The Feds Should Stay Out of the CBS Blackout

From Los Angeles to New York, 3 million Americans in eight U.S. cities haven't been able to watch CBS on cable for weeks, because of a business dispute between the network and Time Warner Cable (TWC). The two companies can't agree on how much TWC should pay to carry CBS, so the network has blacked out TWC subscribers since August 1. With the NFL season kicking off on September 8, the timing couldn't be worse for football fans.

Regulators at the Federal Communications Commission (FCC) face growing pressure to force the feuding companies to reach an agreement. But despite viewers' frustrations with this standoff, government intervention isn't the answer. If bureaucrats begin "overseeing" disputes between network owners and video providers, television viewers will face higher prices or lower-quality shows.

TWC and CBS are playing hardball over serious cash. CBS reportedly seeks to double its fee to $2 per subscriber each month, which TWC claims is an outrageous price increase. But CBS argues it costs more and more to develop hit new shows like Under the Dome, so it's only fair viewers pay a bit more.

Both sides have a point. TWC is looking out for its millions of subscribers — and its bottom line — by keeping programming costs down. CBS, on the other hand, needs cash to develop creative new content, and hopes it can make some money doing so.

What's the "fair" price for CBS? The answer lies in the marketplace, which empowers firms to "discover" prices through negotiation. Both CBS and TWC have strong incentives to end this dispute — their shareholders won't put up with this dispute forever. CBS can't be happy about losing a reported $400,000 each day TWC subscribers can't tune in, while TWC is surely losing customers to competing providers — including Verizon, which is aggressively wooing New Yorkers with its CBS-equipped FiOS service.

If the FCC intervenes, it must decide how much TWC should pay CBS. Regulators may be able to read charts, but they can't read minds. How, then, can the FCC divine how much value the two companies and their customers place on these competing priorities? Given how Washington works, the feds will probably bend to whichever side hires the best-connected lobbyists and influence peddlers.

As long as networks are free to bargain with video providers, television blackouts will happen — but not often. According to economist Jeffrey Eisenach, blackouts disrupt less than 1 in 10,000 viewing hours for consumers. Disputes over fees rarely interrupt programming because they infuriate viewers, ultimately harming networks and cable companies alike. But this hardly means blackouts should be illegal. Imagine a labor union that couldn't strike — no rational private-sector employer would take its wage demands seriously.

Why should cable companies pay for broadcast networks in the first place, given that broadcasters transmit their networks over the air for free? Because consumers prefer the convenience and reliability of network channels distributed by cable, and in order to satisfy this preference cable companies need access to material that does not belong to them. This access requires negotiating with the networks.

The alternative isn't forcing networks to give their content away for free, but rather for cable subscribers to pay slightly lower bills but lose broadcast channels — which they could still watch via antenna, just like everyone else. If customers preferred this, cable companies would happily stop paying broadcasters. As it is, cable consumers are paying more for convenience by choice, not unlike someone who goes to a weekend movie for $12 when they could go on a Tuesday night for $7.

If the government truly wants to help television viewers, Congress should nix the unfair and anti-competitive legal perks that broadcast affiliates currently enjoy, such as the federal regulation requiring cable companies to buy broadcast content only from the local affiliates in each city. In other words, a cable company can't let New Yorkers watch primetime shows provided by any CBS station in the nation other than the New York CBS affiliate.

CBS and Time Warner Cable will reach a deal soon enough — they can't afford not to. Meanwhile, if you're sticking with TWC, you can still catch your CBS favorites over the air or on Internet platforms like Netflix, Amazon, and Hulu. So long as government stays out of the vibrant entertainment market, there will always be alternatives.