Light Reading

Rep. Rips Retrans 'Racket'

Mari Silbey
4/2/2014
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If there was a common theme Wednesday morning at the American Cable Association (ACA) Summit, US Rep. Anna Eshoo summed it up when she called television retransmission-consent deals "frankly a racket."

In a keynote address, Eshoo, a California Democrat, spoke of meeting with one media executive who had just completed talks for a retransmission-consent deal worth up to $800 million. He predicted that number would go above $1 billion in the next round of negotiations.

The consequences of higher retransmission-consent fees include higher consumer costs and more TV blackouts. Eshoo pointed out that the number of TV programming blackouts jumped from 12 in 2011 to 127 in 2013.

Aereo Inc. CEO Chet Kanojia chimed in at today's event held by the American Cable Association (ACA) , which represents independent cable operators, by labeling the amount of money involved in retransmission deals "ludicrous." He said such deals are one reason why his company is trying to change the pay-TV industry.

Traditionally, broadcasters made the bulk of their money from advertising. But that has changed in recent years as the revenue from content licensing has skyrocketed. Rep. Eshoo introduced a bill to spotlight the issue last December with fellow California Democrat Zoe Lofgren called Video CHOICE, or Consumers Have Options in Choosing Entertainment. The bill aims to eliminate broadcast TV blackouts, but it's also written to ensure that consumers can buy pay-TV subscriptions without broadcast content as part of the bundle. The theory is that because viewers can already get broadcast content for free with an antenna, they shouldn't have to pay for it in a premium TV package.

Kanojia also emphasized the issue of antenna TV in discussing Aereo's ongoing battle against broadcasters. With the Aereo case due to be argued at the US Supreme Court later this month, Kanojia made it clear that his company believes the case is not about protecting copyrights, but about protecting existing TV business models.

There is no legal argument over copyright infringement as far as free over-the-air (OTA) TV is concerned. Instead, the high court is faced with the question of whether Aereo is delivering a private performance to each of its subscribers when it transports OTA content in individual streams over the Internet. Kanojia noted that the private performance argument is the same one that lets consumers sing Taylor Swift songs in the shower without paying a licensing fee. If the Aereo argument wins in court, it would mean that the company -- and any others following the same approach -- could legally bypass broadcaster retransmission fee demands. (SeeAereo Injunction Sets Stage for Supremes .)

The retransmission issue is one of the biggest on the ACA agenda, and the group at this year's Summit cheered a win at the Federal Communications Commission (FCC) earlier this week. The FCC officially imposed a ban Monday on joint retransmission negotiations by multiple large TV stations in a single market. (See FCC Tackles Retrans Reforms .)

However, retransmission isn't the only challenge that independent cable operators and their subscribers face. Both Rep. Eshoo and Rep. Peter Welch talked about the fear of a "cable-ization of the Internet." If the cable video business model gets extended to the web, they warned, it could lead to bundled services that would require consumers to buy a basic content tier with every Internet subscription.

Congress and the FCC have much to debate as both pay-TV models and the Internet continue to evolve. Accordingly, there is already a plan in place to revisit the landmark 1996 Telecommunications Act. But that could be very dicey.

"I think that there needs to be obviously a rebalancing of the law," Rep. Eshoo said. But she also cautioned that it took a long time to complete the 1996 bill and it won't be easy to craft a new one.

— Mari Silbey, special to Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/8/2014 | 6:41:45 PM
Re: Cable-ization of internet already underway
I was just using Cox as an example because it is my local cable provider, not to imply they are the chief culprit. 

Yes, the programmers have the content consumers demand and cable providers must meet their demand or pay the penalty. 
jsgreenfield
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jsgreenfield,
User Rank: Light Beer
4/7/2014 | 3:04:53 PM
Re: Cable-ization of internet already underway
@FakeMitchWagner -- When it comes to TV at the distribution level (cable/satellite/telco), yes, its plenty of competitive pressure.  None of the pay tv providers have pricing power.  That's precisely why pay tv providers have, in fact, been absorbing roughly half of the increases coming from programmers (i.e., channels/networks).

You said, "Consumers are cutting cable, and so the cable companies have to raise prices to continue to make a profit."

I was pointing out that this is simply not the dynamic.  No pay tv provider has the pricing power to be able to unilaterally raise their prices, and cord cutting is not driving price increases.

All of the pricing power in the system is at the programmer level.  And there is essentially no competitive pressure there, since each programmer has a monopoly on a few must-have channels, which they use to force big bundles on subscribers, and drive prices higher.  Doing such ought to be a per se antitrust violation, but for decades now, the government has stood by and done nothing.

If you're looking at Cox as the source of your pricing woes, you're looking at the wrong place.  Cox is close to a pure-play cable operator.  The problem lies with the programmers.  The Coxes of the world are stuck in the middle.

(A company like Comcast, that has both cable operations and programming (NBCU) plays an active role in perpetuating the system...but that comes from the programming side of that business, not the cable side.)
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/7/2014 | 2:01:14 PM
Re: Cable-ization of internet already underway
jsgreenfield - "Cable companies can't raise prices on television, because they have multiple competitors for tv distribution."

In my neighborhood, we have three choices AFAIK: Cox Communications, AT&T Uverse, and some kind of satellite TV. I haven't looked into the AT&T and satellite options to see if they are equivalent to Cox (which is what we have). 

If I rejected those three options, I'd be reduced to assembling a package out of an HD antenna, and apps from a streaming box such as Roku. And even after I did that I'd be stuck waiting a year to watch the latest season of Game of Thrones. 

Do those options provide sufficient competititive pressure on cable to keep prices down?
jsgreenfield
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jsgreenfield,
User Rank: Light Beer
4/4/2014 | 9:03:13 PM
Re: Cable-ization of internet already underway
@gconnery -- What you propose is almost certainly beyond the FCC's authority, but Congress could (and should) impose some kind of policies along these lines.  I proposed similar reforms here:

Comcast-TWC and the Broken Market for Program Carriage

Note that it's easy to say that cable companies should stand up to this, but cable companies actually have very little leverage.  When they stand up and lose content to blackouts, consumers are very rarely understanding about that, and typically blame the cable company.  In fact, the programmers are almost always pulling the strings (as explained in the above-linked article).

@mendyk -- Programmer-specific bundling would not likely solve much, and would still allow programmers to improperly tie their most popular content to much less popular content (something that is supposed to be a per se antitrust violation).

Should customers really have to take all of Disney's lineup (including ESPN) in order to get Lifetime?  Or ABC Family?  Or A&E?  Or take all those others, if what they want is just ESPN?

@FakeMitchWagner -- Cable companies can't raise prices on television, because they have multiple competitors for tv distribution.  None of them have pricing power for tv.  In fact, pay tv providers have been absorbing roughly half the increases demanded by programmers for many years now.  i.e., the hyperinflationary customers have seen are about half the increases pay tv operators have seen.  The rest has been made up by reducing their margins (i.e., reducing their profits), not increasing them.

And as for Netflix, "explicit" Netflix subscribers don't pay twice.  Rather, they are subsidized by non-Netflix subscribers.  There are two parts of the cost for every Netflix subscriber: the part they pay to Netflix and the part they pay to their ISP.  The ISP portion is likely the (much) larger of the two, and right now, it is spread across all broadband subscribers, not just those who use Netflix.

 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/4/2014 | 7:24:15 PM
Re: Cable-ization of internet already underway
gconnery - " Honestly the rate at which cable prices are rising is unsustainable.  If cable companies won't stand up and fight to keep costs down by dropping channels etc then eventually the cord cutters will turn out to be right, and cable will being to fade from memory."

Consumers are cutting cable, and so the cable companies have to raise prices to continue to make a profit. 

Or maybe I'm reversing cause and effect here, and the people cutting cable are doing so because of increasing prices, not the other way around. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
4/4/2014 | 7:22:07 PM
Re: Cable-ization of internet already underway
jsgreenfield - "What most don't realize is the even bigger impact of other services like Netflix, working just as hard to ensure that their costs are bundled into everyone's broadband bill."

Good point. Every Comcast subscriber is now paying for Netflix. The Comcast subscribers who explicitly subscribe to Netflix are paying for it twice. 
mendyk
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mendyk,
User Rank: Light Sabre
4/3/2014 | 9:23:02 AM
Re: Cable-ization of internet already underway
A half-step toward a la carte pricing would be worth taking -- as in, offer channel packages based on content provider. So there'd be an ESPN/Disney package, a Viacom package, etc., and then price those accordingly based on the content provider's per-subscriber fee. This makes a lot of sense, which is why it hasn't been implemented yet. Video service providers need to shift the responsibility burden for rising fees to the content conglomerates.
gconnery
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gconnery,
User Rank: Light Sabre
4/3/2014 | 12:29:44 AM
Re: Cable-ization of internet already underway
Well, the FCC could weigh in on this in a variety of ways.  Not that they will.


They, or congress, could make it a requirement to price any channel whose retransmission costs are greater than X% as a separate option for consumers.  Allowing consumers to opt out of paying for CBS or whatever if they want.  And here I mean say ABC not ABC + Disney + Disney XM + ESPN etc.


Or they could require pricing negotiations to occur separately for each channel with no bundling.

Or they could require that the Cable Bill breakdown the costs to include the prices companies pay for channels. 


Or make it illegal to negotiate access to the tier an operator puts a channel in.  So that ESPN couldn't include terms about being in Extended Basic in their contract with Comcast. 

Or... they could do nothing.  Honestly the rate at which cable prices are rising is unsustainable.  If cable companies won't stand up and fight to keep costs down by dropping channels etc then eventually the cord cutters will turn out to be right, and cable will being to fade from memory.  In a generation or so anyway.
DOShea
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DOShea,
User Rank: Blogger
4/2/2014 | 9:41:57 PM
Re: Cable-ization of internet already underway
If Aereo manages to survive its legal fight, that might be a start toward some change.
albreznick
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albreznick,
User Rank: Blogger
4/2/2014 | 9:25:41 PM
Re: Cable-ization of internet already underway
So is there any way this movementcan be stopped? Or is such cable-ozation of the Web just inevitable given the players and the market forces?
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