Today's Opinions, Tomorrow's Reality 

Sticking It to the Consumer

By David G. Young

Washington, DC, March 26, 2013 --  

Companies love to squeeze money out of consumers. Government shouldn't stop them, but it shouldn't help them, either.

Odds are that the oriental carpet store in your neighborhood is having a "Going out of Business" sale, just like it was last year and the year before. If you walk in to try and get a carpet for 50 percent off, your first problem will be finding out what the prices are. The carpets may be marked with inflated numbers. But more than likely, you'll have to ask the slick-looking salesman, who will proceed to look at your shoes, demeanor, and any other clues as to how much you are willing to pay before doubling it and quoting it as the pre-discount price.

Textbook manufacturer Wiley had a similar racket going until last week. It would sell textbooks at very reasonable prices to buyers in Thailand and other countries with poorer, more price-sensitive consumers. But for students in the United States, with their fancy shoes and well-off parents footing the bills, prices were not nearly as reasonable. In order to protect this lucrative arrangement, Wiley filed suit against Supap Kirtsaeng, who had been buying their textbooks cheaply in Thailand and selling them at a profit to Americans on Ebay.

A Manhattan court's $600,000 judgement against Kirtsaeng was overturned by the Supreme Court last week. It affirmed that once property is purchased, the new owner has the right to resell it wherever and at whatever price he chooses.1

This judgement doesn't stop Wiley and other publishers from sticking it to U.S. consumers with higher prices than other consumers -- it just means they will have to do so without U.S. government assistance. The decision likely has implications for the legal re-importation of other physical products like lower-priced Canadian drugs and music and DVDs sold in other markets. But the implication of the ruling for data-only products like music, video and software downloads is less clear.

Another case working through the system may have a more direct impact on the digital front. Two companies with similar names, New York-based Aereo and California-based Aereokiller are duking it out in court with the broadcast networks about their right to provide centralized TV recording services then stream the recordings to subscribers over the internet. The businesses would be highly disruptive if allowed to stand, because they would enable online streaming video services to deliver broadcast channels. Currently, only the monopolistic Cable and Satellite providers are able to do so.

The broadcasters claim that copying and re-distributing their content violates copyright law. Aereo and Aereokiller counter that they are simply renting antennas and recorders in a central location to record free television transmissions. 2

But technical arguments aside, the real issue at stake is money, and the billions of dollars in retransmission fees that the broadcast networks have received since the passage of the 1992 Cable Television Consumer Protection and Competition Act. Despite its name, this act was really about setting up an anti-competitive framework that provides universal access to broadcast channels on cable, while giving broadcast stations a share of cable subscriptions. The end result has been that Americans have all but abandoned the airwaves or viewing broadcast stations through their cable and satellite providers, and the broadcast stations are getting a cut of the growing revenue.

This wouldn't be a problem if there weren't a big cost to consumers, but there is. In a study last year, the NPD Group estimated that 6 percent annual hikes in cable bills will bring the cost for the average consumer to $200 per month by 2020.3

Because of industry lobbyists' influence with Congress, it is unlikely that America's politicians will do anything to diffuse this legally-mandated profit machine. Hope for consumers rests with innovative newcomers that find ways around the law (like those of Aereo and Aereokiller on the television front, and that of Supap Kirtsaeng on the textbook front.)

Yes, shady companies will always try to squeeze as much money out of their customers as they think they can get. That's as true for your neighborhood rug salesman as it is for your textbook publisher or cable provider. And while this may be part of capitalism, that doesn't mean our government should help them. Thankfully, the courts are proving less cooperative than our elected politicians.


1. Los Angeles Times, Supreme Court Sides With Book Seller in Copyright Ruling, March 19, 2013

2. Lexology, Aereo v. Aereokiller: New York and California District Courts Disagree on What Constitutes a Public Performance Under the Copyright Act, March 12, 2013

3. NPD Group, The NPD Group: Average Monthly Pay-TV Subscription Bills May Top $200 by 2020, April 10, 2012