John McCain introduces Television Consumer Freedom Act of 2013

Calling the business practices of the television industry an “injustice being inflicted on the American people,� Sen. John McCain (R-Ariz.) introduced legislation Thursday he said will give consumers more choice and control over their pay-TV services.

McCain said his Television Consumer Freedom Act of 2013 will “help shift the landscape to benefit television consumers.�

Long a foe of how pay-TV distributors such as satellite and cable companies and programmers package and sell programming, McCain wants the industry to start selling channels on an individual or a la carte basis to consumers. That way, a customer who doesn’t love sports isn’t stuck footing the high bill ESPN charges.

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“Whether you watch ESPN or not, and admittedly I do all the time, all cable subscribers are forced to absorb this cost,� McCain said on the Senate floor. “Today we are putting up a stop sign.�

McCain criticized not only distributors but also programmers for so-called bundling. That is when a large company such as ESPN parent Walt Disney Co. or MTV parent Viacom rolls all of its channels together in one bundle to sell to distributors.

Said McCain: “The video industry, principally cable companies and satellite companies and the programmers that sell channels, like NBC and Disney-ABC, continue to give consumers two options when buying TV programming: First, to purchase a package of channels whether you watch them all or not; or, second, not purchase any cable programming at all.�

While a distributor can still opt to buy individual channels from a programmer, the bundle typically includes a discount for strong channels in return for carrying less popular networks. Cable executives argue that the bundle actually lowers prices for everyone. If an ESPN or a TNT was suddenly in 50% fewer homes, it would have to double what it charges to those customers still interested in receiving it, they say.

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Consumer advocacy groups counter that bundling not only forces consumers to buy channels they don’t want but also keeps new programmers who lack the leverage of a Disney, Viacom or News Corp. from getting off the ground.

Bundling has even become controversial within the television industry. Earlier this year, New York cable operator Cablevision Systems Corp. sued Viacom of anti-competitive behavior, claiming the parent of MTV and Comedy Central of using its muscle to force the carriage of smaller networks that customers don’t want.
McCain said his legislation is strictly voluntary, although it does contain some incentives that he hopes will entice the industry to support it.

One provision has to do with the cable compulsory license, which lets a pay-TV distributor retransmit programming without getting permission from the copyright holder. The compulsory license typically applies to a pay-TV distributor that carries a local broadcast channel. In those cases, rather than pay a copyright holder directly for retransmitting a TV station that is carrying a rerun of “Seinfeld,� it pays the Copyright Royalty Tribunal, which then compensates the copyright holder.

If a pay-TV distributor does not offer programming on an a la carte basis, McCain’s bill would strip their right to use the compulsory license. That means that distributor would have to negotiate individual deals with all the rights holders of that content, which would be incredibly time-consuming and likely more expensive.

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The compulsory license provision would only apply to programmers that own both broadcast and cable properties. That includes Walt Disney Co., which owns ABC; News Corp., which owns Fox; and CBS, which besides its broadcast network also owns some cable channels, including CBS Sports Network.

But some other big programmers, including Viacom and Time Warner, do not own broadcast properties. For those companies, McCain’s bill would require them to sell their channels on an individual basis as well as a bundle for distributors.

The National Cable & Telecommunications Assn., the chief lobbying arm for the pay-TV industry, said McCain’s bill is a “lose-lose proposition.�

“As countless studies have demonstrated, subscription bundles offer a wider array of viewing options, increased programming diversity and better value than per channel options,� the NCTA added.

McCain also took aim at broadcasters who have threatened to take their programming to cable if Aereo Inc., the start-up company that delivers broadcast TV to consumers via the Internet, isn’t shut down by the courts. If a network such as Fox or CBS were to move big event programming from broadcast to cable, the bill would strip it of its broadcast license.

“If broadcasters who are using the public airwaves in return for meeting certain public interest obligations are going to deviate from those obligations, it is my view that we should consider if that is the most efficient use of our country’s spectrum,� he said.

Lastly, McCain’s bill also calls for elimination of the sports blackout rule which prohibits a local TV station from showing an NFL game that is going on in its market if the event is not sold out. McCain wants to gut that rule for any team whose stadium was funded with taxpayer dollars.

“When the venue in which these sporting events take place has been the beneficiary of taxpayer funding, it is unconscionable to deny those taxpayers who paid for it the ability to watch the games on television when they would otherwise be available,� McCain said.

McCain’s bill will face intense resistance from the industry. Many of the industry’s top lobbyists question if the senator still has the juice to get such a bill off the ground. McCain is no longer a member of the Senate Commerce Committee, which has oversight over the FCC and the media industry.

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Follow Joe Flint on Twitter @JBFlint.