Cable Television

CABLE TELEVISION

The cable TV industry exploded from modest beginnings in the 1950s into a service that by 2003 reached 69 percent of all U.S. households that had television. Cable was initially a response to a need for improved transmission in areas where signals were weak or nonexistent. By the 1960s, consumers began to demand not only better reception but also more signals. This demand fueled the exponential growth of the industry. In 2003, almost ten thousand cable systems provided services to 73 million household subscribers in the United States. The industry has faced many legal issues, including programming and rate regulation, lack of competition, and customer service complaints. In addition, deregulation of the industry in the late 1990s has led to the consolidation of major cable companies.

The most contentious issue in cable television arises from federal communications commission (FCC) regulations that require cable operators to allot up to one-third of their channels to local broadcast stations. Known as must-carry rules, these were first enacted in the 1960s in an effort to protect the interests of local broadcasters. In 1985 and 1987, the Court of Appeals for the District of Columbia Circuit held that must-carry rules, as promulgated at the time, violated the first amendment (see Quincy Cable TV v. FCC, 768 F.2d 1434 [1985], cert. denied, 476 U.S. 1169, 106 S. Ct. 2889, 90 L. Ed. 2d 977 [1986]; Century Communications Corp. v. FCC, 835 F.2d 292 [1987], cert. denied sub nom. Office of Communication of the United Church of Christ v. FCC, 486 U.S. 1032, 108 S. Ct. 2014, 129 L. Ed. 2d 497 [1988]).

Congress addressed the must-carry issue in the Cable Television consumer protection and Competition Act of 1992 (47 U.S.C.A. § 325 et seq.). The 1992 Cable Act, passed over President george h.w. bush's veto, required cable systems to carry most local broadcast channels and prohibited cable operators from charging

local broadcasters to carry their signal. These requirements were challenged on First Amendment grounds in Turner Broadcasting System v. FCC, 512 U.S. 622, 114 S. Ct. 2445, 129 L. Ed. 2d 497 (1994). Turner Broadcasting asked the Supreme Court to apply a strict scrutiny test, similar to the one used to evaluate the constitutionality of restrictions on printed material, to determine whether the FCC's regulations infringed the industry's freedom of speech. The FCC urged the Court to apply the same relaxed standard it had applied to broadcast media in Red Lion Broadcasting v. FCC, 395 U.S. 367, 89 S. Ct. 1794, 23 L. Ed. 2d 371 (1969).

The Court took a middle ground on cable communications. Noting that cable television is neither strictly a broadcast medium nor a print medium, the Court held that the relaxed scrutiny test adopted in Red Lion was inappropriate, but declined to adopt the strict scrutiny protection given to print publications. The Court held that any regulations that are content neutral—in other words, that do not dictate the content of programming and that have an incidental burden on free speech—will be judged by an "intermediate level of scrutiny." Any regulations found to be content based—in other words, that attempt to restrict programming based on its content—will receive the strict scrutiny applied to print media. It returned the case to the district court for a full hearing under this ruling.

The case returned to the Supreme Court in 1997. In Turner Broadcasting System v. Federal Communications Commission, 520 U.S. 180, 117 S.Ct. 1174, 137 L.Ed.2d 369 (1997), the Court upheld the statute and rejected the cable operators' First Amendment claims. The court found that the law served an important and legitimate legislative purpose because it protected noncable households from losing regular local broadcasting service due to competition from cable companies. In addition, there was a legitimate governmental purpose in seeking to ensure public access to a variety of information sources. Finally, the government had an interest in eliminating restraints on fair competition even when the regulated parties were engaged in protective expressive activity.

The regulation of the rates charged by cable companies is another area of contention between the industry and the government. Before 1984, local franchising authorities regulated the rates charged by franchisees. The 1984 Cable Communications Policy Act (46 U.S.C.A. §§ 484-487, 47 U.S.C.A. § 35, 152 et seq.), which was designed to promote competition and allow competitive market forces to determine rates, deregulated rates for almost all franchisees. Although industry representatives had argued that competition would keep rates reasonable, after deregulation, average monthly cable rates increased far faster than the rate of inflation, in some cases as much as three times faster. During the same period, the average cable subscriber received only six additional channels, and competition from other operators was almost non-existent. In 1991, only 53 of the more than 9,600 cable systems in the United States had a direct competitor in their service area.

The 1992 Cable Act provided a regulatory structure for basic and expanded programming, but exempted individually sold premium channels, such as HBO and the Disney Channel, and pay-per-view programming. The 1992 act authorized local governments to regulate programming, equipment, and service rates charged by companies in areas where there is no competition. Basic rates could be regulated but only under prescribed circumstances that indicate a lack of competition in the area. According to figures gathered in 1994, the new regulations led to average rate reductions of more than eight percent.

When Congress deregulated the cable industry with the 1984 Cable Act, its primary intent was to promote competition. The 1984 act sought to balance the government's dual goals of providing cable access to all areas and deregulating rates. The industry had argued that competitive market forces would produce competition and stabilize rates. However, competition did not occur in the ensuing years, and cable operators continued to enjoy a monopoly in virtually all service areas. Before 1992, exclusive cable franchises were granted to the bidders who promised the widest access and most balanced programming. The government felt that this was the best way to ensure that cable's new and expensive technology was available to people in poor and rural areas as well as more affluent areas. As a result, bidders who promised more than they delivered were protected from competition. The 1992 Cable Act eliminated many of the barriers to competition that existed before. Most important, it abolished the exclusive franchise agreement, which had been a powerful monopolistic tool.

Although the 1992 act did much to encourage competition, it did not address the 1984 act's ban on ownership of cable companies by local telephone utilities. This ban was challenged in Chesapeake & Potomac Telephone Co. v. United States, 42 F.3d 181 (1994), in which the Fourth Circuit Court of Appeals held that it violated the telephone companies' First Amendment right to free speech. The ban was removed by the Telecommunications Act of 1996 (110 Stat. 56), which President bill clinton signed in February 1996.

The 1996 act signaled a return to the pre-1992 act philosophy, as the FCC was again directed to deregulate the cable television industry. The industry, which lobbied hard for the changes, contended that deregulation would produce more competition and lower prices. In addition, cable operators believed they could move into the areas of broadband internet service and local phone service. Critics raised concerns that deregulation would produce less competition, high prices, and the consolidation of cable services into the hands of a few powerful companies.

By 2002, the cable landscape had changed, with four companies controlling 80 percent of the national cable market. In addition, cable subscriber costs rose steadily. The FCC continued to advocate for a deregulated cable market and has permitted companies to pass on external costs (those unrelated to the delivery of programming and maintenance of infrastructure) to their subscribers. Competition from satellite television providers also grew, but not enough to pose a serious threat to the cable industry.

The growth of cable television led to other issues, including litigation over the distribution of sexually explicit content on cable systems. For example, United States v. Playboy Entertainment Group Inc., 529 U.S. 803, 120 S.Ct. 1878, 146 L.Ed.2d 865 (2000), involved a provision in the 1996 Cable Act that required cable TV systems to restrict sexually-oriented channels to overnight hours if they did not fully scramble their signal to nonsubscribers.

Even before the enactment of the 1996 provision, cable TV operators scrambled the signals of their programming so nonsubscribers could not view the channels. In addition, "premium" channels are scrambled so only those cable subscribers who pay an additional fee will gain access to the programming. However, scrambling technology is imperfect. A phenomenon known as "signal bleed" allows audio and video portions of scrambled programs to be heard and seen for brief periods. The federal law sought to prevent children from hearing or seeing sexually explicit content because of signal bleed. If a cable operator could not completely scramble the signal, it could only transmit sexually explicit programming between 10 p.m. and 6 a.m.

Playboy Entertainment Group, which owns and prepares programming for adult television networks, filed a lawsuit alleging the law was unconstitutional. The Supreme Court, although it acknowledged that many adults would find the material offensive, ruled that the law did violate the First Amendment because it sought to ban indecent rather than obscene material. Adults had a right to view such material. Moreover, the law only restricted signal bleed to sexually explicit content. This meant that the law was not content neutral and had to be judged using the strict scrutiny test. Although Congress had a compelling interest in preventing children from viewing sexually explicit cable programming, the method it had prescribed was too restrictive to the rights of adult subscribers. Therefore, the government had failed to justify a nationwide daytime speech ban. In so ruling, the Court found that another provision of the act, which permits cable customers to request complete channel blocking, was a better and legal alternative.

further readings

Arnesen, David W., and Marlin Blizinsky. "Cable Television: Will Federal Regulation Protect the Public Interest?" American Business Law Journal 32.

Gustafson, Madie D. "Transfers of Cable Television Systems: Regulatory Concerns at Federal, State, and Local Levels." Practising Law Institute/Patents, Copyrights, Trademarks, and Literary Property Course Handbook Series 380.

Lay, Tillman L., and J. Darrell Peterson. "Federal, State, and Local Regulation of Cable Television Franchise Transfers." Practising Law Institute/Patents, Copyrights, Trademarks, and Literary Property Course Handbook Series 405.

Markey, Edward J. "Cable Television Regulation: Promoting Competition in a Rapidly Changing World." Federal Communications Law Journal 46.

National Cable and Telecommunications Association. Available online at <www.ncta.com> (accessed June 4, 2003).

Parsons, Patrick, and Robert Frieden. 1997. The Cable and Satellite Television Industries. Boston: Allyn and Bacon.

Peritz, Marc. "Turner Broadcasting v. FCC: A First Amendment Challenge to Cable Television Must-Carry Rules." William and Mary Bill of Rights Journal 3.

Robichaux, Mark. 2002. Cable Cowboy: John Malone and the Rise of the Modern Cable Business. New York: John Wiley.

Sanders, Edmund. 2002. "FCC May Ease Cap on Cable Ownership." Los Angeles Times (December 12).

cross-references

Broadcasting; Telecommunications; Television.