Television's indecency problem
FCC oversight has serious consequences for broadcasters in their battle against cable and satellite competitors.
By Marc Gunther, FORTUNE senior writer

NEW YORK (FORTUNE) - The crackdown on broadcast indecency that began with an exposed breast turns out to have legs - as well as serious consequences for the television business.

More than two years after Janet Jackson's now-infamous "wardrobe malfunction" raised a ruckus during the 2004 Super Bowl, Washington's war against indecency rages on. Last week, Congress passed legislation increasing the fines for indecent programming from a maximum of $32,500 to $325,000.

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What's more, while most of us have forgotten who played in that Super Bowl, let alone who won, the indecency brouhaha has produced its own set of media-industry winners and losers.

Cable's a winner. So is satellite TV and radio. Over-the-air TV and radio broadcasters are losers.

That's because the Federal Communications Commission rules on indecent and profane programming apply only to broadcast TV and radio, which use the public airwaves, and not to shows delivered via cable or satellite.

"One click on the TV remote can mean the difference between full constitutional protection for a program and heavy fines," says Robert Corn-Revere, a prominent First Amendment lawyer in Washington, in a recent paper asking whether indecency rules can be extended to cable TV and satellite radio.

In the last few years, the FCC has levied meaningful fines - a record $7.9 million worth in 2004 alone - against the stations that aired TV programs such as the Super Bowl halftime show, Fox's Married by America and CBS's Without a Trace.

By contrast, cable shows like Comedy Central's South Park and FX's The Shield are beyond the reach of the FCC. So, of course, are a vast array of premium cable programs such as HBO's The Sopranos and Deadwood and Family Business, a late-night Showtime reality series about the porn industry. Several courts have overturned state, local and federal efforts to regulate content on cable.

A burden for broadcasters

This hurts broadcasters in two distinct ways. First, they must bear the costs of defending themselves against FCC enforcement actions and paying fines, which are likely to get bigger with the new legislation.

In 2004, the record year, the FCC settled complaints against Viacom (Research) for $3 million, Clear Channel Communications (Research) for $952,500 and Emmis Communications (Research) for $258,000.

Second, they must live with programming constraints that don't apply to cable. Broadcasters simply can't compete with HBO and Showtime when it comes to adult programming - not in the sense of racy, but in the sense of realistic.

"Particularly as networks aim more and more at niche audiences, cable has an advantage," says Blair Levin, a former chief of staff at the FCC who now analyzes media and telecommunications for Stifel Levin. This is, of course, in addition to cable's other big competitive advantage - the fact that it collects subscriber fees as well as advertising revenues. No wonder more, better programming is moving to cable.

The same goes for satellite radio. Whatever you think of Howard Stern, Sirius Satellite Radio (Research) gave him a multimillion dollar deal to leave Viacom - and get away from the FCC's rules and fines.

The broadcasters are fighting back. In April, The Walt Disney Co.'s (Research) ABC, CBS Inc.'s (Research) CBS, General Electric's (Research) NBC and News Corp.'s (Research) Fox went to court to challenge FCC findings against CBS's Early Show, a Fox broadcast of the Billboard Music Awards and various episodes of ABC's NYPD Blue. In a joint statement, the networks said they objected to "growing government control over what viewers should and shouldn't see on television."

CBS is also considering an appeal of the $550,000 fine levied against its 20 owned-and-operated stations over the Janet Jackson breast baring, which lasted all of 19/32 of a second.

The broadcasters have also set up a Web site called TV watch (www.televisionwatch.org) where they list programs that have NOT made it on the air because of the government rules. Stations covering about one-third of America, for example, opted not to show the Oscar-winning film "Saving Private Ryan" because of fears that its coarse language and graphic violence could spark complaints to the FCC.

Groups like Brent Bozell's Parents Television Council (www.parentstv.org) have their own Web sites to help parents complain to the FCC or to sponsors when they see programs that offend them.

The FCC's Republican chairman, Kevin Martin, says broadcasters and cable networks need to police themselves better. "Television today contains some of the coarsest programming ever aired," he has said.

Among other things, Martin has urged cable operators to offer "family-friendly" programming packages - some now do - or to sell their channels one at a time, so parents can avoid offensive programs.

The things is, parents already have a multitude of ways of controlling what kids can see. TV sets sold since 2000 are equipped with "V-chip" that allows parents to block shows they deem unsuitable. Cable operators generally allow consumers to block entire channels they don't want. The cable guys make information for parents available at www.controlyourTV.org.

All of this argues for less regulation, not more. As a Utah federal judge named Bruce S. Jenkins wrote in a decision saying that cable could not be regulated by the state government: "That's one of the nice things about TV. There is no law that says you have to watch. There is no law that says you have to purchase a television set. There is no law that says you have to subscribe to a cable TV services...One of the greatest virtues of our system is the freedom to choose."

The trouble is, the nation's broadcasters are gradually losing their freedom to choose what to put on the air.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.