Regulation and Technological Change

1. Regulation and Technological Change Jonathan D. Levy Deputy Chief Economist Federal Communications Commission Washington, DC 20554 <jonathan.levy@fcc.gov> Presented to the Summit of Television Regulatory Bodies In Latin America 2005 Cartagena, Colombia 22 February 2005

2. DISCLAIMER The opinions expressed in this talk are those of the speaker and do not necessarily represent the views of the FCC or any other member of its staff.

3. OUTLINE • Goals of Media Regulation • Brief Summary of Technical Changes in Television • Consequences for Regulation

4. US Media Regulation Goals (1) • General Statements in Statute • Some Specific Implementation in Statute • Goals Elaborated and Much Implementation in FCC decisions and regulations • Media regulation limited by the US Constitution [1st Amendment Freedom of Speech Guarantee] • More stringent regulation permissible for broadcast television (free-to-air) than for pay TV)

5. US Media Regulation Goals (2) • General [from the Communications Act of 1934]: “to make available, so far as possible, to all of the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nation-wide, and world-wide wire and radio communication service, with adequate facilities at reasonable charges” • Policy Goals of Competition, Diversity and Localism articulated in FCC decisions • Media ownership regulation gives effect to these goals • Very Limited Content Regulation Goals • Access to Advertising for Political Candidates • Children’s Interests • Educational programming on commercial TV stations • Advertising limits on children’s programming • Indecency • Technical Goals (efficient spectrum use, limit interference)

6. Another Perspective on Media Regulation Goals: Australia • Section 3 of the Broadcasting Services Act contains 18 specific media regulation goals, including • To promote the availability to audiences throughout Australia of a diverse range of radio and television services offering entertainment, education and information • To promote the role of broadcasting services in developing and reflecting a sense of Australian identity, character and cultural diversity

7. The Impact of Technological Change • Increasing the range of viewer choice • Increasing the viewer’s control over content • Time shifting • Location shifting • Avoiding advertisements • Convergence is important but beyond the scope of this talk

8. A Brief History of Television in the United States (1) • 1950’s-1970’s: broadcast television with three network affiliates • [in larger markets, a few independent stations and some public tv] • 1970’s-1980’s: some increase in the number of broadcast stations and the rise of cable television [24% of TVHH subscribed to cable in 1980 and 56% in 1990] • 1990’s: substantial expansion of cable television and the advent of DBS in 1994 [67% of TVHH subscribed to cable in 2000 and 15.7% to satellite services— mostly DBS (1 meter dish) but some C-Band (2-3 meter dish)]

9. A Brief History of Television in the United States (2) • 2000’s: Continued expansion of pay TV [most growth in DBS] As of June 2004: • 61% of TVHH subscribe to cable • 21.4% of TVHH subscribe to DBS • 2.8% of TVHH subscribe to other pay tv services • Average household receives 14 off-air television channels • Most cable systems have 750 MHz or more bandwidth, offer over 200 Channels, analog and digital • DBS services offer around 300 channels including retransmitted local broadcast signals

10. New Developments • Digitization • DBS is all digital • One third of cable subscribers take a digital tier • DTT transition has begun [1% of TVHH can receive off-air, millions of others have high resolution monitors, just need set-top box] • The Personal Video Recorder • The Internet

11. Consequences of Digitization: “Traditional” Video (Domestic) • Expanded Transmission Capacity • Audience Fragmentation • Reduced viewing of Public Service Broadcasters: negative impact on content-related goals • Reduced viewing of Commercial FTA television in general: If these are more heavily regulated for content-related goals than pay TV, then negative impact on content-related goals • Reduced cost of transmission means lower entry barriers • more niche channels • greater diversity of program choice • more viewpoint diversity/political pluralism? Depends on ownership regulations

12. Consequences of Digitization: “Traditional” Video (International) • DBS (with small reception antenna) enables high-capacity regional services that cross national lines Examples: Sky and Galaxy Latin America • To realize scale economies that support viability, some need to harmonize regulation across countries Local content requirements Advertising regulation • Example of One Way to Address this matter: Argentina-US satellite protocol in 1998

13. Two provisions from Article VI of the Argentina-US Protocol “Any requirement for domestic program content and/or education and public interest programming should be limited to a modicum of the total program channels … Any such requirements may be met on a system-wide basis, that is, they do not need to be met on a per-channel basis” “Each Party acknowledges that a Party may impose non-discriminatory restrictions on program content and advertising, such as material involving obscenity, indecency, national security, and public health and safety concerns. Restrictions on the amount or origin of programming and advertising … will not materially hinder the distribution of programming and advertising to the national market of either Party or to the regional market.”

14. Consequences of Digitization: Copying • Unauthorized copying of content is more • attractive in a digital world • Multiple perfect copies without quality • deterioration • Easy redistribution (more on this later) • Content providers seek greater protection/ • control of distribution • Digital Rights Management [“DRM”] • US Examples are “Plug and Play” rules and • the “Broadcast Flag”

15. Consequences of Digitization: The Personal Video Recorder [PVR] • Enhances ability to timeshift • Enhances ability to skip advertising material • Possible responses include • targeted advertising • greater investment in “production values” of advertisements • product placements • BUT potential threat to the advertiser support model and therefore to use of commercial TV to advance social goals

16. Consequences of Digitization: The Internet • Low cost redistribution of digital content • A great benefit for those who wish to disseminate • their content widely • But also facilitates distribution of unauthorized • copies • Including Cross-border • Download using FTP can be peer-to-peer, from commercial source, or even from government/non-profit • Peer-to-peer can support authorized or non-authorized redistribution • Video streaming generally does not create a permanent copy on the user’s computer [but no reason why future technology could not support this] and falls into the • same general categories as FTP downloads

17. Regulatory Consequences • Political pluralism??? • Some US research shows that people seeking information about political issues on the internet end up mostly going to a few sites [partly a result of the way search engines such as Google operate] • Impact on use of commercial FTA television or even pay television to advance social goals • Internet content particularly difficult to regulate; blocking or limiting access to the world wide web would be a very intrusive measure • Impact on traditional media regulation • Will internet-based services substitute for • traditional television? • US survey shows Internet users spend one-third less time watching television than non-users • But only about one third of US households have broadband service and not all of that can support video of at least television quality. • Must consider “universal service” broadcasting goal before relaxing traditional media regulation

18. A Government Policy Response to Advance Social Goals • [Please remember this is my personal opinion] • Domestic content requirements do not accomplish goals if few people watch (unless the goal is employment in the sector rather than affecting • citizens/viewers) • Direct production and even distribution subsidies might make more sense • An example from the United Kingdom statutory review of public service broadcasting • Proposal for a “Public Service Publisher” which would have a “guaranteed stream of public funding” and be charged with “commissioning high-quality audio-visual content from a wide variety of external producers and distributing that content over a wide range of digital platforms.”

19. FOR MORE INFORMATION www.fcc.gov/Reports/1934new.pdf [ United States, Communications Act of !934] http://wireless.fcc.gov/rules.html[United States, FCC regulations] www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/0/3AF03D49BA04876DCA256F71004C5453?OpenDocument [Australia, Broadcasting Services Act 1992] www.ofcom.org.uk/consult/condocs/psb3/psb3.pdf [UK, Ofcom review of public service television broadcasting; Phase 3--Competition for quality] THANK YOU