For the first time in a long time, cable and satellite TV companies think that retransmission consent reform is possible and they’re pushing the Federal Communications Commission as hard as they can to get it.
The fight is really a simple one, but the stakes are high. Just follow the money. Broadcasters get billions from pay TV distributors to distribute their signals. It’s a growing pot of revenue that is growing at a healthy clip, expected to hit $10.3 billion by 2021, up from $6.3 billion this year.
When Congress passed STELAR, the satellite TV bill, at the end of last year, it included this directive: “Not later than 9 months after the enactment of this Act, the [Federal Communications Commission] shall commence a rulemaking to review its totality of the circumstances test for good faith negotiations” which would apply when broadcasters and pay TV providers arm wrestle over what it will cost to carry local TV signals.
To meet the Congressional deadline, FCC chairman Tom Wheeler must circulate a notice of proposed rulemaking by September 4. If Wheeler wants to give the other commissioners three weeks to review the NPRM, it would have to be circulated by the end of this week.
Prior to the line in STELAR, the FCC has mostly kept a “hands off” policy with retransmission consent reform. Former FCC chairs argued that the agency lacks statutory authority to make sweeping changes to the regime, though the agency would occasionally fire off a “play nice” letter to parties involved in a particularly thorny dispute. Under the current negotiation standards, broadcasters have never been found in violation of good faith, the National Association of Broadcasters noted.
But now a Republican-controlled Congress has handed a Democratic-controlled FCC an opening.
While the mandate in STELAR doesn’t use the word “reform,” that’s the very word advocates are using in their discussions and ex partes with the FCC.
Retransmission reform advocates are hoping the FCC will vote to tighten the standards by identifying certain actions beyond the current “refusal to negotiate” guidelines as per se violations of good faith. Among the list advocates are proposing: pulling a station’s online content, contracts that end right before a marquee event like the Super Bowl or Oscars, last-minute take it or leave it deals, forced bundling, and even blackouts.
“There is some basis for the FCC to treat it more broadly, to develop a more robust inquiry into retransmission consent,” said Micah Caldwell, vice president of regulatory affairs for the Independent Telephone and Telecommunications Alliance, part of the American Television Alliance, a coalition of cable and satellite TV companies.
How far Wheeler will interpret the one line is unclear. At a recent House communications and technology subcommittee hearing, Wheeler said the commission plans to “talk about a whole set of issues for what constitutes ‘good faith.’”
“What the FCC might do can help a lot,” said Matt Polka, president and CEO of the American Cable Association, speaking for the American Television Alliance. “They can order a party to stop specific behavior. They can impose fines. No station wants enforcement because of license renewal,” Polka said.
Wheeler hasn’t been afraid to dive into video issues, nor is he afraid to reclassify or redefine. For example, the FCC recently passed a rule that prohibited TV stations with different owners from conducting joint retransmission negotiations; and the satellite bill expanded the regulation. Wheeler has also proposed to redefine some over-the-top video services as multichannel video program distributors (MVPDs). As a former head of the cable association who has lived through retrans wars, Wheeler just might be sympathetic to go where other FCC chairmen have avoided.
In tandem with the retransmission consent NPRM, Wheeler is expected to circulate this week a proceeding to eliminate the agency’s network non-duplication and syndication exclusivity rules, another big ask from the pay TV companies that are looking to import a distant signal from another market when the in-market station is playing hardball during retransmission consent negotiations.
Getting rid of the FCC rules won’t allow cable and satellite distributors to defy deals made between syndicators and networks and stations, but it does give them some extra leverage in negotiations.
Having paid substantial dollars to run their local news and to carry network TV programming, broadcasters argue that they should be paid for the value of what they deliver to cable. Cable, admitting the programming is desirable and a necessary part of the bundle offered to consumers, accuse broadcasters of all kinds of nasty tactics to wring out more and more dollars, hurting consumers in the process.
Now that broadcasters can take their content online, advocates argue that the system is tilted even more in favor of broadcasters.
“Broadcasters can pit one MVPD against another. There isn’t as much incentive to negotiate with smaller guys. They have the luxury of negotiating with a lot of pay TV providers,” said Caldwell.
Although local station retransmission fees are only 12-13 percent of a cable company’s total programming costs, it’s a cost that has irked cable companies for the past decade, ever since 2005 when Nexstar Broadcasting became the first broadcast group to get a cable system (Cox Cable) to pay for the right to carry a local TV signal, following a ten month blackout.
“There is a difference between the cost of subscription TV and the cost of retransmission consent. ESPN – people are choosing to pay for that – and we are charged a certain rate. Retrans is a wholly different deal – it’s not a subscription service. They [broadcasters] are making it a subscription service. It’s the highest increasing type of programming. An 8600 percent increase – the fastest rising part of consumer pay TV bills,” Polka said.
Broadcasters argue that the fight over the retransmission consent system has been overblown for years. Despite the numbers quoted by the reform advocates, 99 percent of retransmission negotiations happen without incident, per the NAB. Broadcasters also are fond of pointing out that two-thirds of disputes involve just three pay TV companies: DirecTV (now owned by AT&T), Dish and Time Warner Cable, which in 2013, had a month-long standoff with CBS.
Broadcasters counter that the pay TV business has only itself to blame for consumers’ increasing monthly TV bills. “The pay-TV industry has for years demonstrated an inability to correct market failures that are harming customers. Americans are fed up with pay-TV price hikes that are now three times the rate of inflation. They are tired of outrageous monthly equipment rental fees that cost subscribers $19.5 billion annually. And, they are disgusted with erroneous billing charges, unfair early-termination fees and lousy customer service. Clearly, the modest five dollar ‘broadcast TV fee’ included on pay-TV bills approaching $150 per month isn’t the problem,” said Rob Kenny, a spokesman for TVFreedom.
The letters and ex partes at the FCC have been flying over the past couple of months. The National Association of Broadcasters warned the FCC that the pay TV business would “manufacture” a retransmission crisis to make its point. Rocco Commisso, the outspoken CEO of Mediacom Communications has written a number of letters accusing the FCC of doing nothing. And that’s only the preview of what is to come as the FCC takes on video issues.