Light Reading

FCC Tackles Retrans Reforms

Alan Breznick
4/1/2014
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Throwing its regulatory weight around, the FCC is moving to curb some of the power that broadcasters have in striking retransmission-consent deals with pay-TV providers.

In an order issued Monday, the Federal Communications Commission (FCC) banned two large broadcast TV stations in the same local market from banding together to negotiate retransmission-consent deals with a pay-TV provider. The ban applies if the two stations rank among the top four broadcasters in market audience share and don't share the same owner.

At the same time, the FCC's adopted a notice of proposed rulemaking (NPRM) to consider possible changes to the overall retransmission-consent rules. Although the Commission's power to modify the Congressionally set rules is limited, the agency will weigh whether it should "provide more guidance" to broadcasters and pay-TV providers on "good-faith negotiation requirements," give better advance notice to consumers about "possible service disruptions caused by impasses in retransmission-consent negotiations," and eliminate its network non-duplication and syndicated exclusivity rules.

The FCC's twin actions come after cable operators, satellite TV providers, and other pay-TV operators have complained strenuously to the Commission about broadcaster practices in retransmission-consent negotiations. Such negotiations have become tougher, louder, and uglier in some cases as retransmission-consent fees have soared in recent years, jumping from a mere $28 million in 2005 to $2.4 billion in 2012.

In particular, the American Cable Association (ACA) , which is holding its annual summit in Washington, D.C. this week, has lobbied hard for more restrictions on the broadcasters because of the impact on smaller and independent cable operators. But large cable companies, such as Time Warner Cable Inc. (NYSE: TWC), have called for regulatory reforms too after bruising battles with large broadcasters like CBS Corp. (NYSE: CBS). (See TWC, CBS End Their Feud.)

In a prepared statement, FCC Chairman Tom Wheeler said the Commission was imposing the ban on joint negotiations by the largest TV stations in a market to restore "fair and effective competition of retransmission-consent negotiations, to the ultimate benefit of consumers." Although Congress intended that the deals be negotiated on a one-to-one basis, he said, larger stations have increasingly banded together in the negotiations to gain higher carriage fees from pay-TV providers, leading to higher prices for consumers.

Wheeler, who signaled his position on the issue in a blog post early last month, cited one study indicating that joint negotiations by the largest stations increased carriage fees from cable systems by 20% to 40%. He argued that such carriage fee increases put "upward pressure on the prices" paid by cable subscribers, leading to higher monthly bills.

"The action we take to address joint negotiation by broadcasters will return retransmission-consent to one-on-one negotiations as Congress intended, rather than many against one," Wheeler said. "This should benefit the consumer by removing the leverage of collusion to inappropriately drive up retransmission-consent fees and with them consumer prices."

Not surprisingly, both the ACA and the National Cable & Telecommunications Association (NCTA) , which represents the big MSOs and cable programmers, hailed the FCC for instituting the ban on joint station negotiations, calling it long overdue. Just as predictably, the National Association of Broadcasters (NAB) blasted the move, noting that the FCC has never found a local station to have negotiated in bad faith.

It's not clear just how much of an impact the FCC's moves will have on the retransmission-consent market. But the NPRM will undoubtedly generate plenty of fiery arguments on both sides of the issue as the broadcasting and pay-TV industries continue to jockey for position.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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mendyk
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mendyk,
User Rank: Light Sabre
4/2/2014 | 2:29:30 PM
Re: FCC Zebras
There used to be some solid cross-ownership rules in place but we got rid of most of them because, you know, businesses can always be trusted to do the right thing.
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
4/2/2014 | 1:17:42 PM
Re: FCC Zebras
No doubt the cross-ownership issue is huge. It reminds me of the concerns in the rabbit ear antenna days about control of the airwaves. Concentration of distribution and content can make it harder for other major networks get the same treatment as NBC does from Comcast.
mendyk
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mendyk,
User Rank: Light Sabre
4/2/2014 | 1:03:42 PM
Re: FCC Zebras
In the bigger picture, the content conglomerates are extracting way more from video service providers than their products warrant (i.e., if you want our good channel, you have to take these dozen crappy ones also). Comcast to some extent is protecting its content assets by buying up more cable footprint. In fact, I'd argue that any review of the Time Warner Cable acquisition should focus more on cross-ownership (network and media) instead of just looking at the network side of things. Late entries to the video services business clearly are having second thoughts about the move (the margins are just too weak, and the service provider gets blamed for the unbridled greed of the media companies). OTT will happen because the video services business is turning out to be a loser for network operators.
Phil_Britt
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Phil_Britt,
User Rank: Light Sabre
4/2/2014 | 12:00:01 PM
Re: FCC Zebras
Though these issues could accelerate some OTT movement, but before more people "cut the cord," they will want to get the same channels they can get on cable as well as the same Internet speeds. The additional I would need to pay for sports and questionable satellite transmission speeds keep me and several others from making the switch. 

Even with rising monthly fees, cable right now is still the best option for many (though the numbers are certainly dwindling). Luckily for me, I haven't missed anything yet due to the retransmission battles. But those are sure to accelerate. It reminds me of the days of all home NFL games being blacked out in the local market (yes, some of us are old enough to remember that).
mendyk
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mendyk,
User Rank: Light Sabre
4/1/2014 | 2:23:21 PM
Re: FCC Zebras
Yes, and this is why some of the newer entries in conventional video services are now much more skeptical of their prospects. Because the money is not working out so well for the middle entity, the migration to OTT is likely to accelerate. That is not good news for the content providers, who have gotten used to collecting money from video service providers for increasingly cheap and crappy content. Tacking more rules and regs onto a system that is fast becoming unworkable at best doesn't solve the problem and at worst only adds to it.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
4/1/2014 | 2:17:49 PM
Re: FCC Zebras
This seems to be to be a matter of trying to prevent broadcasters from killing the goose that lays their golden eggs. It may be hard to summon much sympathy for Comcast, TWC or AT&T, but there are dozens of smaller cable and telcoTV providers who are literally losing money providing video services because of the outrageous growth in re-transmission fees.

Those same broadcasters then make their content available on-line for viewing after it has aired. So the pay-TV providers aren't in a position, many times, to pass along the persistent fee increases to their customer base.

And that customer base blames the provider for any fee increases, when the cost of content is often responsible. 

I'm not saying the FCC's approach is the best one but some examination of the current state of affairs makes sense. 
mendyk
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mendyk,
User Rank: Light Sabre
4/1/2014 | 12:53:40 PM
FCC Zebras
Not to be outdone by the NFL, the FCC decides to address faulty rules by ... creating yet more faulty rules.
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