Policy Documents

Research & Commentary: Retransmission Fees

Marc Oestreich –
March 25, 2011

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 most local 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 who own popular network programming, syndicated shows, and sporting events. In 2009, cable and satellite companies paid broadcasters approximately $738 million in retransmission fees. By 2015 the figure is expected to reach as much as $1.6 billion. Additionally, MVPDs are forced to carry content they might consider worthless but which local broadcasters choose to run.

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. Direct-broadcast satellite (DBS) services (DirecTV, Dish Network), telephone-based services (Verizon, AT&T U-verse), and Internet-based services (Apple TV, Netflix, GoogleTV) have made competition for providing content often a battle among three or four companies.

Bruce Owens of the Free State Foundation describes what the market would be like if FCC regulations originating in the Cable Act of 1992 were eliminated: “MVPDs would acquire program rights directly from the program content owners. Without broadcasters to tax MVPDs and viewers, there would be more programming and lower program prices.”

Instead of issuing a new set of rules regulating retransmission negotiations, the FCC should eliminate its outdated regulations that hamper competition and harm consumers.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


New Directions in Mass Media Policy: Can We Do With Less Regulation in the Digital Age?
http://www.infotech-news.org/article/29557
This transcript of a panel on mass media policy includes contributions by Richard Wiley (FCC), Diane Disney (Penn State), James Gattuso (Heritage Foundation), Ellen Goodman (Rutgers), Kyle McSlarrow (National Cable & Telecommunications Association), Glen Robinson (University of Virginia), and Steven Wildman (Michigan State University). The discussants cover a wide spectrum of regulations, including the FCC’s position on retransmission.

Comments of the Free State Foundation on NBCU-Comcast Merger
http://www.infotech-news.org/article/29556
This document contains the official comments to the FCC from the Free State Foundation on the NBCU-Comcast merger. The writers argue that when creating rulemaking, the FCC should take into account the economic and competitive effects of retransmission rights.

Monopolies, Retransmission Fees, and Screwing Customers
http://www.businessinsider.com/monopolies-retransmission-fees-and-screwing-customers-2010-3
This Business Insider essay describes the consumer effects of anti-competitive retransmission markets. The author fails to observe that the market is monopolistic and slow to innovate because of a burdensome regulatory environment, but he does highlight future “over the top” technologies that will further enhance competition in content delivery.

Broadcast Retransmission Negotiations and Free Markets
http://www.infotech-news.org/article/29558
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.

The FCC, Blackouts, and the Market for TV Program Rights
http://www.infotech-news.org/article/29555
Bruce Owen of Stanford University says consumers are being shortchanged by the FCC’s regulatory system. “By all means, let a competitive market in TV programming operate free of regulatory intervention,” writes Owen. “But first, create a truly free market by repealing artificial and unproductive legacy rights, such as must carry and retransmission consent, which are no longer needed.”

Scott Cleland: Retransmission Problem Is Regulatory Failure, Not a Free Market Problem
http://www.precursorblog.com/content/retransmission-problem-regulatory-failure-not-a-free-market-problem
Precursor Blog’s Scott Cleland contends the FCC is out of touch with the current state of affairs in content distribution: “A set of FCC rules that still fantastically assumes a monopoly video market exists, when one clearly has not existed for well over a decade, creates a profound regulatory failure that distorts the market and harms consumers.”

FCC’s Dysfunctional Retransmission Rules Harm Consumers
http://www.precursorblog.com/content/fccs-dysfunctional-retransmission-rules-harm-consumers
Scott Cleland finds that retransmission-rights disputes are increasingly problematic because of the harmful regulatory environment in which they take place. “The FCC’s outdated rules are now the problem,” writes Cleland, and “the burden is on the FCC to fix the problem without delay.”

FCC to Study Rules on Cable-Broadcast Negotiations
http://www.washingtonpost.com/wp-dyn/content/article/2011/03/03/AR2011030303718.html
The Washington Post describes the FCC’s plan to create rules to “protect consumers” during fee disputes by forcing MVPDs to provide more notice of pending television blackouts and use federal arbiters in MVPD negotiations with local networks.


For further information on this subject, visit the InfoTech & Telecom News Web site at http://www.infotech-news.org or The Heartland Institute’s Web site at http://www.heartland.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Institute Web site, please contact Legislative Specialist Marc Oestreich at 312/377-4000 or moestreich@heartland.org.