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 nonexistent.
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 (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.