Thirty-thousand households in Columbia/Jefferson City, Missouri had programs blacked out for four days in January as a result of the latest standoff over retransmission fees between network affiliates and cable providers.
The Missouri showdown—in which cable provider Mediacom stopped delivering NBC and The CW programming to customers provided by local broadcaster KOMU—is another incident in an increasingly contentious relationship between broadcast networks and the cable companies that transmit them into viewers’ homes.
Missouri Attorney General Chris Koster got involved in the negotiations between Mediacom and KOMU. The AG demanded Mediacom credit customers with a rebate, provide all customers with On-Demand boxes for the next year, and requested further documentation and information on Medicacom’s business practices.
“Consumers must not be the ones to bear the risk when negotiations break down in a contractual business dispute,” Koster wrote. “It is just plain wrong to think that you can drop one of the major networks like NBC and maintain that the contract between the provider and the consumer hasn’t materially changed to the detriment of the consumer.”
‘High-Risk Strategy’
The conflict began when KOMU demanded cable provider Mediacom make additional direct payments to KOMU for the rights to retransmit NBC and The CW programming, instead of the previous payment of advertising money and noncash compensations.
KOMU argued Mediacom charges subscribers for the station’s offerings and so it was only fair for KOMU to receive more money so that it could continue to deliver high-quality programming.
But the issue isn’t as simple as a cable firm not providing transmission of a signal, explained Bartlett D. Cleland, director of the Institute for Policy Innovation’s Center for Technology Freedom.
“We find ourselves sympathetic to all parties involved in these disputes,” said Cleland. “Consumers have had their expectations disrupted, which accrues to the public relations disadvantage of both companies. This disruption was surely no small factor in either party’s risk analysis, knowing as they do that consumers have choice in today’s video marketplace and can both change video providers and also alter their viewing habits. It’s a high-risk strategy for both parties.”
‘Broadcasters Bear Market Risk’
Faced with increasing competition from online and satellite providers and trying to meet customers’ demand for increasing services along with standard programming, cable providers have been struggling to keep costs from rising more rapidly than their customers are willing to bear.
“Video service programmers are currently forced into a difficult situation,” said Cleland. “They must deal with ‘must carry’ regulations, which some broadcasters use to gain free access to video outlets. And of course as broadcasters with more valuable content demand increased prices for their products, video providers almost certainly must pass those costs along to their customers as higher prices.”
Cleland added: “But broadcasters are entitled to fair value for their content. Providing primetime shows, sports programming, local news, or other local content requires considerable time, effort, and resources, and broadcasters bear almost all of the market risk of their product.”
‘Selling Better Reception’
“It’s a complicated issue,” said Stephen R. Effros, president of Effros Communications and former head of the Cable Telecommunications Association. “Retransmission consent rules were established by the federal government as part of the Telecommunications Act of 1996, he said.
“The cable operator has to negotiate with and pay fees to the local stations for the rights to carry their signals, even though they are available for free over the air,” Effros said. “What the cable companies are selling is better reception. Yet the broadcasters have the right to withdraw their signals.”
Effros notes if broadcasters withdraw signals from cable providers, many of the local consumers can still pick up the signal, though the reception quality may be inferior.
Free-Market Solutions
Retransmission disputes have become increasingly prevalent over the past decade, leading some public policy analysts, legislators, and attorneys general such as Koster to call for government intervention.
On the national stage, Senator John Kerry (D-MA), chairman of the Senate Communications Subcommittee, has said he would continue pushing for changes to the retransmission rules. He has drafted legislation that would make it more difficult for cable providers and broadcasters to black out customers.
Cleland disagrees, arguing the government in general and the Federal Communications Commission in particular should allow the industry to find its own solutions. “This dispute, and similar such disputes, has resulted in demands that the FCC ride to the rescue with even more government,” said Cleland. “But that solution is a bit like having Jesse James ride to the rescue of a frontier Missouri bank.
“Video service providers pay for other content and so should pay broadcasters for their content. Free and direct negotiations should be encouraged, without threats of compulsory solutions, and the right to enter into—or to not enter into—private contracts should rule the day,” he added.
“The solution is a more free market, leaving the negotiation of retransmission consent agreements to the private marketplace with government on the sidelines providing law enforcement against wrongdoing,” Cleland said.
Kyle McGrath ([email protected]) writes from Waterford, Michigan. Phil Britt ([email protected]) writes from South Holland, Illinois.
