California cities should not impose cable-era taxes on streaming services

CalMatters Network |  Guest Commentary By Mike Montgomery |

Mike Montgomery is the executive director of CALinnovates, a nonpartisan technology advocacy coalition.

Over the past 10 years, consumers have voted with their feet – and their remotes – abandoning expensive cable bundles and subscribing by the millions to innovative new streaming services.

Offering incredible choice, options and diversity with subscriptions priced well below the market price, it’s no surprise that streaming is winning the war for eyeballs. A CNN headline last year rightly noted “The cord has been cut. Streaming is more watched than cable.”

But too many regulators don’t seem to know a good thing when they see one, and are introducing new rules, taxes and regulations all over the country that would turn undermine streaming by treating it like cable. Aristotle said “treat like things alike,” and the reverse is also true: different things should be treated differently. Rules and policies designed for 1980s-era cable systems are a terrible fit for 2020s era internet-based streaming services.

In California, a group of towns and cities from Glendale to Redondo Beach to Santa Ana are considering taxing streamers based on totally inapplicable cable-era “utility fee” laws. But those laws are designed to recover local costs associated with the use of public lands and facilities by cable and other infrastructure-based services, and the unique status of cable systems and other utilities as local franchises.

A Los Angeles judge has already ruled that local utility laws don’t cover streamers, which don’t use local rights-of-way and face intense competition everywhere they operate. But that hasn’t stopped cynical government revenue consultants from shopping the idea of taxing streamers to other cities, playing off the desperation of communities struggling to balance budgets.

At the same time, in Washington, D.C., TV broadcast groups like Nextstar and Sinclair are asking the Federal Communications Commission to require some – and potentially all – streamers to carry all local broadcast stations under the rules governing cable and satellite television systems. Those are the same rules that have given us repeated programming blackouts and Christmas tree cable bills listing endless “local broadcast” and “regional sports” fees consumers can barely understand.

None of this makes any sense. Cable retransmission rules were designed to address the unique challenges posed by exclusive local cable franchises and the lack of competitive markets for different kinds of programming that existed 40 years ago. Today, streaming services are highly competitive and consumers have an overwhelming array of options for how to find and watch almost any kind of programming – including local broadcast channels.

The broadcasters clearly don’t need new regulations to reach viewers or be carried on streaming services. What they really seek is leverage to demand higher prices for their programming through the same kind of brinksmanship, blackouts and government-supervised negotiations that occur with satellite and cable systems today.

While it’s easy to see how that would help the broadcast groups, it’s hard to see how it could possibly benefit consumers.

The station groups claim that higher prices will help them pay for local news, which is costly to produce and provides unique value in the communities they serve. While no one denies the challenges faced by every form of news media in the internet era, the answer can’t be to force streaming services and their subscribers to subsidize the bottom line of massive for-profit corporations like Sinclair, Nextstar and Gray TV that made billions in revenue last year.

Local news is vital, but the way to support it as a society is to do so directly – not through regulatory sleight-of-hand.

Innovation is always disruptive and legacy businesses and incumbents often try and get government to soften the blow when new competitors and business models emerge. But gaming the system to prop up old technologies at the expense of new ones that consumers prefer is never a good idea.

Over time, that approach will only discourage innovation, limit choices and options for consumers, and drive-up prices so people pay more for less.