programming can also be delivered via cable, satellite or broadband. If we as a society wanted to provide free access to any of these newer television-delivery mechanisms, we could find a way to do so.

I’m not saying we should do this, but let’s examine the idea. Imagine a scenario in which broadcasters that want to stay in business would be asked to deliver local content directly through cable or satellite systems. (They already deliver video content via the internet, as almost anyone can these days.) With the help of new federal regulations, local programming could also be provided by new, independent, locally based entities. Network programming, unchained from the antique local-affiliate/O&O paradigm, could be delivered through cable and satellite, like MTV or CNN.

We could set aside a portion of the existing broadcast spectrum for mobile TV (because you obviously can’t watch cable in your car or on the bus) and reallocate the rest to other, more flexible purposes. More unlicensed spectrum would be available to anyone who wants to use it, and the remaining broadcast TV bands could more easily be protected from the potential interference that broadcasters are always complaining about.

If the Massillon approach were carried to its logical conclusion, then, we wouldn’t even need broadcast TV—at least not on the scale we have today. And that’s why I predict their DTV coupon proposal will go nowhere.

For a DTV coupon issued under terms that do not reflexively favor broadcasters is, in its way, a highly disruptive technology.

The people behind the idea might prefer to conceal that particular point, it seems. Here’s a Massillon Cable lawyer blowing smoke:

“One of the primary reasons why we came up with this is…there aren’t enough [converter coupon] vouchers,” Massillon outside counsel Mark Palchick said. “We know for a fact that the program was designed not to have enough vouchers.”

Oh, is that their motivation? Admittedly, federal funds for the coupon program may fall short. But as someone who isn’t a lawyer in communications (or anything else) and isn’t part of the TV industry, I would have thought Massillon was motivated by reasons with a more direct impact on its bottom line.

From my humble perch here on my little low-budget, “unofficial” DTV site, I would have thought this was a two-step scheme to enable cable operators to gain ground on broadcasters: First, give cable companies a seven-year window enabling them to avoid negotiating costly retransmission-consent agreements with TV station owners. Then, when the window closes, remind those same broadcasters that they are now more dependent than ever on cable to deliver their audiences. (I didn’t say it was a dumb idea. Note that Massillon Cable also floated a deal, a few years back, to offer local stations 12-year dual carriage agreements in return for free carriage. Broadcasters rejected it. The current idea smells like another discussion-starter.)

The coupon program’s planning is well under way. A 45,000-subscriber cable outfit in Ohio is unlikely to knock the federal government’s plans off course at this late date. The most formidable obstacle, and the reason such a plan will not be allowed to work, is that it would upset the industry-government apple cart.

The corporations that dominate broadcasting and cable have little interest in entertaining such ideas—they have too much invested in protecting their existing turf from each other (and from YouTube, MySpace, Nintendo, and any number of things we have yet to dream of). Washington politicians, including those who work for the FCC, are accustomed to the existing TV power structure. Campaign contributions from the cable TV and broadcasting industries totaled more than $22 million during the last two election cycles, according to the Center for Responsive Politics.

The antenna-based TV audience has largely evaporated. Yet broadcasters still control a lucrative, federally protected franchise, thanks to must-carry requirements and retransmission-consent agreements. They wouldn’t willingly give that up without getting something in return.

Being freed from the expensive burden of maintaining a broadcast facility might actually help small stations that are struggling. But the interests of a single-station owner in Oshkosh, Wis., are different from those of NBC Universal. If the retransmission-consent regime went away, large station groups would lose profitable leverage they hold over cable operators—not just the potential for monetary payments, but also the ability to secure additional channel slots for other programming services that are part of their corporate family.

Over time, television will change, regardless of what the regulators and industry lobbyists want, because consumers also have choices. Our choices are threatened, however, by policymakers in Washington. They are wedded to 1940s rules for television broadcasters, and emerging choices are threatened by the failure to enact network neutrality protections.

I don’t hate broadcasters, and I don’t love cable companies. What I do hate is waste, and spectrum is a finite commodity. In the long term, the question must be asked: Do we still need hundreds of stations broadcasting identical network programming?

I don’t hear anyone in Washington asking that question.

More on the future of TV:
Ditch DTV coupons, promote broadband?
The system is broken
What’s wrong with the FCC?

• Links: Multichannel News, Cable360

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