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.
Blackouts of television programming occur when television networks and individual stations cannot reach financial agreements with cable companies who retransmit the shows to subscribers. Retransmission disputes famously resulted in blackouts of several games of the 2010 Major League Baseball World Series and several minutes of the 2009 Academy Awards, and blackouts resulting from disagreements have become increasingly commonplace.
The deadline for comments on the FCC’s Notice of Proposed Rulemaking is June 27.
The FCC noted its proposed retransmission rules will “minimize video programming service disruptions to consumers.”
The proposed rules’ good-faith test lists procedural standards applicable to broadcast stations negotiating retransmission consent agreements with multichannel video programming distributors (MVPDs), including:
• a broadcaster may not refuse to negotiate with an MVPD;
• a broadcaster may not offer a single, unilateral proposal;
• a broadcaster must provide reasons for rejecting any aspects of the offer;
• a broadcaster is prohibited from entering into an agreement with any party conditioned upon denying retransmission consent to any MVPD;
• “an MVPD may present facts to the FCC which, even though they are not a specific violation of any item in the first part, given the totality of the circumstances would constitute a failure to negotiate in good faith”; and
• broadcasters must improve notice to consumers in advance of possible service disruptions.
The American Television Association supports the FCC’s proposed rules. Citing the blackout of 27 stations in 17 markets that occurred this past March due to a breakdown in retransmission negotiations between station owner LIN Media and cable operator Cox Communications, the ATVA said in a March 11 press statement, “While it won’t come soon enough for these viewers, the Federal Communications Commission could protect consumers in future blackouts by adopting proposals in the rulemaking it will soon initiate.”
“We in the industry agree with the economic analysis of Tom Hazlett, a former Chief Economist at the FCC when he says ‘broadcast TV is already an anachronism,” said Stephen R. Effros, president of Effros Communications and former head of the Cable Telecommunications Association.
“Less than 10 percent of the viewing public is getting their broadcast television over the air,” Effros continued. “They get it from cable or satellite. The so-called free public spectrum is being wasted on broadcast television, and to make matters worse, the so-called free TV broadcasters are now demanding payment through the retransmission consent rules for delivery of programming they are allegedly delivering for free.”
‘No Turning Back’
A May 2011 study conducted by SNL Kagan, a global financial analysis group based in Charlottesville, Virginia, anticipates cable companies “could pay more than $824 million in retrans fees this year, versus $484.2 million for DBS and $147.1 million for telco TV operators. TV station operators continue to strike and renew deals with all multichannel operators, now with the added wrinkle that the retrans revenue earned is increasingly being shared at various levels with their broadcast network partners. Overall for the industry, there is no turning back from the push for higher retrans fees.”
The SNL Kagan study is bolstered by comments made by CBS Chief Financial Officer Joe Ianiello. Speaking at the Barclays’ Communications, Technology & Media Conference in New York on May 24, Ianiello said retransmission consent and reverse compensation revenue could double over the next five years to $1 billion at CBS. The network previously acknowledged it expects revenues of $250 million in retransmission fees from its owned and operated stations and another $225 million from independently owned network affiliates.
“That’s $475 million of revenue and profit, because there is no cost against it,” Ianiello stated. “Just double everything. That’s the $1 billion. Whether that happens in three years or five years, we can debate about the time frame, but nobody is debating that it’s there. We know every contract when it expires and what we need to get in those negotiations.”
‘Stifling Consumer Choice’
Writing in his comments on behalf of the American Television Alliance regarding the FCC’s Notice of Proposed Rulemaking, former FCC Chief Economist Thomas W. Hazlett said the nation’s “broadcast TV system is today a needless expense, propped up not by customer demand, technical efficiency, or business necessity, but legacy regulation generations outdated,” he wrote.
Effros agrees. “It’s a hidden tax for the broadcasters and Congress ought to get rid of all of those rules and let the market work,” he said. “If they did, and a local broadcaster tried to hold up the local cable or satellite customers for a fee, then the cable or satellite company could negotiate with some other station of the same network and bring in those signals. That would be real market competition and it would end the extortion we always see right around major events like the Super Bowl. Right now the FCC rules prohibit that marketplace from working.”
Bruce Edward Walker ([email protected]) is managing editor of Infotech & Telecom News.
“Matter of Amendment of the Commission’s Rules Related to Retransmission Consent,” Federal Communications Commission NPRM, March 28, 2011: http://www.heartland.org/infotech-news.org/article/30020/Notice_of_Proposed_Rulemaking_Retransmission_Consent.html
“SNL Kagan Releases Broadcast Retransmission Fee Projections through 2017,” Fierce Telecom, May 25, 2011: http://www.fiercetelecom.com/press_releases/snl-kagan-releases-broadcast-retransmission-fee-projections-through-2017#ixzz1NTc7rNhQ
“If a TV Station Broadcasts in a Forest…,” Thomas W. Hazlett, American Television Alliance, May 23, 2011: http://www.heartland.org/infotech-news.org/article/30021/If_a_TV_Station_Broadcasts_in_the_Forest.html
“CBS Raises the Retrans Bar: Says Retrans/Reverse Comp Fees Will Top $1B in Five Years,” Mike Farrell, Multichannel News, May 24, 2011: http://www.multichannel.com/article/468731-CBS_Raises_the_Retrans_Bar.php