PEG Fees Unnecessary

State should not allow municipal governments to increase public, education and government channel fees when there is no evidence of additional demand

For Immediate Release
Monday Nov. 10, 2008
Contact: Dr. Theodore Bolema
Adjunct Scholar

MIDLAND - Proposed legislation to change cable franchise fees for public access channels is unnecessary and will likely raise cable rates, according to a report released today by the Mackinac Center for Public Policy. "An Evaluation of Legislative Proposals for Higher Cable Fees to Finance Public, Education and Government Access Channels" examines competition in the cable industry, the legal restrictions on the use of PEG fees and the demand for PEG channels.

Currently, local units of government negotiate with cable providers over whether there is a PEG fee. If passed, House Bill 5047 and Senate Bill 636 would allow local governments, unilaterally and without a current needs analysis, to add a PEG fee of up to 2 percent of gross revenue after a franchise agreement ends. These fees are in addition to the up to 5 percent franchise fee municipalities can charge cable providers. The study notes that under federal rules, PEG fees can only be used to cover capital expenses of PEG channels, not operating expenses.

"Giving municipalities discretion to raise fees, which are essentially taxes, on cable providers would put upward pressure on cable rates as well as make Michigan a less attractive place for new competitors of television services," said Dr. Theodore Bolema, an adjunct scholar with the Mackinac Center and a principal with the Anderson Economic Group.

Bolema, who authored the policy brief, observed that while PEG channels offer benefits, much of those services are now available through widely used Internet tools like government Web sites, e-mail groups and YouTube.

Bolema added: "Because technological advances often make the services of PEG channels duplicative and given that there is little evidence of increased demand, adding more fees on cable providers will make them less competitive with growing satellite services."

The brief highlighted alternatives to PEG fees. One option would be to allow variable pricing for PEG channels, which would give subscribers the chance to decide whether the channels add value.

The report is available at The Mackinac Center for Public Policy is a nonprofit research and educational institute headquartered in Midland, Mich.