5 Ways to ‘Fix' Retransmission Consent

by Mike Farrell and John Eggerton -- Multichannel News, 3/15/2010 3:17:34 PM

Retransmission consent has re-entered the public consciousness in a big way in the past few months, with two high-profile battles in New York and more on the way.

And last week, a group of cable operators led by Time Warner Cable formally petitioned the Federal Communication Commission to do three things that would bring an end to public fights and nasty deadlocks. The petition asks the FCC to require independent arbitration during retransmission-consent disputes, interim carriage during that arbitration and to untie retransmission-consent negotiations from those involving other programming services, such as co-owned cable channels and even Internet content. FCC chairman Julius Genachowski told the Senate last week that the agency was looking into whether "this framework makes sense or reforms are neccessary."

The effort may have some traction, as rivals from other industries are considering the move, including satellite-TV giants Dish Network and DirecTV, as does telco Verizon Communications. Cable operators Mediacom Communications and Charter Communications support the move, as well as public-advocacy group Public Knowledge.

And a group of nine distributors and two associations (the American Cable Association, Bright House Networks, Cablevision Systems, Charter, DirecTV, Dish Network, Insight Communications, Mediacom, the Organization for the Promotion and Advancement of Small Telecommunications Companies, Suddenlink Communications and Time Warner Cable) last week wrote a joint letter to congressmen and senators asking for their help in rectifying the "imbalance" in retrans negotiations.

That the fight has escalated to this point is no accident. On March 8, Cablevision Systems reached a tentative agreement with Walt Disney Co.'s WABC broadcast station in New York which put the station back on the air about 10 minutes into the 82nd Annual Academy Awards broadcast. That battle, marred by increasingly nasty print, radio and television attack ads, came on the heels of another bout between Fox Broadcasting and Time Warner Cable, which ended Jan. 1 after months of name-calling.

Time Warner is expected to re-enter the fray in the summer -- its carriage deal with ABC/Disney ends on Aug. 31.

While most programmers believe the system is fair, distributors have their own solutions to end the stalemates. Multichannel News talked to parties on both sides and listened to the various fixes. On the less-feasible side are calls to rein in sports salaries, which some argue is the real culprit in high programming costs. Most of the likely changes -- if any come at all -- would require FCC authority to make both sides negotiate in good faith.

1. Require Binding Arbitration: Cable operators have been calling for this measure for years, starting with Mediacom's storied battles in the Iowa market with Sinclair Broadcast Group. The call for binding arbitration was again sounded in recent disputes -- both Time Warner Cable and Cablevision Systems asked for it during their recent scuffles with Fox and ABC, respectively. The concept is simple: if a broadcaster and distributor cannot reach an agreement on their own as the deadline approaches, then an independent third party arbitrator would step in to settle the dispute. Whatever the arbitrator decides would be binding for both parties. How hard would it be to impose? The FCC could conclude that the marketplace had changed sufficiently in the past almost two decades to justify arbitration under the fair-dealing provision. Congressional involvement is uncertain. Sen. John Kerry (D-Mass.) was expected to introduce a bill requiring arbitration, but he's since said that he would not pick sides in the dispute.

Pros: The threat of arbitration itself could spur both distributors and programmers to hammer out an agreement, mainly to avoid the risk of having a worse deal imposed on them by an independent arbitrator. And in the event of arbitration, at least a deal would be reached that would ensure no interruption of service.

Cons: Arbitration doesn't work. The FCC has tried the arbitration route for smaller networks in carriage disputes -- most notably the America Channel -- and years into the process, that network still hasn't found its way onto all systems. There could be a downside for cable, too, if it pushed some so-called must-carry stations to instead choose retransmission consent.

2 Guarantee Interim Carriage: This would prohibit broadcasters from yanking their signals during good-faith negotiations. Since retransmission disputes also tend to crop up around major television events -- like the Super Bowl and, most recently, the Academy Awards -- several politicians have jumped on this bandwagon, including Kerry, Rep. Rick Boucher (D-Va.) and Rep. Joe Barton (R-Texas).

Kerry has called for limiting programmers' rights to pull their signals during disputes. The prohibition would be little change from laws that require distributors not to pull signals during ratings sweeps periods. The FCC has not read its good faith bargaining authority broadly, but pressure from Congress and a changed marketplace could justify the change, particularly given that Congress wrote into the law the prohibition on pulling signals during sweeps. "It is not as big a stretch as starting from zero," said one veteran communications attorney. "The big question is, ‘Does retrans look in 2010 anything like what it did in 1992?' "

Pros: Keeping the channels on the air would appear to serve the interests of all parties -- distributors are able to negotiate without constantly looking over their shoulders, customers get to watch the programming they want to and programmers don't have to reimburse advertisers for any lost audience. The provision also could protect smaller operators who may be more vulnerable to getting their signal pulled than distributors in larger areas.

"There are no established rate cards for these broadcast signals to ensure transparency so that different distributors pay the same price in a DMA," said Mediacom chairman and CEO Rocco Commisso. "Consequently, the price paid becomes a function of relative leverage and the smaller distributors suffer the most."

Cons: Removing a programmer's ability to pull his signal cuts out their biggest bargaining chip in retransmission consent negotiations. From a programmer's perspective, a distributor has no incentive to reach a deal because it is more than willing to keep the process going on indefinitely, paying the older, lower rates.

3 Repeal or Reform the Cable Act: Another favorite of distributors, who claim the 1992 Cable Act -- which created the must-carry and retransmission-consent regime -- is an outdated law written during a time when the broadcasting and cable businesses were vastly different from what they are today. One suggestion is to replace retrans with a local-signal compulsory license, like the one that allows satellite providers to import distant network TV-station signals. Gigi Sohn, president and co-founder of fair-use lobby Public Knowledge, said she would be fine with that, but that must-carry should be retained as well.

Commisso said the retrans laws were enacted almost 20 years ago to protect broadcasters from being dropped by the perceived cable monopolies. "Today the roles are reversed," Commisso said. "Competition among cable, satellite, and telephone video providers is fierce, while the broadcasters retain government-granted exclusivity for their signal in any given DMA. This monopoly power permits them to hold hostage different pay TV distributors at different times, and we either have to cave in to their exorbitant price demands or be forced to drop the signal."

Pros: Changes have been made to the act before, through the passage of other legislation. The Telecommunications Act of 1996 -- passed during a Democratic administration -- eliminated restrictions on cross-ownership between telecommunications and cable service providers, which allowed cable companies into the phone business and vice versa.

Cons: Asking the government to step in on this matter also could invite them to scrutinize parts of the business distributors and programmers don't want changed. And it could take years -- it took four years and another presidential administration for Congress to pass the Telecommunications Act of 1996, and the 1992 Cable Act itself was an update of a 1982 law that included onerous pricing structures.

4 Allow Importing of Distant Signals: Current law allows satellite TV service providers to import distant broadcast signals only to households that cannot receive "a same network over the air local signal of sufficient intensity," according to the National Cable and Telecommunications Association. And they are usually not allowed to offer distant signals to new customers in any market where they currently offer local broadcast signals.

Pros: Being able to offer distant signals would serve the public interest in allowing viewers uninterrupted access to programming. And it would benefit distributors, because subscribers would not have to defect to competitive services like telco video or satellite TV to receive the programming.

Cons: Replacing a local signal with a distant one could run into complaints about a lack of local news or sports, something Congress is attuned to on the satellite side. Aside from the obvious competitive issues (What's to stop another broadcaster from doing the same in their retrans negotiations?), there are also copyright issues. Currently, cable operators must black out network programming from distant stations. The FCC would need to scrap its network-duplication rule, and perhaps would have to prevent networks or other distributors from including language in their programming contracts that disallows out-of-market retransmission consent.

5 Mandatory Unbundling of Programming: Often, retransmission consent deals expire in concert with cable-carriage deals for channels owned by the same programmer. In the past, that has allowed some distributors to technically avoid paying cash for broadcast networks -- they would instead agree to carry a fledgling cable channel owned by the same company or pay more for an existing cable channel.

But as the industry has matured, distributors have accused programmers of using cable-network carriage negotiations as a club for retransmission consent by, say, withholding a broadcast signal unless the cable channel is carried.

Pros: Distributors argue that they should be allowed to negotiate the value of each channel separately, on its own merits. So the amount a distributor pays for a broadcast station would not be unduly influenced by its ability to continue to carry a popular cable network or group of networks.

Cons: Breaking out negotiations into separate deals for each individual channels could have two unwanted implications: it could drag out the process of negotiation much longer and it would add more fuel to the push to a la carte, or selling channels individually. While cable operators have long wanted to put expensive cable channels on tiers, they have systematically avoided a la carte as bad for business. So have the programmers, who are loath to give up the ad revenue and carriage fees they currently receive by being located on the basic tier of service.

 

Todd Spangler contributed to this report.