Bullshit Analysis #1: Free TV is free

Bullshit Claim

Free TV is free.

Bullshit Quote(s)

“For more than eight decades, radio and television broadcasters have provided a free, over-the-air service to virtually every household in America.”

–Gordon H. Smith, President of the National Association of Broadcasters and former U.S. Senator, Testimony before the U.S. House of Representatives, Subcommittee on Communications, Technology and the Internet, December 15, 2009.

Bullshit Analysis

I disputed the TV broadcasters’ assertion that free TV is free  in Speak Softly and Carry a Big Stick (pp. 308-310) and in a working paper, The Myth of Free TV.

Broadcasters and their allies use “free TV” as a synonym for advertising supported commercial TV.  So-called free TV has received vast taxpayer subsidies.  Still, Americans have been abandoning it in droves, partly because the Free TV subsidies have been used to line the pockets of broadcasters, not provide enhanced Free TV.

Originally, radio and TV broadcasters had no choice but to provide free TV because there was no viable technology to exclude nonpayers.  When cable TV was introduced in the 1950s and 1960s, this changed.  It was now possible to cut off nonpayers.  In their lobbying campaign against cable TV, broadcasters coined the phrase “Free TV” to distinguish between ad- and subscription-supported TV.  Americans founds advertising clutter annoying and preferred the choice that subscription TV brought.  Today, about 90% of American households get their primary local broadcast TV signal via a cable or satellite subscription network.  Increasingly, many also get local TV programing via internet aggregators such as Hulu or directly from broadcast TV websites such as ABC.com.

In the mid-1990s, about a year after the Telecommunications Act of 1996 was passed, I remember interviewing a recently retired member of Congress who served on the U.S. House Commerce Committee and, like most members of that Committee, frequently mentioned  “Free TV”  during hearings and in other public settings.  During a private interview with him, I repeatedly referred to broadcast TV, just like members of Congress and senior FCC officials,  as Free TV.  I vividly recall him interrupting me and saying authoritatively: I don’t believe in “free lunches.”  Then he stopped using the phrase Free TV during the remainder of our interview.  Why hadn’t he said publicly what he evidently privately believed?  My guess is that most members of Congress, if they could speak off-the-record, would agree: there are free lunches, including over-the-air broadcasting.   Indeed, the public subsidies to over-the-air broadcasting make the recent public bailout of GM look like a pittance, despite the fact that the latter got front page treatment for months and endless op-ed page teeth gnashing.

How expensive is free TV per free TV household?  Broadcasters currently occupy about 294 MHz of retail spectrum (that is, over-the-air TV channels 2-51) , another 85 MHz of prime wholesale spectrum (for electronic newsgathering, such as linking reporters in the field to their TV stations), and several gigahertz more of much lower quality high frequency wholesale spectrum (for their back office operations, such as connecting TV stations to transmitters on towers).  Focusing on the 379 MHz of prime spectrum allocated to “free TV” (294MHz plus 85 MHz), we get a “free TV” spectrum market value in the ballpark of $152 billion, based on the $/MHz that broadcast TV spectrum fetched during the January 2008 spectrum auctions ($19.1 billion for 50 MHz of spectrum).

So broadcasters are tying up an asset worth approximately $150 billion to provide free, over-the-air TV service as a primary signal to approximately 10 million American households.   If we set the opportunity cost of spectrum assets at 8%/year, that comes to an annual taxpayer subsidy to the local TV broadcast industry of $12 billion or $1,200/household.  For approximately $300/year ($25/month), an American family can subscribe to basic cable TV or satellite TV service, including over-the-air broadcast TV channels and up to 100 additional channels.  Cable TV is accessible to about 99% of American households with satellite TV available to the balance.  All in all, paying $1,200/household for a service that can be purchased for $300/household would seem like a very poor deal for taxpayers–like purchasing the proverbial $1,000 hammers for the military.  Indeed, for $1,200/household Congress could purchase a high speed broadband subscription  for the great majority of over-the-air TV households, which would provide them with the infinitely greater free/ad-supported TV and print content available over the internet.

Unfortunately, this doesn’t include all the costs associated with Free TV, for Congress and the FCC have had a bad habit of subsidizing local broadcast TV indirectly by regulating and suppressing competitors.  I’m not going to cover these other costs here; they’re covered in great detail in my book, Speak Softly.  Let it suffice to say that Americans have been getting a raw deal for their huge subsidies for “free TV.”

Perhaps no better illustration of this raw deal is the story of Milt Maltz.  During the battle over cable must carry in the early 1990s, Milt Maltz chaired the National Association of Broadcasters’ Free TV Committee.    Broadcasters argued that to preserve free TV, Congress would have to give them the option to force cable companies to either 1) carry all their broadcast channels free of charge (“must-carry rights”), or 2) negotiate with broadcasters for the right of carriage (“retransmission consent rights”).    The country was blitzed with public service TV announcements, one featuring the revered TV anchorman Walter Cronkite, making the case for free TV (see chapter 14 of Speak Softly).  Milt Maltz owned a small chain of unaffiliated UHF TV stations.  (An unaffiliated station is one not affiliated with one of the major broadcast TV networks).   Cable must-carry to preserve “free TV” represented a goldmine for Maltz.  Less than a decade after Congress passed cable must-carry, Maltz sold his UHF TV stations for close to $1 billion.  Nowadays Maltz, briefly a U.S.  spy during his youth, may be best known for founding and running the U.S. Spy Museum in Washington, DC.   What did U.S. taxpayers get for the approximately $1 billion in spectrum assets and associated rights granted to Maltz?  As far as I know, no government official has ever cared enough to ask this question.    My guess, however, is that those $1,000 hammers were a better deal for taxpayers.

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6 thoughts on “Bullshit Analysis #1: Free TV is free

  1. Hmmm…just where can you buy 100 channel cable tv service for $25/month? Total. No place I’m aware of. Documentation, please. Thanks in advance for the info.

  2. Hi John:
    As of a year ago (I haven’t checked recently), Comcast offered a basic tier of local and other channels for about $15/month. In my personal experience, Comcast doesn’t advertise this package (nor does it go out of its way to hide it) because it doesn’t want people to subscribe to it. In some cases, this basic package may be part of the franchise deal. I remember that when Cablevision won the Boston area franchise in the early 1980s, the mayor touted that he had secured basic service for $2.95/month. Salespeople going to homes were told not to mention that package price. I remember when a Cablevision salesperson knocked on my parents’ door, my parents said they wanted to purchase the basic plan and the salesperson essentially refused to sell it to them. I haven’t had that problem subscribing to basic service in Anne Arundel County.

    As for the large channel packages, I noticed that as of December 22, 2009 Echostar/DishTV had a package with more than 120 channels for $24.99. See http://dishtv.com/programming_2010.jsp. The listing says the price is only for 12 months, then it reverts to $39.99/month. As a reference point, many small terrestrial, over-the-air TV markets only provide a handful of TV stations.

    –J. H. Snider

  3. Pingback: An Introduction to Broadcast Band Bullshit | Broadcast Band Bullshit

  4. FCC should be organizing and coordinating bandwidth, instead it has become a revenue source for irresponsible government spending. Americans just surrendered most of the Air Broadcast Television (Free TV) bandwidth, being forced into digital service (which may be better if you are close, but it is exponentially terrible if you are further away from the broadcast source), and now they want to make it even harder for them to provide decent programming.

    I pay nothing a month, and have 25 channels, several of which are in english. Many of you are either too young to know or remember that when cable TV came out, the big selling point was “paid programming means no commercial interruptions”. You can see how long that lasted! Air broadcast is a public service to the public, it pays for itself with commercials sold to business who wants to reach the public, and the public supports those businesses (or not) for providing the programming. I will campaign vigorously against those that would like to take my few remaining choices. I pay for DVD’s, I’ll pay for movies, I’ll subscribe to Public TV stations, I pay for internet connection, and watch the commercials that go with the programming I stream there. But I will not stand quietly while the ruling capitalist class continue to erode the opportunity for equal access to entertainment and information. In retrospect, I wish I had done something to preserve a few analog channels as well, but that’s history.

    Not collecting a tax is not the same as a government subsidy. Americans want Broadcast Air TV and Radio, if politicians didn’t know that, they would be rising up to be associated with this, but instead, they will hunker down, and slide it through, just like the loss of UHF/VHF broadcasting. I will vote to elect Satan’s nanny before I re-elect the goober that takes away my TV. and if you think it’s just 10million of us, then you just go ahead and try it.

  5. – “Americans have been abandoning broadcast TV” because HDTV is not reliable not because they want more choices. Broadcasting HDTV could have been done right and made better than analog but it was not.

    – “basic tier of local and other channels for about $15/month” BUT it’s not HDTV.

    I’m sure congress will figure out a way to kill free broadcasting which is what they wanted from the start.

  6. Yeah and what’s on Pay-TV? Endless commercials. Idiots singing in your face,
    jumping up and down like monkies. Homosexuals and cheap women and
    food gluttons. I’m about ready to tell the entire television industry to go take a hike.
    And the same for the radio broadcast industry as well.

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