Free TV is free.
“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.
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.