Transformations in broadcasting policy

For Owen and Wildman (1992:1) few industries have been as revolutionised by regulatory reform and technological change as the television business. Government policy initiatives and regulatory measures, Doyle (2002:161) reminds us, strongly influence the economic performance of media markets. Key stages in the transformation of television sport are linked to wider media policies including deregulation in the US and UK and to technological changes that challenged established methods of television distribution and addressed basic market failure. Television sport is very often at the frontline of such changes.

Considering media policy the US Federal Government (followed by the Federal Communications Commission) licensed frequencies in a system of broadcasting that, for Owen and Wildman (1992), continued the

concentration of economic power that had evolved in radio broadcasting. Corporate interests had been quick to grasp the commercial potential of radio as an advertising-funded medium4 _{and, according to Herman and} McChesney (1997:14), large corporations used political leverage to seize control of the television industry before a public service system could be established. The economic forces that favour mass consumption of media messages are reinforced by the simultaneous production of audiences for sale to advertisers as a dual output (Owen and Wildman, 1992:151; Picard,

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Selling programmes to sponsors was an early solution to market failure, a way to collect value from broadcasts.

1989). Consequently, advertising fuelled the US television boom of the post-War period. As with any oligarchical system, argue Owen and Wildman (1992:16), a myth of social responsibility evolved; the myth (that US

audience interests were served rather than those of advertisers and shareholders) helped to rationalise the privileges of the wealthy few. And those few were the major US networks whose dominance and economic self-interest was protected by the FCC (through restrictions placed on granting broadcasting licenses).

Addressing basic market failure in the UK a public service broadcasting (PSB) system was adopted, with funding provided via a licence fee paid by the consumers of broadcasts. The BBC, argue Curran and Seaton (2003), was founded on a rejection of market forces and politics insofar as the British government considered that broadcasting demanded a new form of administration with social and not financial priorities. The UK government established the publicly owned BBC as a vertically integrated programme maker, channel provider and broadcast distributor (Szymanski, 2006). Television in the UK was developed as a monopoly and, as Owen and

Wildman (1992) note, there is a sharp distinction between the behaviour of a monopolist and the behaviour of a competitive industry.

With such contrasting starting points – in the US, professional sports broadcast on commercial advertising-funded networks and, in the UK, amateur sport aired via a public service monopoly – how, by the early 1990s, the UK had gravitated so far towards a more US consumer-oriented model for sports broadcasting, to the extent that it is the similarities and

not the differences that stand out, is a relevant argument. The deregulation of broadcasting markets played a crucial role in the US and the UK.

Deregulation in US broadcasting

Until the early 1970s the Federal Communications Commission (FCC) had protected the networks (NBC, CBS and ABC) from external competition during a period marked by increasing demand for national audiences by advertisers – less competition and more income was an attractive formula for the networks. FCC protection took the form of highly restrictive

regulations on cable operators in 1966, 1968 and 1971 and also on pay-TV. However, the political foundations of the networks’ protected position began to unravel in the early 1970s. As part of a wave of wider neoliberal reforms, the cost of national video distribution to broadcast and cable outlets began to drop following the FCC’s open skies policy for domestic communications satellites. The regulator then made it illegal for the broadcast networks to continue to provide financing (to produce television series) in return for a share of the back-end profits, usually from syndication. By 1972 the

networks were forced to divest all their interests in syndication businesses. In 1974 an FCC antitrust lawsuit restricted in-house production of network prime-time entertainment series and option terms for rights and, in 1975, the FCC’s prime-time access rule became effective. Together, these reforms are often referred to as the FinSyn rules.

Significantly the artificial scarcity of spectrum - that had been an original barrier to entry in broadcasting - was no longer effective in protecting the networks from competition. The gates were beginning to open. In the second half of the 1970s the courts overturned the FCC’s restrictions on

pay-TV, including most of the remaining restrictions on cable television (Owen and Wildman, 1992). Among the consequences of this political activity the broadcast networks turned more of their attention towards producing in-house sports and news programmes, activities that were not restricted by regulation policy. The rise in popularity of the NFL on US network television during the 1970s is, at least in part, a consequence of broadcasting deregulation and the FinSyn rules.

Increased competition among US media providers

As FCC regulations concerning cable networks in the USA became less restrictive two new channels entered the market: in 1976 it was Ted

Turner’s Turner Broadcasting (TBS) and, in 1979, Bill Rasmussen launched the 24 hour-a-day cable sports broadcaster ESPN5_{. In the late 1970s and} early 1980s competition among the 3 major US networks intensified with the emergence of new cable networks. Whilst the arrival of CNN, and later CNN Headline News, triggered an overall increase in news production, TBS and ESPN signalled important shifts in the relationship between sports and television in the USA. For example:

1) There was an immediate increase in the demand from media providers for broadcasting rights for a wider variety of sports to fill longer on-air schedules.

2) The established terrestrial broadcasting paradigm was altered by the addition of new delivery platforms that bypassed the existing

networks and their advertising sales divisions.

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Turner purchased the Atlanta Braves Major League Baseball franchise to provide cheap programming for his network, whilst Rasmussen purchased a continuous 24-hour satellite feed because it was cheaper than buying separate blocks of time.

3) Cable provided a technological solution to long-term market failure insofar as it introduced a means of charging and collecting revenue directly from customers via subscriptions. In economic terms, the willingness-to-pay of cable customers was, in some cases, now greater than the willingness-to-pay of advertisers.

In commercial television advertiser-valuations of the audiences generated by programmes determine which programmes are provided, also known as product competition (Owen and Wildman, 1992). In a pay-TV model content is also determined by preference and is sold directly to viewers,

consequently competition for viewers is based on a combination of product and price. A number of analysts, including Spence and Owen (1975, 1977) have argued in favour of a competitive pay-TV industry and point to the explosive growth in cable penetration and VCR ownership since 1975 as evidence of (a) viewers’ willingness-to-pay and (b) a previously restricted market. However, Gratton and Solberg (2007) counter that US subscription- based channels have often been regarded as a supplement rather than as a full competitor to terrestrial free-to-air-channels6_{. This is an important} point. For sport, the free-to-air US networks have retained a comparative competitive edge over the pay-TV channels because, as Jay (2004) points out, television sport is a medium for renting audiences to advertisers, so the ability to deliver large audiences combined with frequent breaks in play was a compelling package for advertisers. This helps explain why, in

contrast to the UK, US Major League sports retain a strong presence on the free-to-air terrestrial broadcast networks where, as Evens, Iosifidis and Smith (2013:211) argue, demographics also play a role as “broadcasters

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On arrival in the UK in 2009 ESPN described itself as a supplemental channel and not direct competition to Sky Sports.

bid for those rights that are in line with their branding position and relevant target audience”. Szymanski (2006) adds, in the USA, that the structure of the sports broadcasting market, rather then regulatory intervention, has prevented a full migration to pay-TV platforms.

British broadcasting and deregulation

Deregulation played a significant part in determining economic practice in media markets in the UK, particularly television sports. The Annan Report (1977) was an early victory for those who wanted to open up British broadcasting, including long-term restructuring and diversification. The 1984 Cable and Broadcasting Act7_{, followed by the 1986 Peacock}

Committee tried to soften the ideological importance of public service broadcasting (Haynes, 2005:70) and laid the foundation for the landmark 1990 Broadcasting Act. Describing British broadcasting as the last bastion of restrictive practices Prime Minister Thatcher wanted to reform the entire structure of broadcasting - the previously closed world of broadcasting was to be exposed to the rigours of the free market. In doing so, industrial and technological policy became the driving force behind broadcasting policy as its cultural remit was relegated in importance. The 1990 Broadcasting Act has been described as an enabling force for Rupert Murdoch’s satellite broadcasting ambitions in Britain; satellite and cable systems were

politically sanctioned to challenge the monopoly enjoyed by the terrestrial television networks.

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Barnett (1990:33) noted the list of protected events was written into the Cable and Broadcasting Act 1984.

Direct satellite broadcasting in the UK

Whereas new cable providers challenged the established US networks, in the UK a small satellite footprint and lower capital costs meant that

competition to the BBC/ITV duopoly (in terms of sport at least) came from direct satellite broadcasting. With the launch of the Astra satellite in 1989 Sky gained a critical head start over the British Broadcasting Consortium (BSB) and, after accruing monumental losses in competition with each other, the two companies agreed to merge in 1990 to form British Sky Broadcasting (BSkyB). The launch of Sky Sports in 1991 caused a

paradigmatic shift in the UK market by providing competition for the BBC and ITV – Boyle and Haynes (2004) contend that ITV was not fully

commercial, so the arrival of BSkyB represented a new commercial era. And this was not the supplemental add-on broadcasting model created 12 years earlier in the US. Instead, this was all or nothing full-on competition. The goal of News Corporation, argue Herman and McChesney (1977:75), was to overwhelm other media giants and to dominate global television sport. The use of new distribution technology and the acquisition of exclusive

broadcasting rights to the most popular sports were a key part of this strategy. Evens, Iosifidis and Smith (2013:46) add: “technological developments have intensified the battle for control over sports rights”.

In terms of policy-making and UK broadcasting, Smith (2009) regards the growth of the regulatory state as part of a general shift from government to governance associated with the withdrawal of the state from many activities as part of neoliberal thinking. Smith also identifies the increasing influence of EU level regulation and of competition authorities such as the OFT and Competition Commission. The scrutiny of competition authorities often

centres on the upstream activities of the leagues and federations as they sell broadcasting rights whereas, argue Evens, Iosifidis and Smith (2013), media regulators tend to engage with the downstream provision of

programme content. A central concern of regulation is the control of market power – curbing monopolistic tendencies – in order to facilitate free market competition. Controlling market power in sports broadcasting, at least in the UK and Europe, is a recurring theme.