Executive Summary

House Bill 5047 and Senate Bill 636 are proposed amendments to Michigan's Uniform Video Services Local Franchise Act of 2006, which streamlined Michigan's franchising process for local cable systems.[1] The bills, if passed into law, would remove several legal limitations on the size of the fee that local governments could charge cable television companies in order to finance local "public, education, and government access" channels on their cable systems. Absent these restrictions, local governments would be freer to impose on a cable company a "PEG fee" of up to 2 percent of its total revenues. These PEG fees would be in addition to the 5 percent "franchise" fee local governments may charge cable companies for the rights-of-way the companies need in order to pass their cables through public areas and connect them to consumers' homes.

This legislation does not appear to be justified or necessary. Public access channels originated in the United States in the late 1960s and largely took their present form following 1984 federal legislation that encouraged the expansion of these channels on cable systems. Local communities began to require as part of their franchise arrangements with cable companies that the companies offer opportunities for the production and carriage of community-initiated programming, both to include local programming and to provide an alternative to the more limited programming choices of the time. Cable companies often were required to provide equipment, training, studios and airtime to members of the public, educational institutions, and governments.

The companies were also required to devote a percentage of revenues to finance PEG channel programming.

PEG channels do offer some benefits today. Broadcasts of local government meetings increase transparency of government functions and help inform interested viewers about local issues. School concerts, sporting events and graduation ceremonies may be viewed on cable systems and recorded by participants or their family members. PEG channels also offer training opportunities for aspiring filmmakers and on-camera personnel.

However, the idea that PEG channels offer unique choices to viewers is out-of-date. Cable television viewers now have many channels available to them on their cable system. Much of the programming and local information is available on the Internet through such Web sites as YouTube and through e-mail groups, rendering PEG channels increasingly redundant. Furthermore, only a small portion of cable subscribers actually watch the programming on PEG channels.

A recent federal court decision upheld a ruling by the U.S. Federal Communications Commission that PEG fees must be used only for the capital costs of building PEG access facilities. Thus, the proposed legislation would make tens of millions of dollars of potential funding available for PEG channels, but the fees could not be used to pay for the equipment used in PEG channel studios or the costs of programming itself — only expansions or improvements to PEG studios. This could present PEG programmers with distorted incentives to build new facilities that do not necessarily make PEG programming more valuable to viewers.

Ultimately, there is no real evidence that cable subscribers want more PEG channels or that PEG channel viewing will significantly increase following the proposed increase in the availability of funding. At a time when customers are already complaining about cable prices, the likely effect of the legislation would be to raise cable programming costs while providing no significant benefits to cable subscribers. To the extent these cost increases drive more customers to terminate their cable service or switch to the growing satellite services, the ultimate effect may well be to reduce the viewership for PEG programming even as PEG facilities receive expensive upgrades, since satellite and other non-cable video providers do not offer local PEG channels.