Another Video Smackdown

The FCC's anti-cable campaign gets whacked.

Calling the regulation "arbitrary and capricious," an appeals court last week struck down a Federal Communications Commission rule that limits the marketshare of any single cable company to 30% of all subscribers. The same D.C. Circuit Court of Appeals threw out a similar subscriber limit in 2001, so the decision wasn't unexpected. But maybe this time the FCC will take a hint. Even better, Congress could revisit the comically outdated 1992 Cable Act at the root of the problem.

When a Democratic Congress passed the 1992 law over the objections of President George H.W. Bush, the ostensible concern was cable monopoly power. In the early 1990s, cable subscriptions were skyrocketing and customers had only one provider per municipality to select. Satellite television wasn't yet an option and the phone companies, thanks to effective lobbying from TV broadcasters, were prohibited from offering video programming.

All of that has changed dramatically in 17 years, as nearly everyone seems to acknowledge save the defiant FCC. "It is apparent that the Commission either cannot or will not fully incorporate the competitive impact of [satellite providers] and fiber optic companies" into its market analysis, wrote the court. "In light of the changed marketplace, the government's justification is even weaker now than in 2001, when we held the 30% cap unconstitutional."

The reality today is that cable television has never had more competition, and not merely from the likes of Verizon FIOS and DirecTV. Online video is also gaining popularity. Around 17 billion downloads per month occur in the U.S., and a growing number of those are full-length television shows. More than 136 million people watched online videos last month, up 14% from a year ago. It makes little sense to impose a 30% marketshare cap on a Comcast or Time Warner Cable when programmers are increasingly distributing content through Web sites like Hulu, Netflix, iTunes, Xbox 360 Marketplace and Joost. Incumbent cable firms also face competition from Grande Communications, RCN and other so-called "overbuilders" that construct cable systems in markets that already have cable service.

It was not Democrat Julius Genachowski, the current FCC Chairman, who decided in 2007 to re-adopt a cable cap that the courts had already struck down. That dishonor belongs to Mr. Genachowski's predecessor, Kevin Martin, whose deep dislike of the cable industry led him to ignore court rulings and his fellow Republican Commissioners who opposed the limits. One of those Commissioners, Robert McDowell, predicted at the time that the regulation would be overturned because it "goes out of its way to remain ignorant of current market conditions which obviate the need for a cap."

Mr. Genachowski is now reviewing the FCC's options, which include a Supreme Court appeal. Left-wing groups like Free Press and Media Access Project, which advocate for more media ownership restrictions, will try to prod him in that direction. But in a marketplace where Hulu.com has more viewers than Time Warner Cable, consumers have little to fear from cable monopolists. The FCC still has merger review powers, and if cable companies do begin displaying monopolistic behavior, let existing antitrust laws apply.

Congress, for its part, could make things easier for the new FCC chairman by amending the relevant section of the 1992 Cable Act, which permits subscriber caps so long as they "reflect the dynamic nature of the communications marketplace." In today's competitive market, that's an argument for no cap at all.