As posted by: Wall Street JournalThe New Year got off to a happy start last week when media goliaths settled a dispute that had terrified toddlers and rattled their parents. The Viacom network had threatened to pull its 19 channels, including Nickelodeon with its "Dora the Explorer" and "SpongeBob SquarePants" cartoons, from the 13 million subscribers to the Time Warner Cable system.
This short-lived fight is a timely reminder for the new regulators coming to Washington that their best course of action is often to do nothing. Even in cases like this, in which consumers were intentionally put in the middle of a commercial dispute, it turns out they have plenty of power. Regulators increasingly can count on new technology to give consumers the protections they need.
Broadcasting remains a deeply regulated industry, reflecting its early days when regulators assumed that the airwaves would always be a scarce resource. Even cable operators are sometimes considered "natural monopolists," since there's a limit to how many companies will invest to dig cable in any city.
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But in this battle between the owner of distribution networks and the owner of the content, it turned out that the party holding the winning hand was the consumer. Both Time Warner Cable and Viacom had to bow to the power of consumer choice and the digital technologies that give customers access to programming in many new ways.
The game of chicken included Viacom advertisements that unless Time Warner Cable agreed to pay more, it would pull the channels, encouraging viewers to call to say they wanted their MTV and other Viacom channels. One ad asked, "Why is Dora crying?" Time Warner countered that consumers would pay more if its costs rose. Bernstein Research analyst Michael Nathanson noted that neither party could afford "mutually assured destruction." Viacom needs to find more subscription revenue as advertising revenues soften, while Time Warner Cable has to worry about satellite and telecom competitors.
New media was the new factor. Many popular Viacom shows are widely available on the Web, including on its own sites. When it looked as if Comedy Central would be pulled, Wired magazine helpfully posted a guide for accessing the shows on the Web, pointing out that Jon Stewart's "The Daily Show" can be accessed on Hulu and that "South Park" episodes are on Fancast. The best parts of "The Colbert Report" are often viewed as email attachments or as snippets on mobile phones.
During the negotiations, Time Warner Cable threatened to make it easier for its subscribers to connect laptop computers to their televisions so that Viacom shows could stream directly onto subscribers' televisions. The cable company also argued that it shouldn't have to pay more to distribute shows that Viacom made available free in other media. At one point, it looked as if Viacom might have escalated by trying to block Time Warner Cable broadband subscribers from accessing its Web sites to see its shows.
This is a very different technological environment from the one that created the prevailing regulatory approach and mindset. Back in the days when viewing meant choosing among three commercial broadcast channels, youngsters were perfectly satisfied when "Gilligan's Island" came on the local CBS channel once a week in its allotted time slot. This is as hard for young people to imagine as dialup Internet connections or telephones with cords.
Toddlers today who want to watch "Dora the Explorer" have endless options, well beyond waiting to see a scheduled program. They are at least as likely to pick the exact episode they want to watch on a digital video recorder, select a DVD or go to www.nickjr.com for access to video online.
This difference between the Gilligan and Dora generations applies to a broad range of policy issues. In 2004, when Viacom had a similar distribution dispute with the Dish satellite system, politicians got involved, warning of new regulations if the parties couldn't settle. Over the years, lobbyists have urged limiting the concentration of media ownership, though it was never clear how this would help consumers. This time around, politicians and regulators chose not to get involved. They understood that consumer choice means there's less worry about who owns what media and that Viacom and Time Warner Cable would have to settle sooner rather than later.
Advances in technology also mean fewer reasons to treat other networks as common carriers in need of regulation. Competition will best boost wireless access, not political maneuvering over who gets access to spectrum. Technology reduces the risks of monopoly power so long as government doesn't create new monopolies by picking winners or by suppressing innovation.
As Dora the Explorer learned in her most recent adventure, so long as competition remains strong, consumers get what they want in the market. There's no reason for tears.
