FCC Tackles Retrans Reforms

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