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New Piece in Washington Examiner on Hidden Taxes on New TVs!

Published Wednesday, July 23, 2014

IFL President Andrew Langer had a new piece in the Washington Examiner on the hidden taxes on new TVs!

By Andrew Langer

Recently, for the first time in more than seven years, I had occasion to buy a new television.

I was astounded at the sheer number of options that were available to me: Roku-capable, Wifi-ready, multiple HDMI inputs, USB access, etc. And I thought long and hard about which options I really wanted or needed, or what I thought I might need a few years down the road. I priced the TVs accordingly, and could clearly differentiate the price levels given what I felt I would need or use, even within class of similarly-sized TVs. As you can imagine, options that I wanted to include would cost more than some, but without options that I didn’t want, those TVs would cost less, and I eventually settled on the right TV.

What I didn't know at the time was that I was paying for an option that I simply wouldn't use -- that we're all paying for an option that very few of us use. It's something called “ATSC” -- the “Advanced Television Systems Committee<>” tuner, and it allows people to get broadcast digital signals. And we're not even really paying for the ATSC tuner, but for the licensing fee for the patent to that tuner.

Unlike all of the other options, this is mandatory in every TV sold in the United States. But very few of us use the option, and that number is shrinking every year.

It's very simple -- if you're like me, you use your TV essentially as a monitor to convey signals processed through some other piece of hardware. Most commonly, people use a cable box or satellite receiver, nowadays hooked up to one of your TV's HDMI ports, to get their TV stations. Of course, a growing number of people are eschewing traditional cable or satellite entirely, and are using broadband content services like Apple<> TV, Netflix<> or Roku to get entertainment streamed to them. Still others use them, quite literally, like a computer monitor, hooking up their desktop or laptop to them in order to watch YouTube or any of the Internet-available cable programming (or the occasional old-school DVD).

Due to policies put in place during the “digital transition” in 2009, U.S. television equipment buyers are now paying what can essentially be considered a tax on every piece of equipment that contains a digital receiver, such as a modern cable box. This tax is basically the cost related to manufacturers paying the patent licensing fees that the Federal Communications Commission<>mandates. The costly yet required license in question is called ATSC -- licensed exclusively by the privately held, for-profit patent assertion entity known as MPEG LA.

The practice of including patent licenses in the cost of products is not unique. Research and development costs are almost always included in the price of consumer goods. What is unique about this case is that the FCC is requiring the licensing of this particular standard, one which MPEG LA is not exactly giving away for a reasonable price.

In fact, according to a petition filed with the FCC by the Coalition United to Terminate Financial Abuses of the Television Transition, the royalty rate is $5 per unit. That may not seem like a lot, but as the price of televisions continue to drop, this tax makes up a larger percentage of the overall product cost. Making matters worse, a quarter of the individual patents within the ATSC standard have already expired, yet the license fee charged by MPEG LA remains unchanged. Similar licensing fees in Europe<> and Asia<> cost around $1. Under normal circumstances, the laws of supply and demand would push manufacturers toward a competing standard. However in this case, there are no alternatives due to the FCC granting monopoly power to MPEG LA, solidifying their ATSC pool as the only option for digital receivers.

Now, $5 may not seem like a lot, but in the competitive marketplace of television sales, it actually can make the difference between two purchases that a consumer might make. I know from my own experience: We were looking at a handful of different TVs with slightly different options — for instance, choosing between a wifi-capable TV or one without it for a few dollars less (we chose the latter, since we can get streamed programming from either our Roku receiver or our Chromecast receiver). Had the next choice been between a TV with an ATSC tuner (and the commensurate $5 tax) and one without, I would have chosen the one without.

And that’s the most important thing, after all — the right of consumers to choose which options they feel they need. They certainly doesn’t need the federal government to make that choice for them, and have to pay $5 for the privilege.
Andrew Langer is president of The Institute for Liberty. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions for editorials, available at this link<>.

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