How Government Regulations Created the Time Warner-CBS Blackout

August 21, 2013

When negotiating to buy a new car, a frequent tactic of shoppers is to get up and walk away if the salesman's price is higher than they want to pay. Often the salesman will run after the buyer with a "final" offer that makes the buyer grin in victory. Sometimes, however, the shopper just has to walk away empty-handed. In the days that follow, the salesman might call and make a lower offer, or if the buyer just has to have the car, he might return with his tail between his legs and pay more than he wants to. That's how negotiation is supposed to work in a free market. Unfortunately, the fact that many are calling for government intervention in the recent standoff between CBS and Time Warner Cable shows that there is nothing free about the video marketplace, says Jerry Brito, a senior research fellow at the Mercatus Center.

  • The blackout is the result of an impasse in negotiations between Time Warner and CBS.
  • At stake is how much the cable company should pay to carry CBS's broadcast stations, as well as Showtime and TMC, which CBS owns.
  • Time Warner thinks the price CBS is demanding is way too steep, and CBS isn't budging.
  • It let its contract with Time Warner expire and walked away, leaving more than 3 million subscribers in New York, Los Angeles and Dallas without access to their local CBS stations.

In a free market, like our car-buying scenario, the parties would remain at loggerheads until they came to terms, which might never happen. Yet when cable companies face blackouts, they always want an assist from the federal government.

  • Before 1992, cable companies didn't need the permission of broadcasters to retransmit TV signals.
  • They had to pay the copyright owners of the programs they retransmitted, of course, but TV station signals were free for the taking.
  • After all, broadcasters transmit on spectrum given to them for free by the federal government in exchange for a promise that they make their signals freely available.
  • Then Congress passed the Cable Act of 1992, which essentially created a new super-property-right for broadcasters in their signals.

This wouldn't be so bad if cable companies that couldn't reach an agreement with a local broadcaster could simply make a deal with an out of town affiliate of the same network. Viewers wouldn't get the local station's news, but at least they wouldn't miss the Masters Golf Championship as many did a few weeks ago.

Source: Jerry Brito, "How Government Regulations Created the Time Warner-CBS Blackout," Reason Magazine, August 13, 2013.

 

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