Cable Operators Complain of Retrans ‘Arbitrage’

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Washington — Cable operators large and small — but
particularly the smaller ones — are complaining of what
they said is a growing trend: “after-acquired” clauses in
retransmission-consent contracts.

The clauses deal with how those
agreements apply to stations — or cable
systems — that may be acquired
by either an MSO or a broadcaster
during the duration of the deals.

A variant of the clause, one that
cable firms say is becoming more
popular, gives a broadcaster the ability
to potentially increase retransmission
fees for any stations it acquires
by bundling them into existing deals.

Smaller and midsized cable companies
call the practice retransmission
arbitrage to secure local-market-
area or group retransmissionconsent
deals.

MARKET-POWER PLAY

A broadcast lawyer experienced in
retransmission-consent negotiations
called that laughable, saying they are
simply negotiable provisions that no
cable operator has to agree to.

“We saw them a little bit in the last
round of retransmission-consent negotiations,
and then in the most recent
round they proliferated,” said Chris Cinnamon, partner
at Cinnamon Mueller and outside counsel to the American
Cable Association, which represents smaller independent
cable operators across the country.

“The way these clauses work, it is not just the case of a
broadcaster’s buying another station,” he added. “It is if
the station enters into a management agreement or an
agreement where a broadcaster can exercise retransmission
rights for another station, it is not even ownership or
control. It is just a transaction for retransmission-consent
rights.”

Cable operators have been pushing the Federal Communications
Commission to limit such retransmission
proxy negotiations,
arguing they represent
undue market
power and are a way
to skirt local TV-ownership
limits.

“It is one thing when
a company says, ‘OK,
I am going to have
the responsibility of a
broadcast licensee and
all that entails,’ ” Cinnamon
said. “But that
is not what is going
on. They are just cutting
a deal to charge
higher retransmissionconsent
fees and split
the difference with the
station.”

It’s not just smaller
operators complaining
about the clauses.

Mike Heimowitz,
spokesman for the
American Television
Alliance, said he has talked to some of his members and
they say it is a growing trend.

“This is just another tactic they are using to take advantage
of the regulations to squeeze more money” from cable
operators, he said. “They are shopping their deals to other
stations and group owners so they can try to jack the price
up. So, either it is done through an acquisition or they get
some kind of clause in the contract where they may not be
commonly owned, but are able to leverage their power to
increase rates.”

Broadcast attorney Jack Goodman said the arbitrage
suggestion “does not pass the laugh test.”

“I can’t know what is in everybody’s heart when they do
an LMA, but these are huge deals and represent substantial
financial commitments on the part of the parties to
essentially integrate two TV stations, and they are usually
very long-term deals,” he said.

Goodman suggested that no one is forced to agree to the
clauses, though cable operators argue that in many cases
the clauses are non-negotiable, and that just as they have
to pay increased fees to keep broadcasters from removing
their signals, they must also agree to the after-acquired
provisions.

“Nobody enters into one of these things without seeing
what they are, and if somebody doesn’t want to
agree to it they don’t have to,” Goodman said. “They
work both ways, though. There are also provisions that
say what happens if another cable operator acquires
another cable system.”

CHAIRMAN IS WATCHING

The FCC is paying special attention to bundled retransmission
negotiations, chairman Julius Genachowski told
cable operators last week at the Cable Show in Boston.

He said that while it was perfectly proper for broadcasters
to be seeking compensation for their programming
— cable operators would argue the government’s thumb
is on the scale via the must-carry and retransmissionconsent
regime — what was more problematic was a
shared-services agreement that turns negotiation for a
“permissible” duopoly into three stations negotiating together
for retrans.

“That raises real issues, and it is something we are looking
at closely at the FCC,” Genachowski said, to an amen
from NCTA chief Michael Powell, followed by a “can I have
another” call for Congress to step in.

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