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The FCC's Cable Crusade Continues

Federal Communications Commission Chairman Kevin Martin's smackdown of the cable industry at a Nov. 29 Senate hearing is revving up Washington's long-running crusade against racy TV shows. In a reversal of his predecessor's position, the FCC chief, who took over in March, 2005, said he would issue a report concluding that selling cable channels individually, instead of in packages, can lower rates for consumers. Plus, allowing families to pick the channels they buy helps keep indecent shows out of homes.

Martin's announcement adds to the pressure mounting on broadcasters and cable companies ever since Janet Jackson's breast-popping incident at the 2004 Super Bowl ignited a moral backlash (see BW, 3/22/04, "Oh Janet, What Hast Thou Wrought?").

Besides the FCC chief's call for à la carte shows, or alternatively, a family-friendly tier of networks, Senate Commerce Committee Chairman Ted Stevens (R-Alaska) has also suggested extending broadcast indecency regulations to cable, where content is currently unregulated. Congress is considering several bills reflecting these proposals. "It's about using the bully pulpit," says Blair Levin, a Legg Mason regulatory analyst.

MERGER LEVERAGE. Yet, for all the headlines they generate, these attention-getting, vote-grabbing gambits may not do the trick and force cable to clean up its act. Indeed, the industry could be betting that neither is likely to pass -- à la carte programming because of logistical hurdles, and indecency regulations because of Constitutional ones.

Instead, the government wields its power with more mundane regulatory and legislative tools. Comcast (CMCSA) and Time Warner (TWX), for example, have a special interest in staying on the FCC's good side while the agency reviews their $17.6 billion proposed acquisition of cable company Adelphia Communications (ADELQ), pending since April (see BW, 4/11/05, "The CFO Behind Adelphia's Rescue"). Regulators have a way of dragging out such merger reviews in order to exact promises.

Meanwhile, the FCC and Congress carry a big stick in another area. As TV broadcasters switch to an all-digital format, they're demanding that cable operators deliver all of the multiple channels that over-the-air broadcasters will be able to transmit digitally (see BW, 2/1/05, "Free Distribution May Cost Networks"). Cable may have to deliver as many as four digital broadcast channels per local station, compared with only one analog channel today.

TIER AWAY? The cable industry is fighting tooth and nail against giving up capacity in its systems to broadcast rivals. But it could end up the big loser if it doesn't toe the line on cleaned-up programming.

Today, cable companies have done little to respond to the anti-indecency push except advertise their ratings systems and parental controls. But as the noose tightens, they may voluntarily put offending channels, such as MTV, F/X, and Comedy Central, on a premium tier to satisfy Washington. But that may happen as much due to fear of the run-of-the-mill regulatory threats to their business as from the louder saber-rattling.


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