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McCain Introduces Cable, Satellite A La Carte Legislation

Sen. John McCain (R-Arizona) on Thursday unveiled legislation that would upend the cable and satellite business, forcing them to let customers pick-and-choose which channels they would like to get rather than take programming in bundles.

“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,” McCain said in remarks prepared to deliver on the floor of the Senate.

“This is unfair and wrong, especially when you consider how the regulatory deck is stacked in favor of industry and against the American consumer.”

McCain’s plans to introduce the legislation, first reported in Broadcasting and Cable, are expected to be met by stiff opposition from the broadcast and cable channels. Moreover, McCain, who was once the chairman of the Senate Commerce Committee, no longer sits on that committee.

SEE MORE: Why A La Carte TV Will Never Be

In a statement, the NCTA said that “a government mandated ala carte system 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.”

McCain’s bill, the Television Consumer Freedom Act of 2013, is designed to give cable and satellite operators an incentive to offer programming on an a la carte basis by linking it to the compulsory license that gives multichannel systems the right to carry broadcast channels. Under McCain’s bill, if the cable or satellite operator does not offer a broadcast station, or any other channel owned by the broadcaster, on an a la carte basis, they cannot rely on the compulsory license to carry those stations.

But introducing such legislation now seems timed to put the industry on notice at a time when rates have been rising, in part due to the costs of sports channels like ESPN. McCain’s legislation also includes a provision that could boost Aereo, the Barry Diller-backed startup that is being challenged by broadcasters for offering digital streams of their signals without their permission. The legislation calls for pulling broadcasters’ spectrum if they “downgrade” their broadcast content in favor of cable, as some have threatened in the face of Aereo’s legal victories. McCain said that the legislation calls for auctioning off that spectrum “if the broadcaster does not provide the same content over the air as it provides to” multichannel cable and satellite services.

Another provision would end the sports blackout rule when events are taking place in publicly financed venues or involve public financed sports teams. McCain also wades into the dicey area of retransmission consent negotiations, with a provision that in cases where carriage disputes that fail to reach agreement, both sides must disclose their final offer to the FCC.

McCain proposed an “a la carte” cable bill in 2006, but it failed to move through Congress.

McCain’s planned introduction of the bill comes as the Senate Commerce Committee prepares for a hearing next week on the state of the video marketplace. Among those scheduled to testify on Tuesday are Gordon Smith, president and CEO of the National Assn. of Broadcasters; Michael Powell, president and CEO of the National Cable and Telecommunications Assn.; R. Stanton Dodge, general counsel of Dish Network; and John Bergmayer, senior staff attorney at Public Knowledge.

McCain cited an FCC study showing that the average price for expanded basic cable packages has risen from $25 a month in 1995 to $54 today. He singled out ESPN, and the amount that it charges operators per household: $4.69 per month, according to SNL Kagan. The next costliest network, TNT, charges $1.16 from “about as many homes,” McCain noted.

McCain said, “Some have described this as a ‘tax on every American household.’ Others, like the CEO of the American Cable Association, have said, ‘My next-door neighbor is 74, a widow. She says to me, ‘Why do I have to get all that sports programming?’ She has no idea that in the course of a year, for just ESPN and ESPN2, she is sending a check to Disney for about $70. She would be apoplectic if she knew.”

He predicted a “revolt over the cost.”

Offering praise to McCain was the American Television Alliance, a coalition of consumer groups, cable channels and satellite companies. ” The org said McCain’s proposal addresses “the real and growing problem of outdated video regulations.” Among the partners in the group are Discovery Communications, Cablevision and Time Warner Cable, although it is unclear of what input they had in the org’s statement.

The American Cable Assn., which represents smaller and medium sized cable companies, said that they did not believe that “mandated retail ala carte for every channel offered is the answer,” but they praised McCain for taking a step to try to break the market power of programmers “to impose tying-and-bundling requirements on unwilling distributors.”

The cable business has long argued that ala carte would threaten programming diversity, as smaller channels wouldn’t be able to survive, and even medium-sized ones would not be able to achieve economies of scale if subscribers are signing up or dropping them on the basis of whether they have hit shows. They also argue that, in contrast to the last time that McCain proposed ala carte, consumers now have new options like Netflix and Apple TV, which offer their own programming as well as buzzworthy cable offerings like streams of “Mad Men.”

The legislation will face the initial hurdle of drawing the interest of the current chairman of the Senate Commerce Committee, Sen. Jay Rockefeller (D-W. Va.). A spokesman did not immediate respond to a request for comment.

David Bank of RBC Capital Markets wrote in a research note  that there is “little hope of the bill gaining real traction,” noting, among other things, a lack of co-sponsors.

It also would likely face hurdles if similar legislation were offered in the House, where the cable industry would push the argument to the Republican majority that it represents government interference in the marketplace, even as McCain argues that it is regulation that has helped create the current environment. Moreover, the cable biz also can point to lawmakers themselves: In a pure ala carte scenario, C-SPAN would also be subject to the whims of the consumer.

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