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Understanding the Racket

It's a Small, Rich Club

Let's start with the consolidated ownership of cable networks: 4 companies own the 10 networks with the highest programming fees; and, 6 mega-media companies own the 20 networks with the highest programming fees. Put differently, 6 companies pretty much rule Expanded Basic. Sports Fans

Now, let’s add a generous dollop of cross-ownership to our batter of consolidation. For example, Time-Warner, the second biggest cable company, owns 8 cable networks, 5 of which are typically included in the Expanded Basic tier. Comcast, the biggest cable company, owns all or a majority stake in 7 smaller cable networks (with 1 typically in the Expanded Basic tier).

Now, frost this fetid cake with the all-important high fat fact that 5 of the biggest cable network owners are also big time owners of local broadcast television stations (and are affiliated with hundreds and hundreds more broadcast stations).

The end result is a rotten robber-baron cobbler - chock full of smoke-filled, backroom shenanigans - that hits consumers right in their pocketbooks. Click here to see exactly who owns what.

In all of this, the most painful con being run on consumers is what economists call tying. This is when one product or service cannot be bought without another. For example, NBC/Universal, the owner of CNBC, MSNBC, USA, SciFi, Bravo, and other networks, makes it very attractive for cable companies to "take them all," and very hard (read economically punishing) for cable companies to "pick and choose" only the nets they want. This rolls right up to consumers because the cable companies' contracts with NBC/Universal make promises to NBC/Universal about how many subscribers its many networks will reach. If the cable companies fall short of the promised "subscriber guarantees" the programming rates are subject to increase and/or the carriage deals may be revoked.

Now, add to this terrifying tying the important fact that NBC/Universal also owns the NBC and Telemundo broadcast television networks. Cable companies must secure permission (so-called "retransmission consent") from local broadcast affiliates to carry the affiliate over the cable system. Permission is, as you can imagine, tied to compensation. A favorite form of compensation is, "We'll ‘give' you the right to retransmit NBC and Telemundo if you carry not only our ‘good stuff' (read our marquee cable networks), but also all the new and/or minor networks we have."

Remember NBC/Universal is just one example. The tying racket is equally valid for News Corp. (Fox), Disney (ABC) and Viacom/CBS.

Competitive Look-Alikes

On the face of it, the tying game sounds pretty awful for consumers and cable companies. For smaller cable companies it is a particularly challenging problem. They are essentially forced to buy a lot of expensive programming (at rates that are, by the way, much higher than what the big guys buy it for) and they can't even think about selling the programming on an à la carte basis (for fear of violating "subscriber guarantees" and/or paying impossibly high programming rates). This is why the packages offered by cable's potential competitors look and feel so much like the same old cable packages. This is how big programmers and big cable companies work together to keep the industry non-competitive.

But for the big cable companies there is a silver ... er ... gold lining associated with tying. The networks badly want a place for their new network concepts to grow big (or, to at least make some money). So, to continue the NBC/Universal example, networks like Sleuth, Chiller and Sundance Channel are the ones "thrown in" to their carriage deals with cable companies for very low (and in some cases no) programming fees (really in exchange for not paying to carry NBC). These new/minor nets are then offered to consumers in "tiers" with very fat margins – margins that the cable company cannot garner in the Expanded Basic tier. The "tiers" above and beyond Expanded Basic are, as every consumer knows, organized so that getting the one or two things you may want requires buying a tier for, say, $10+ that includes a whole lot of things you don't want.

Tit for Tat, A Tier For Fat

Right now cable companies are in a big fight with the NFL over the NFL Network. The cable companies are making a lot of noise about how their fight to keep the NFL Network off of Expanded Basic is for the good of consumers. That's more deceptive than the ol' Statue of Liberty play. Yes, the cable guys know that non-sports fans are getting tired of paying big bucks for sports networks. They also know that by putting NFL on a digital tier they can sell a lot more of that digital tier and make a boatload of money. Mostly, the big cable companies dare to tangle with the NFL because the NFL doesn't own a bunch of other networks and the big cable guys don't own a piece of the NFL. Regardless, bundling in digital tiers is pretty close to as rotten as bundling in Expanded Basic. If cable's fight with the NFL is really about serving consumers, why not just let people choose and pay for what they want? Blasphemy! That business isn't as fat as the business they're in.

Hello Sherman and Clayton

Government has tried to deal with this travesty in the past and failed. Though our representatives often started out with consumers' best interests at heart, the powerful lobbies of programmers and cable companies quickly derailed their well intentioned efforts. In the end, laws were enacted that arguably made things worse (e.g., the 1992 "Must Carry" laws that fueled the broadcasters' frenzied creation and acquisition of cable properties).

Cleaning up the tying scam may be a case where courts can do what elected representatives and bureaucrats cannot. The recent class action suit filed against the big cable companies and mega-programmers may go a long, long way in helping. It's time to bust the trust that has cost us all billions. Read the lawsuit.

Help us to expose the caHelp us to expose the cable programming racket. Tell your friends and family so that there is a greater national awareness of this issue. Contact your cable company, the mega-programmers, your elected representatives, the FCC, the FTC and the courts, and tell them How Cable Should Be. Cable subjected to the marketplace of consumer choice will be different than cable today. It will be far better! Click to pick your networks and be heard.

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