Mandating More Expensive Televisions

Donald Rieck and Wayne Winegarden

This year, for the first time ever, the Super Bowl will be live-streamed over the Internet for free.  NBC stated they are making this move to raise awareness of their streaming offerings because more and more consumers are looking toward Wi-Fi signals to receive media content.[1]

Although consumers are enjoying more choices with respect to how they receive content, the additional choices are exposing the problems caused by FCC mandates on TVs.   Shopping in preparation for the Big Game exemplifies the problem. 

Somewhere around 10 percent of annual television sales occur in the two weeks prior to the Super Bowl.[2]  Since there are approximately 40 million televisions sets sold in a year, approximately 4 million televisions will be sold in the two weeks leading up to Super Bowl XLIX.  Thanks to unnecessary federal mandates, football fans will be spending as much as $20 million more than necessary to watch the game on their preferred televisions.   

At issue is a Federal Communications Commission (FCC) mandate requiring all televisions sold in the U.S. to contain a group of patents called the ATSC standard.  The standard was designed to allow televisions to receive, and display, digital content following the digital transition.  The company which licenses these patents (MPEG LA) receives a $5 royalty payment every time a television containing its patent is sold (i.e. when any television is sold).

Over a whole year, MPEG LA receives $200 million in royalties from their ATSC patents; and these fees are built into the price consumers pay for televisions. 

Inventors and innovators should be rewarded for their innovations, the greater the demand for their technologies, the greater the rewards should be.  However, the ATSC standard is not an essential part of the television for most users.  

For example, a majority of Americans subscribe to services like Verizon, Comcast, or Dish Network to receive their television content.[3]  These companies use set top boxes that provide the digital services to customers without the use of the televisions’ internal ATSC tuner.  Therefore, anyone purchasing a television who intends to subscribe to one of these services is paying for a redundant component they do not need.

Even those customers that do not subscribe to one of these services, and therefore require a digital tuner to receive network programming, may not want a television with an internal ATSC tuner.  There are other external options that customers can also purchase – and perhaps value more.  Such options are precluded, by definition, due to the FCC mandate.

The ATSC issue also exemplifies a larger problem with our approach to regulating the telecommunications industry.  This industry is central to our 21st Century economy.  It helps consumers obtain more enjoyment from their leisure time; and the industry makes our economy more productive when we are at work.  Telecommunication services are also constantly improving with new service offerings and new service bundles becoming possible all the time.

Take the growing movement of “cord cutters” as an example.  Cord cutters do not subscribe to traditional content providers.  Instead, these consumers take advantage of services like Hulu Plus, Netflix, and the growing number of content providers such as CBS, ESPN, and HBO who will directly stream their services to customers’ computers or sometimes mobile devices. These viewing service options, which also do not require the federally mandated ATSC tuners, may radically alter the industry, and have developed through natural market forces and consumer choice.

The best way to ensure that consumers’ viewing preferences are met is to allow consumers to express their preferences.  Consumers express their preferences by having choice.  When the FCC mandates which service attributes they must consume, and which they cannot, consumer choice declines.

Instead of allowing the competitors in innovative industries to compete with one another to discover the combination of services and features customers want, the FCC is thwarting competition by imposing unnecessary product mandates. 

These mandates do not serve consumers well.  They force customers to spend more money on services they may not want, leaving them less able to afford the goods and services they do.  In economics, just as in sports, the little things can make a big difference.

 

Donald Rieck M.A., M.B.A., is Executive Director of The American Spectator and Editor of EconoSTATS at George Mason University.  Wayne Winegarden, PhD is a Senior Fellow at the Pacific Research Institute and a Contributing Editor to EconoSTATS at George Mason University. 

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