Small Operators Balk At ‘Discriminatory’ Carriage Fees

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WASHINGTON, D.C. – Negotiations between operators of small groups of cable systems and the suppliers of their local broadcast television signals this year will “leave bodies on the street,” according to Patrick Knorr, the head of a set of systems based in Kansas and the chairman of the American Cable Association, which lobbies on behalf of more than a thousand operators of relatively small cable systems.

These operators are facing the prospect of signing agreements that are “500 percent” as expensive—on a per subscriber per month basis—than large nationwide operators of cable systems for the right to retransmit local broadcast programming on their networks, according to Knorr.

A typical independent operator may serve just 5,000 subscribers in a given market; all ACA members nationwide serve about 7.5 million subscribers. The four largest multichannel service providers—Comcast, DirecTV, Dish Network and Time Warner Cable—each serves more than 13 million subscribers.

Operators of national broadcast networks, such as CBS, and of local TV station groups, such as Sinclair Broadcasting, are now pushing for payments of as much as $1 a subscriber a month for the carriage of local TV programming and the national programming that is run in primetime and drivetime.

But small operators end up paying more than large operators, sometimes as much as 20 times as much, according to ACA lawyer Chris Cinnamon. This amounts to “retransmission consent price discrimination,” Cinnamon said.

“This really is the key issue we came here to fight,” said Knorr, at a breakfast panel run by Multichannel News at the start of the 15th Annual Washington Summit of the ACA, held Tuesday at the Weston Washington City Center.

Such discrimination, unchallenged, could mean some operators could become “bodies on the street” and not be able to attend the 16th summit, next year, Knorr said.

Attendees of the summit will attempt to address the discrimination on Wednesday, in a series of meetings coordinated by the ACA with members of Congress or their aides on Capitol Hill.

The legislators will hear that the sole reason for the discrimination against the small operators is that…they’re small, Cinnamon said in a mid-morning panel session.

The small operator has little leverage in the negotiations because the loss of a few thousand subscribers in a market “won’t have any significant impact” on station advertising revenue, Cinnamon said, citing a study of the causes of the pricing and payment problem.

Operators should pursue changes in the rules surrounding retransmission consent that equal the balance of power in negotiations, or at least start to reduce the imbalance.

For one thing, the threat of taking away a local channel in the midst of negotiations should be blunted, said Steve Friedman, the chief operating officer of Wave Division Holdings, which operates systems in Washington, Oregon and California.

A simple way to end the discrimination, said Knorr, was to enforce a “most favored nation” pricing program. In that approach, the lowest price negotiated between a TV station operator and a multichannel service operator, whether cable, satellite or other, would apply, by regulation or law, to all competitors in a local market.

A third means of creating a balance in the negotiations would be to end “market exclusivity” and allow multichannel service operators, such as small cable system operators, to import signals from other markets, Knorr and Friedman said. That would allow the operator to secure, say, NBC programming from another city—if reasonable terms could not be reached with the local NBC station—and moderate the starting point on price negotiations.

Currently, broadcasters can force local cable operators to carry their signals—whether they like it or not—under “must-carry rules.” And if the broadcasters, under existing rules, want payment for their signals, they are the only game in town that, by law, the operators can negotiate with for the signals.

The broadcasters “can’t be allowed to game the system,” said Dan Isett, public policy director of the Parents Television Council, who was a member of the breakfast panel.

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