Ops Slam 'Abuse’ by Big Four

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Washington— For cable operators, retransmission consent is indeed a headache.

Better make that a migraine.

Three major cable companies are accusing the “Big Four” broadcast networks of abusing their market power to force carriage of unwanted programming, swelling the size of expanded basic and driving up rates for that tier.

The harsh blows were landed last week in a lengthy Federal Communications Commission filing by Cox Communications Inc., Advance/Newhouse Communications and Insight Communications Co. Inc.

Two networks — The Walt Disney Co.’s ABC and General Electric Co.’s NBC — effectively denied the charges in their own FCC filings. The other big networks, of course, are Viacom Inc.’s CBS and News Corp.’s Fox.

FCC HAS TO STUDY

Congress passed a law late last year requiring the agency to study the market impact of retransmission consent and report back with its findings in September.

The report could give cable ammunition to seek congressional repeal of retransmission consent, if broadcasters press too hard for expanded must-carry rights or new cable-program indecency rules.

The MSOs want the FCC to conclude the bargaining practices of the Big Four have fueled “the continued expansion of the size and price of the most popular tier of [cable] service,” expanded basic.

“The Big Four have become the dominant video-programming suppliers to [cable and direct-broadcast satellite], and Big Four channels have been the source of most of the growth on the basic and expanded-basic tiers of programming.

This, in turn, has contributed substantially to the rise in cable rates,” the MSOs said.

For now, the cable companies didn’t call for repeal of retransmission consent. Instead, their goal was to document for the FCC just how broadcaster-owned cable networks are making everyone’s cable bill go up.

DISTANT-SIGNAL ANGLE

Small cable operators, though, did ask for major changes from the FCC that would permit a cable operator to import an out-of-market or “distant” broadcast signal rather than be forced to pay cash for carriage for an in-market TV station as part of a retransmission-consent deal.

The American Cable Association, the lobbying group for small operators, said the Big Four were planning to use this fall’s negotiating window to extract $860 million in compensation from small cable.

Allowing cable to bring in the same network programming from another market would eliminate the local station’s leverage, ACA said.

“ACA is asking the commission to remove artificial barriers to retransmission-consent 'pricing,’ “ the trade group said in a statement.

“If a broadcaster wants to charge consumers for a local signal, a cable operator should have the right to bring in lower-cost network programming. It pays to shop.”

Lastly, the National Cable & Telecommunications Association called on the FCC to allow rural cable operators to import out-of-market stations without retransmission consent to create regulatory parity with direct broadcast satellite carriers.

BROAD INDICTMENT

In a sense, the three MSOs’ filing represented a broad indictment of the business practices of the corporate parents of ABC, CBS, NBC and Fox.

The cable companies complained the networks withhold “must-have” local-TV stations unless cable operators agree to unfair carriage terms for Big Four-owned cable networks.

The MSOs said the Big Four have used retransmission consent to move from marginal to dominant players in the cable-programming market through their present control of 57% of national cable networks. In 1993, the Big Four controlled 18% of national networks.

FCC data demonstrated that the Big Four are responsible for higher cable rates, the MSOs explained.

According to the FCC, expanded-basic rates rose 88% from 1997 to 2004. During the same period, the license fees charged by the top 40 cable networks climbed 78%. But the license fees of Big Four-affiliated cable networks rose 92%, while the license fees of non-broadcast-affiliated networks went up 49%.

“It is apparent from the data that exercise of retransmission consent by the Big Four was a significant driver of increases in cable rates between 1997 and 2004,” the MSOs said.

NBC AND DISNEY REPLY

NBC Universal Inc. told the FCC that retransmission consent does not provide an unfair advantage but protects “the right of a local station to negotiate a fair return.”

Disney informed the FCC — not for the first time — that it offers its ABC owned-and-operated stations on a standalone basis at a “reasonable” price without any requirement to purchase cable networks, such as ESPN and SoapNet, in a package deal.

“Disney reiterates that its retransmission-consent practices do not provide the FCC with any basis to recommend any changes to the retransmission-consent process,” Disney said.

The MSOs’ problems with retransmission consent weren’t entirely cable-centric.

For example, they claimed the congressional goal of bolstering local broadcasting has not been attained through retransmission consent.

The Big Four, the MSOs said, have used retransmission consent to invest in cable networks, not in high-quality primetime programming beneficial to their independent affiliates.

In a related request, ACA asked for the FCC to require direct-broadcast satellite companies to give small cable operators in remote markets access to their local-to-local broadcast signals when those signal are too weak to reach their headends.

The group estimated that more than 1 million rural consumers are unable to receive quality local broadcast signals because they live in remote regions distant from broadcast transmitters.

Under the ACA’s proposal, where a DBS carrier provides local TV signals, it must make those signals available to cable operators “on nondiscriminatory prices, terms and conditions” in cases when the system can’t receive those signals, in good quality, off-air.

“To be clear, we are not asking for those signals for free,” ACA’s comments said. “We are asking for access on nondiscriminatory prices and terms” — similar to deals currently reached by DirecTV Inc. and EchoStar Communications Corp. to serve multiple-dwelling units, universities and other companies.

Both DBS providers have refused to make their local-to-local signals available, ACA said.

ECHOSTAR: WE’D PARLEY

EchoStar had a response to the ACA’s charges.

“We believe that broadcasters are the appropriate party to serve the cable operators with an acceptable signal, but if the cable operators would like to discuss business opportunities with EchoStar, we would be pleased to have discussions with them,” EchoStar spokesman Steve Caulk said. (The ACA claims EchoStar has previously rebuffed the National Cable Television Cooperative’s efforts to negotiate for access to local-to-local for small operators.)

DirecTV has received inquiries from smaller operators about obtaining its local-to-local service, according to the spokesman, but it has declined those requests.

“Frankly, cable’s our largest competitor, be it a large operator or a small one,” the DirecTV spokesman said. “We’re really not in the business of enriching a competitor’s service.”

In its filing, the NCTA said cable systems that want to bring in distant stations need retransmission consent and might have to block network and syndicated programming, leaving just locally produced programming to present to subscribers.

The NCTA said DBS providers face none of those regulatory hurdles and pay lower copyright-royalty fees than cable to provide distant signals.

The cable lobby group said the problem is especially painful for many rural cable companies serving markets where analog and digital signals offered by local stations are weak.

“DBS can and does exploit these three significant advantages over cable,” the NCTA said.

The trade group called on the FCC to eliminate its blackout rules and to urge Congress to abolish retransmission consent for cable distant-signal importation, both analog and digital, to ensure that cable subscribers have the same access as DBS customers.

The NCTA said current FCC rules impose an “unacceptable hardship on rural cable operators.”

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