Policy Documents

Research & Commentary: Retransmission Fee Update

Matthew Glans and Marc Oestreich –
January 24, 2013

Increasing broadcast retransmission fees have caused much tension between multichannel video programming distributors (MVPDs) and broadcasters. This has led to blackouts, often of major television events, when the two sides cannot reach agreement. These disputes are not normal market realities but instead a product of the FCC regulatory atmosphere, which introduces a host of major biases into the market.

The FCC’s “must-carry” rules, for example, force MVPDs (such as Comcast, AT&T U-verse, DirecTV, and Dish Network) to carry broadcaster content they otherwise might not. When broadcasters do have valuable content, they can opt out of the “must carry” deal and negotiate a higher price with the MVPD. The “network non-duplication” and “syndication exclusivity” rules bar MVPDs from getting content from all but the nearest network affiliate, allowing local stations to monopolize content and name their price. These rules prevent cable companies from negotiating with multiple providers to find the best price for content; instead they are held hostage to the whims of local broadcasters.

In late 2011, Sen. Jim DeMint (R–SC) and Rep. Steve Scalise (R–LA) introduced the Next Generation Television Marketplace Act, which would remove many of the FCC-imposed barriers to market-based negotiations and repeal retransmission consent, carriage mandates, compulsory license provisions, and restrictive ownership caps.

In a Heritage Foundation Backgrounder, James Gattuso, senior research fellow in regulatory policy, argued that replacing the current retransmission consent system controlled by the FCC with a system based on copyright law and overseen by the courts would simplify the process and align its rules with those affecting other providers.

Many of these regulations are the product of the Cable Act of 1992, which was built on the premise that cable companies would inherently monopolize content. If that was ever true, it is certainly not so today. The rules guiding TV programming and distribution today were built around a market and technologies that no longer exist and are in desperate need of reform.

Instead of issuing a new set of rules regulating retransmission negotiations, the FCC should eliminate its outdated regulations that hamper competition and harm consumers.

The following documents consider retransmission issues from a variety of perspectives.

Research & Commentary: Retransmission Fees
http://heartland.org/policy-documents/research-commentary-retransmission-fees
Marc Oestreich examines the growing debate over retransmission fees, arguing that instead of issuing a new set of rules regulating retransmission negotiations, the FCC should eliminate its outdated regulations because they hamper competition and harm consumers.

Adjusting the Picture: Television Regulation for the 21st Century
http://heartland.org/policy-documents/adjusting-picture-television-regulation-21st-century
In this Heritage Foundation Backgrounder, James Gattuso, senior research fellow in regulatory policy, discusses the growing conflicts between traditional broadcasters and the newer cable and satellite providers over retransmission rights. Although some urge the FCC to take a more active role in reducing these conflicts, Gattuso argues the FCC would do better to reduce its role and eliminate the morass of unnecessary television rules currently on the books. He explains why the proposed Next Generation Television Marketplace Act is a good starting point for aligning policy with today’s television realities.

Retransmission Battles Heat Up Before Super Bowl
http://news.heartland.org/newspaper-article/2012/03/01/retransmission-battles-heat-super-bowl
Phil Britt writes in the Heartlander digital magazine about a retransmission dispute between network television stations that broadcast the 2012 Super Bowl and the cable and satellite companies that bring it to viewers.

Proposed Retransmission Rules May Ease Broadcast Blackouts
http://news.heartland.org/newspaper-article/2011/05/31/proposed-retransmission-rules-may-ease-broadcast-blackouts
Television blackouts resulting from retransmission fee battles have prompted the Federal Communications Commission to propose new negotiation rules between broadcasters and multichannel video programming distributors, more commonly known as cable and television satellite companies. In this Heartlander article, Bruce Edward Walker examines the proposed rule changes and how broadcasters and cable companies are reacting.

New Competitor Benefits from NYC Retrans Battle
http://news.heartland.org/newspaper-article/2011/01/03/new-competitor-benefits-nyc-retrans-battle
The retransmission battle between Fox TV and New York-area Cablevision provided a boon for new startup ivi TV. The Internet broadcaster increased subscriptions by more than 320 percent during a nearly month-long programming blackout in 2010. Phil Britt reports on how ivi TV benefited from the retransmission battle between two large telecom companies.

Analog and Digital Must-Carry Obligations of Cable and Satellite Television Operators in the United States
http://heartland.org/policy-documents/analog-and-digital-must-carry-obligations-cable-and-satellite-television-operators-
Rob Frieden provides a concise summary of mandatory signal carriage obligations of cable television and direct broadcast satellite operators. The paper provides an update of changes in must-carry responsibilities resulting from the onset of digital broadcast television and enactment of the Satellite Home Viewer Extension and Reauthorization Act of 2004.

Broadcast Retransmission Negotiations and Free Markets
http://heartland.org/policy-documents/broadcast-retransmission-negotiations-and-free-markets
Free State Foundation scholar Randolph May takes readers through the regulatory history of broadcast retransmission. From a time when retransmission was encouraged, to when it was banned, to the current regulatory scheme, this has always been a difficult issue for the FCC.

Toward a True Free Market in Television Programming
http://www.forbes.com/sites/adamthierer/2012/02/19/toward-a-true-free-market-in-television-programming/
Writing for Forbes, Adam Thierer of the Mercatus Center discusses the Next Generation Television Marketplace Act and argues in favor of reforming the current retransmission consent rules. “It’s time for lawmakers to get out of the way and just let these big boys hammer out deals at a bargaining table free of any regulatory thumb on the scales one way or the other. Washington need not micro-manage content contracts in an age of abundant video choices and constant innovation,” he writes. 

Consumer Welfare and TV Program Regulation
http://heartland.org/policy-documents/consumer-welfare-and-tv-program-regulation
In this paper from the Mercatus Center, Bruce Owen briefly describes some unusual economic features of media content and the characteristics of free markets in media content. He then lists some of the legacy interventions that prevent video markets from operating to the advantage of consumers, including retransmission consent. Lastly, his study considers what reforms will be required to eliminate the distortions currently impairing these markets.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Tech News Web site at http://news.heartland.org/tech, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or mglans@heartland.org.