The Beginnings of Regulation

Although cable could not be defined, it was a different matter if the success of a local broadcaster was directly threatened by cable, especially if it was the only station in the area. When this happened in Carter Mountain Transmission Corporation v. FCC in 1962, the FCC denied a cable operator a permit to build a microwave station. This set a precedent for supporting local television stations in conflicts between local stations and cable operators.

The first substantial cable regulation began in 1965 and established a policy that would affect the industry into the twenty-first century. The FCC outlined rules for those cable operators who used microwave systems (which were almost all of them), since FCC jurisdiction over microwave was already established. Cable was ordered to carry the signals of local broadcast stations, termed “must-carry,” and was restricted from importing the same program as a local broadcaster, termed " nonduplication." Therefore, local broadcasters were always represented on their community’s cable system, and they did not face competition from distant stations. The FCC also mandated that distant signals could not be imported into the top one hundred television markets. (There are about two hundred such markets, ranked by population. The two largest markets are New York and Los Angeles.)

Arguing that cable was interstate communication by wire, the FCC extended these regulations to all cable systems in 1966. In the public interest, cable outlets were also expected to offer “local origination,” or the capacity for the general public to produce television programs and air them on special access channels. In the first cable-related U.S. Supreme Court case ( United States v. Southwestern Cable Company , 1968), a cable company questioned the authority of the FCC to limit the signals that company could carry. The Court affirmed FCC authority over cable, but not directly, calling such authority “reasonably ancillary” to the tasks of the FCC. In United States v. Midwest Video Corporation (1972), the Court upheld must-carry and local origination. These new regulations limited the growth of cable and, accordingly, investment in the new industry.

By 1970, concerns existed with regard to the cross-ownership of various media and the number of media outlets that were owned by any one person or company. The FCC had already established limits on radio and television station ownership and forbidden a telephone company from owning a broadcast outlet. The commission extended this ruling to cable and prohibited a telephone network or local television station from owning a cable outlet. In 1975, the FCC decided not to impose a cross-ownership ban on cable and newspapers because a problematic situation did not exist. However, there was no restriction on companies that owned several cable outlets—multiple-system operators (MSOs)—to prevent them from buying interest in cable channels on their systems; this is known as vertical integration.

Concerns were also raised about cable’s use of copyrighted programming, which prompted the commission to detail their regulations in 1972. Must-carry was extended to all local and educational television stations within thirty-five miles of the cable operator. Depending on the market size, cable was expected to carry a minimum of three network stations (there were only three television networks then) and one independent station. The nonduplication rule was also extended to syndicated programs, termed “syndicated exclusivity.” As a result, cable was regulated as it had never been regulated before.

Cable operators were especially frustrated about the new and complex rules for premium (e.g., movies) and pay (e.g., sporting events) programming. Such shows had the potential to bring in substantial profits beyond just subscriptions, and new satellite technology could deliver signals all over the country much easier than microwave networks. However, the regulations made it almost impossible, and certainly unprofitable, to offer such fare. This changed in 1977 with Home Box Office, Inc. v. FCC. The U.S. Court of Appeals for the District of Columbia struck down the programming restrictions and adopted a standard to apply to future FCC cable regulations. This paved the way for some of the most popular and profitable pay services in cable history, such as Home Box Office and Showtime. That same year, the commission eased a technical requirement, which made “superstations” such as WTBS and WGN available to more cable outlets.

By the end of the 1970s, cable had more programming to offer, but there were also many more regulations to follow. In the 1979 decision FCC v. Midwest Video Corporation , the U.S. Supreme Court said that the commission had gone too far with local origination, but by then the FCC had already eased the rules. Foreshadowing the deregulation of the next decade, a 1979 FCC study found that, contrary to popular opinion, cable did not have an adverse effect on the growth and incomes of local television broadcasters. Partially based on that study, the FCC decided to drop all syndicated exclusivity regulations in 1980, in the interest of delivering more programming to the public. However, another version of the rules was instituted in 1988.