An article by Gareth Locksley in the June 7983 issue of Telecommunica- tions Policy argued that a major be- nefit of cable 7V for the UK viewer would be increased choice. In this response, Richard Collins questions whether real choice wiil be extended by cable and examines the syllogism put forward by Locksley: cable = competition = efficiency = progress.

Richard Collins is a senior lecturer in Film and Media Studies in !he School of Communication, The Polytechnic of Central London, 18/22 Riding House Street, London Wl P 7PD, UK (Tel: 01 4883811).

For a fuller exposition of these arguments, see R. Collins ‘Broadband black death cuts queues: the information society and the UK’, Media Culture & Society. Vol 5, No 3/4,1993.

‘Gareth Locksley. ‘Cable as choice’, Te/e- communications Policy, Vol7, No 2, June 1993, pp 99-99.

Comment

Will choice be extended by cable?

Richard Collins

Gareth Locksley’s article ‘Cable as choice” recycles uncritically the stan- dard arguments of cable advocates in the UK whether in or out of govem- ment. However the assertion that, ‘Choice is the dominant feature of cable that will stimulate efficiency and progress’ demands more scrutiny. To the rhetorical question, ‘Don’t you want more choice in television?/more efficiency?/more progress?‘, there is of course only one answer. It is, however, not clear that the UK gov- ernment’s cable initiatives will extend choice, efficiency or progress, and that competition ‘between multifarious channel operations in bidding will promote efficiency and a deep concern for the wishes of the customer’, as claimed by Locksley. History provides many examples of anticompetitive practices between suppliers of goods and services animated by a deep con- cern for themselves rather than for customers (hence the US Sherman Anti Trust acts, the West German Kartelamt, etc). The evidence points to other conclusions than those drawn from the examples of the ostlers resist- ing the railways, that is Lord Hunt’s favourite, and the carriage makers stopping automobiles, cited by Gareth Locksley. Much of ‘Cable as choice’ is simply assertion of a set of ideological syllogisms made fashionable by the governments of Mrs Thatcher and Mr Reagan. I propose to examine the main issues raised by Locksley’s arti- cle. Will choice be extended by cable, is extension of choice an overriding and pre-eminent aim for public policy, and is the syllogism dominant in ‘Cable as choice’ true: Does cable =

TELECOMMUNICATIONS POLICY March 1984

competition = choice = efficiency = progress?

Competition is neither guaranteed by the mechanisms of the marketplace nor is necessarily the best means of promoting economic efficiency or other goals societies may choose to espouse. Competition is a notoriously inefficient means of delivering ‘public goods’. For example, it is in no indi- vidual producer’s interest to raise costs of production by installing anti- pollution devices although it is in the public interest. It is not necessarily true that competition leads to choice. Producers may reduce consumer choice by cartel agreements or by competition leaving the market to a single producer which then, if unreg- ulated, is able to act in ways which will tend to serve its rather than customer interests); nor is it necessarily the case that choice is an overriding public interest - the choice exercised by an individual may be disadvantageous to the social whole. Therefore it remains to be argued whether the public in- terest will be best served by the extension of choice canvassed by Locksley - extending a four channel terrestial broadcast television system with a ‘modest 24 channel cable TV system’. Locksley overlooks the fact that this ‘extension of choice’ will probably only be available to the urban population. Nor does he give adequate consideration to the likely impact of cable on broadcast televi- sion, although that impact is unlikely to be a simple addition of extra services but rather is likely to change the nature of existing services.

The establishment of a system of

7

Comment

‘The effect in the cultural field will be to increase dependency and reduce choice’

‘The Development of Cable Systems and Services, Cmnd 6666, HMSO, London, 1963. 3The British Film Industry, Political and Economic Planning, London, 1952.

‘electronic highways’ is proposed by the UK government in order to avoid, as the cable White Pape? puts it, the UK ‘finding itself increasingly depen- dent on others, culturally as well as economically and industrially’. However, the effect in the cultural field - that chosen by Locksley to root his case for cable extending choice and by the government for ‘selling’ cable to the UK public - will be to increase cultural dependency and reduce choice.

In the UK, as in most European countries, the broadcasting order has been constrained by shortage of spec- trum capacity relative to that outside Europe, eg in the USA. The geog- raphical proximity of European coun- tries has permitted fewer channels for terrestrial broadcast services in a sing- le country than elsewhere. It is argued that this shortage of spectrum capacity has both necessitated and legitimized regulation by the state and that in a number of European countries a for- tuitous ‘fit’ has developed between the resources available for national prog- ramme (software) production and the capacity of the distribution system. This ‘fit’ has resulted in a stable broadcasting system ecology in which national broadcasting systems distri- bute substantially indigenous product, offering a model instance of the plan- ned evolution of a viable and popular national cultural industry. France, West Germany and the UK exemplify the ‘fit’ and the health of their broad- casting systems compare favourably with the crises of small countries such as Denmark, the Netherlands, or Bel- gium in which the revenues generated (whether from the sale of broad- casting receiving licences, levies on the sale of receiving apparatus or components, from advertising or directly from the state budget), are insufficient to fund the quantity and quality of programme material re- quired for the capacity of the terrest- rial broadcast distribution system.

The introduction of new distribu- tion technologies, whether cable or direct broadcast satellites separately or in conjunction, will upset this com- fortable symbiosis by expanding dis- tribution channels, creating a demand for software that cannot be met by the

national production industry. The consequential importation of software from overseas will attract audiences away from existing services and re- duce the revenues accruing to existing services (whether by having smaller audiences to sell to advertisers or by reducing the political acceptability of expenditure from the state budget or the levying of broadcast receiving licence fees), thus reducing the quality of indigenously produced software and initiating a spiral of decline. The history of the film industry in the UK is the classic example used to support this melancholy prognosis. The PEP report defined the problem thus:3

The British film industry could not pay its way without a substantial export market. The home market could not compare with the home market of the American industry which was already several times as large. As soon as American production expanded and with its expansion introduced a new and more expensive type of film, there was no longer the same demand in the United States for British films which were of a cheaper and less polished kind. Without an overseas market British producers could not afford to increase the quality and consequently the expense of their films and without that extra quality they could not hope to compete with the Americans . Even in these days of sound the film trade is an international one and the American industry with its enormous home market has most of the advantages. Although in the history of film production many mil- lions of pounds have been wasted, the fact remains that in all but exceptional cir- cumstances the making of films which are both commercially and technically good costs a great deal of money; because of the extent of their home market the American producers are in the best position to meet financial necessities.

These remarks concerned with the pre-first world war period still applied after the second. UK film production had a precarious existence because of strong US competition and the high capacity of the film exhibition sector.

The television programme produc- tion industry has enjoyed better for- tunes because distribution capacity has been restricted. New broadcast channels have been opened as and when revenues were available to sup- port domestic production to fill the 86% British distribution/exhibition quota. The capacity of the radio spec- trum for broadcast television has not yet been exhausted in the UK (nor, in

8 TELECOMMUNICATIONS POLICY March 1984

‘Choice rapidly becomes more of the same’

4B. Winston, ‘Unusual rubbish’, Sight and Sound, Summer, 1982. 51n 1982 broadcast television in the UK was estimated to cost between 1.5 and 2 pence per viewing hour (A. Ehrenberg and T. Barwise, How Much Does UK Television Cost?, London Business School, London, 1982).

most markets, in the USA). But there is evidence in the legendary losses of TV-am (at their peak f1.6m per month), the derisory revenues accruing from Channel 4’s sale of advertising imposing ‘intolerable’ (Thames TV chairman Hugh Dun- das’s term) burdens on the ITCA companies and cutbacks in their pro- duction schedules, that television dis- tribution capacity in the UK has already been stretched beyond the point at which 86% of its requirements can be supplied by adequately fi- nanced, high production value, domestically produced programming. TV audiences in the UK regularly choose to watch British programmes; it is seldom that US or other foreign programming rises above eighth in the ratings. No doubt audiences would welcome the opportunity to choose to watch alternative programming on the ‘modest’ 24 channel system Locksley imagines. But the evidence from the countries in which such systems exist is that choice is not extended by the provision of a 24 channel system and that television programming can be more ‘efficiently’ delivered (if cost per viewer hour is a measure of efficiency) by the existing UK broadcasting order than by cable.

In the USA, pay television (ie cable used other than as a relay for broad- cast television) is of doubtful financial viability: of the services on offer only one, Home Box Office, is making assured profits. One wonders how well comparable UK operators will be able to compete with the neighbour- hood video shop which often pay no copyright fees and do not need to amortize the costs of an expensive infrastructure. In summer 1982 the Financial Times reported losses of between $10 and $15 million for Getty Oil’s sports network (ESPN), in 1981 the Turner news network lost $13m and the channels offering innovative programming (choice?) eg the culture channels, have folded. One writer describes the ‘choice’ offered by Man- hattan pay cable thus:

In any given month those services offer around fifty one per cent identical product. Over six months they played Rocky II 44 times, The Mupper Movie 37 times, Justice

TELECOMMUNICATIONS POLICY March 1984

Comment

for All 30 times, Close Encounters 41 times and Superman 53 times.4

Canadian experience of pay TV is similar. In the first nine weeks of pay TV, viewing of pay channels repre- sented less than 1% of TV viewing in Canada. Not surprisingly the culture channel achieved only 27000 subscri- bers and went into receivership. The largest operator, First Choice (275000 subscribers), has admitted to being over-extended with less than 6% of cabled homes subscribing. Between May 1983 and August 1983, pay TV subscriptions declined 6%.

In the UK, pay cable experiments operators charged subscribers be- tween f6.50 and f9.95 per month and succeeded in attracting less than 7% of homes passed by cable to subscribe. At these rates (where the cost of the cable system could be regarded as a sunk cost) subscribers would have had to consume 10 to 15 viewer hours per day to enjoy comparable cost/benefits to those of broadcast television5

Pay TV in North America is of doubtful financial viability. Neither it nor the UK experiments suggest that audiences value particularly highly the extension of choice pay cable offers. Even should audiences subscribe to cable services sufficiently to render them profitable and promote the ex- tension of cable to the 50% coverage of the UK that optimistic estimates predict, the long term effect of cable may be to reduce effective choice. It is appropriate that Locksley’s article be- gins with a hype for the New York Museum of Broadcasting and the trea- sures of the world TV and movie software libraries. For information goods with some exceptions (eg news and some sport and financial informa- tion) are relatively unperishable and inexhaustible by consumption. De- spite TV viewers’ legendary distaste for repeats, British television is able to successfully schedule I Love Lucy, The Phil Silvers Show and The Muns- ten. Choice rapidly becomes more of the same.

If we examine the Canadian broad- cast television (and cable as relay) market we find that expansion of distribution capacity and cross border spillover of US signals has fragmented Canadian audiences and the revenue

9

Commenl

‘Any provision of new services fragments the audience for existing services and diminishes the revenue base of all services’

‘There is no evidence to suggest that cable will offer viewers a more efficient system with more choice’

6F. Fox, Programming and Nationhood: the Challenge of Change, Department of Communications, Ottawa, 1980, mimeo.

base per programme hour to such an extent that Canadian broadcasters are reluctant, unless compelled by legisla- tion or induced by subsidy, to produce television programmes in Canada.

Any provision of new services - any extension of choice - fragments the audience for existing services and diminishes the revenue base of all services. Thus revenues available for programming, for production, tend to decline unless more television is con- sumed. And viewing hours tend to be fairly inelastic; there is, after all, only so much time in each week for televi- sion. Given this general tendency for revenue to decline with additional services, broadcasters are compelled to purchase programmes from the cheapest source, ie the US majors, who enjoy a domestic market ten times the size of the Canadian market and are able to amortize high produc- tion costs fully in their domestic mar- ket and treat export markets as jam for the bread. Canada has traditional- ly been a most important export mar- ket for US film, and US producers of product for television distribution and exhibition continue to be able to sell profitably in the Canadian and other export markets. Hence the imposition of quotas for Canadian content of 60% between 6 am and midnight, and 50% content between 6pm and mid- night (for CBC stations 60% between 6 pm and midnight, a quota that CBC exceeds) and in Britain a limitation by the IBA of non-British-non-EEC material to 14%.

Canadian broadcasters, able to purchase US programming costing $500000 per *h hour for $150006 are able to obtain an average margin per half hour of $21000 from US program- mes compared to $55 from Canadian production; the disincentives to offer- ing an alternative to US product and extending viewer choice are evident.

If we survey the limited experience of cable in the UK and the experiences of Canada and the USA there are grounds for scepticism as to the truth of the syllogism cable = competition = choice = efficiency = progress.

The expansion of distribution capacity that cabling performs frag- ments audiences and the potential revenues for production. Audiences

may experience an initial period in which choice is extended by drawing on archive material or opening pro- tected markets to foreign signals. However, revenues for new program- me production decline and, unless national legislation and/or subsidy policies interfere, so does production outside the largest markets and by the most efficient producers. The cost of providing the cable infrastructure and purchasing or producing programming exceeds the costs of terrestial broad- casters (whether in markets like the UK where entry has been curtailed by state policy or in the USA where spectrum space is still available and the FCC by and large encourage en-

try). In the UK, the anti-competitive

practice of the Home Office, the IBA and the BBC have contrived a regime in which British audiences are able to watch programming of high produc- tion values and British producers are able to sell successfully on world markets a product that is distinctively different to that of competitive pro- ducers and at the low costs an ‘effi- cient’ regulated terrestial broadcast semi-monopoly system permits. There is no evidence to suggest that cable will offer viewers a more efficient (lower cost per viewing hour) system with greater choice (between real alternatives). Rather the experience of the British film industry and the Canadian TV industry suggest that expansion of distribution capacity will fragment audiences, lower the re- venues per programme hour available for production, will necessitate prog- ramming being purchased from the producers controlling the largest mar- kets and will make impossible the production of the British program- ming that the ratings suggest British audiences prefer.

The cultural dependence feared by the authors of the cable White Paper is likely to be accelerated by the cabling of Britain. They may think that a price worth paying for an interactive com- munication infrastructure that will permit Britain to establish an informa- tion society that is not dependent on others industrially and economically. But all the interactive services canvas- sed - including security with slow scan

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TV and videoconferencing with the GEC McMichael video compression system - with the exception of high speed bulk data transfer (for which no large residential market can be fore- seen) can be delivered over the nar- rowband infrastructure now substan- tially in place. The downside risks to the British cultural industries (reck- oned to employ 5% of the UK work- ing population) in a cabled Britain are very high. Consumer choice in enter- tainment is unlikely to be advanced, and if electronic highways, interactive services and an information society is the goal to which cable is to drag Britain, would not extension of basic telephony to the 20-25% of the population denied it, more rapid digi- talization and improvement of the narrowband network and reduction in cost of terminals for interactive ser-

‘Maybe cable providers will vices be a more powerful locomotive

lose their shirts in providing to achieve that goal? Moreover there

an infrastructure that no one is considerable room for discussion as

needs’ to whether the kind of efficiency sought and valued in the steel and shoe industries are appropriate for the

Comment

cultural industries. They may be ones in which the public interest is best served by the state’s finger on the scales and anti-competitive practices. That’s as may be. However there is ample evidence that competitors do not always act in the interest of the customer, that some services are natu- ral monopolies to which the competi- tive market model does not apply and that the neat competitive market en- visaged for cable in the UK does not correspond to the real world. Maybe cable providers will lose their shirts in providing an infrastructure that (as it was with many of the railway lines laid in the nineteenth century) no one needs. In the long run the market will prefer the efficient provider of goods and services that consumers desire. Perhaps. But a goal of public policy is surely to avoid the debacles of succes- sive over-investments in infrastructure rather than abstain in favour of the invisible hand of the market. It is in no one’s interest for a lot of useless holes in the ground to be dug in the name of choice, competition or progress.

TELECOMMUNICATIONS POLICY March 1984 11