CommLawCenter

Posted March 19, 2012

By Scott R. Flick

As those who follow our interactive calendar are aware, I spoke last week as a representative of broadcasters on a retransmission panel at the American Cable Association Annual Summit. The ACA's membership is predominantly smaller cable system operators, and because of that, the ACA has been very vocal in Washington regarding its displeasure with the current state of retransmission law.

While broadcasters are understandably tired of being paid less per viewer than cable networks, smaller cable operators feel they are being squeezed in the middle--forced to pay more to retransmit broadcast programming, but unable to free up money for those additional payments by paying cable networks less than the amount to which those networks have become accustomed. While the economics of supply and demand should eventually bring programming fees in line with the attractiveness of that programming to viewers, this process will take some time. In the meantime, as I heard from operator after operator during the panel, they are looking for a much faster solution, and that solution is for the government to step in and by some method guarantee cable operators low-cost access to broadcast signals.

A discussion of the dynamics of retransmission negotiations and policy could easily fill a book, but for the limited purposes of this post, I just want to focus on a particular refrain I heard from cable operators, which is that losing a broadcast network signal for even a short time is devastating to their business, leaving them in a tenuous bargaining position during retransmission negotiations.

The reason this came to mind today is a pair of decisions just released by the FCC which illustrate the temptation for a small cable operator to engage in a little "self-help" to overcome what it perceives as an unfair negotiation. These decisions also illustrate why other cable operators should ensure they never succumb to that temptation. In these decisions (here and here), the FCC issued two Notices of Apparent Liability to the same cable operator for continuing to carry the signals of two broadcasters after the old retransmission agreements with those stations expired and before new retransmission agreements were executed.

The affected broadcasters filed complaints with the FCC, and the cable operator responded that it "does not refute that it retransmitted [the stations] without express, written consent. Rather, [the cable operator] argues that it faced a 'dramatic increase' in requested retransmission consent fees, and states that it receives the signal by antenna rather than satellite or the Internet. [The cable operator] claims that [the broadcaster] is 'using [the Commission] as a tool to negotiate a dramatic increase in rates' and it requests that the Commission require the fair negotiation of a reasonable rate."

After a telephone conference with FCC staff, the parties reached agreement on a new retransmission agreement for each of the stations involved, and the agreements were executed on February 3, 2012. However, the really interesting part of these decisions relates not to how the FCC proceeding arose, but to how the FCC chose to assess proposed forfeitures against the cable operator in the twin Notices of Apparent Liability. The FCC noted that the base forfeiture for carriage of a broadcast station without a retransmission agreement in place is $7,500. Since the cable operator had carried the stations without a retransmission agreement for 34 days, the FCC determined that the base forfeiture for each of the violations was $7,500 x 34, or $255,000. That would make the total base forfeiture for illegally carrying both stations during that time $510,000.

Fortunately for the cable operator, the FCC reviewed the operator's financial data and concluded that a half-million dollar fine "would place the company in extreme financial hardship." The FCC therefore exercised its discretion to reduce the proposed forfeitures to $15,000 each, for a total of $30,000. These decisions certainly demonstrate that no matter how frustrated a cable operator is with retransmission costs, the self-help approach is not a wise path to take.

In fact, the proposed FCC fines are only the beginning of a cable operator's potential liability for illegal retransmission. Not addressed by the FCC in its decisions is the fact that retransmission of a broadcast station without an agreement is a violation of not just the FCC's Rules and the Communications Act of 1934, but also of copyright laws. If the illegally-carried broadcast stations chose to pursue it, they could seek copyright damages against the cable operator, and the proposed FCC fines pale in comparison to the potential copyright damages for illegal retransmission. The Copyright Act authorizes the award of up to $150,000 in statutory damages for each infringement, with each program retransmitted being considered a separate infringement. So, for example, if we assume that each station in these decisions aired 24 programs a day for 34 days, the potential copyright damages for such illegal carriage would be $122,400,000 per station. The potential damages for illegally carrying both stations would therefore be close to a quarter-Billion dollars! While it is very unlikely that a court would impose the maximum damages allowed under the Copyright Act, no cable operator would want to run the risk of being ordered to pay even a tiny fraction of that amount for illegal retransmission.

In short, though cable operators certainly may not like paying retransmission fees for broadcast programming, these decisions make clear that the price of not having a retransmission agreement in place can be far higher.

Posted October 11, 2011

John Hane will be joined by Tom Larsen of Mediacom Communications and Sarah Barry and Robin Flynn of SNL Kagan to discuss and debate whether the FCC will adopt new retransmission consent rules and whether rules are needed at all.

To register, please click here.

Posted October 10, 2011

By John K. Hane

Spoiler alert: Tomorrow I'll be participating in a webinar (with Tom Larsen of Mediacom and Sarah Barry and Robin Flynn of SNL Kagan) to discuss and debate whether the FCC will adopt new retransmission consent rules and whether rules are needed at all. If you want to be surprised at my comments, don't read this post!

The debate so far has been characterized by a lot of rhetoric. True facts, when they are presented, usually lack context. For example, it is true that broadcast signal carriage rates are rising fast. But the multichannel pay providers attribute those rising rates to "greed". It's a safe bet that the real reasons for rising retransmission fees are more complex than that. There are plenty of greedy people in all sectors of for-profit commerce, but few have the ability to raise rates at will. Market forces have a way of curbing irrational demands.

What we have is a debate about whether the government should adopt new regulations governing private transactions that take place in the very complicated television distribution marketplace. Lost in the debate is any meaningful description of what that marketplace looks like today and how it came to this point. Tomorrow I'll describe the marketplace and explain why it is permitting retransmission rates to rise. I doubt I'll change anyone's mind about whether retransmission rates should rise. But I hope an explanation of the market forces that are causing them to rise will nudge the debate in a more constructive direction.

And now for the spoilers. Is retransmission consent reform needed? As an advocate for broadcasters, I surely think not. But my many years of experience in both broadcast and multichannel pay television (I haven't always been a lawyer) tell me the same thing. Rising rates reflect market forces adjusting compensation to better reflect relative value. Rates won't rise at the current pace forever, and if they manage to exceed the underlying value of broadcast carriage rights, the market will drive those rates back down. Consumers aren't hurt by rising retransmission rates. They are hurt when prices they pay for services are greater than the underlying value of the service. I can make a persuasive case that rising retransmission consent rates will, given time, result in lower cable and satellite bills.

Will the FCC adopt new rules curbing the flexibility of broadcasters in retransmission consent negotiations? The buzz in Washington is that it won't. I don't think the FCC would impose new rules even if it had the legal authority to do so. Many at the FCC understand the complexities of the television distribution market, and they understand that meddling in one small part of that market will inevitably have unintended consequences, harming consumers and competition in ways that would outweigh any hoped for benefits from new regulations.

If you're interested in knowing more on this topic but can't join the webinar tomorrow, please drop me an email and I'll send a copy of my slides.

Posted September 23, 2011

By Lauren Lynch Flick

This October has more than its share of filing deadlines for broadcasters to worry about. Of course, it is the end of the quarter, so broadcasters should be prepared for their routine quarterly filings. Additionally, certain states will have EEO and noncommercial ownership filing obligations. This year is also a radio license renewal year and a triennial must-carry/retransmission consent election year for television stations. All in all, there are a number of deadlines to keep track of, so read on.

October 1 (weekend)

• Must-Carry/Retransmission Consent Elections: Deadline for commercial full power television stations to notify by certified mail all cable and satellite providers in their markets of their election between must-carry and retransmission consent for the next three-year period. More information on this election can be found here. Noncommercial stations must make requests for carriage, as they do not have retransmission consent rights.
• EEO Public File Reports: Deadline for radio and television station employment units with five or more employees in the following states to prepare and place in their public inspection file, and on their website if they have one, their annual EEO Public File Report: Alaska, Florida, Hawaii, Iowa, Missouri, Oregon, and Washington, as well as American Samoa, Guam, Mariana Islands, Puerto Rico, Saipan, and the Virgin Islands.
• FCC Form 323-E: Deadline for the following noncommercial stations to electronically file their biennial ownership report on FCC Form 323-E: Radio stations licensed to communities in Alaska, Florida, Hawaii, Oregon, and Washington, as well as American Samoa, Guam, Mariana Islands, Puerto Rico, Saipan, and the Virgin Islands, and television stations licensed to communities in Iowa and Missouri.
• Pre-filing Renewal Announcements: Date on which radio stations licensed to communities in Alabama and Georgia must begin airing their pre-filing license renewal announcements. The remaining announcements must air on October 16, November 1 and November 16.
• License Renewal Filing: Deadline for radio stations licensed to communities in Florida, Puerto Rico, and the Virgin Islands to electronically file their license renewal applications. These stations must also commence their post-filing renewal announcements to air on October 1 and 16, November 1 and 16, and December 1 and 16.

October 10 (holiday)

• Quarterly Issues/Programs Lists: Deadline for all radio, full power television and Class A television stations to place their Quarterly Issues/Programs List in their public inspection file.
• Children's Television: Deadline for all commercial full power and Class A television stations to electronically file FCC Form 398, the Children's Television Programming Report, with the FCC and place a copy in their public inspection file. These stations must also prepare and place in their public inspection files their documentation of compliance with the commercial limits in programming for children 12 and under.

October 23 (weekend)

• License Renewal Documentation: Date on which radio stations licensed to communities in North and South Carolina must place in their public inspection file documentation of having given the required public notice of their August 1st license renewal filing.

Posted September 19, 2011

By Scott R. Flick

October 1, 2011 marks the triennial deadline for full power television stations (and a few lucky qualifying LPTV stations) to send their written must-carry or retransmission consent elections to each of the cable and satellite providers serving their market. The elections made by this October 1st will govern a station's carriage rights for the three-year period from January 1, 2012 to December 31, 2014, and the impact of these elections will be far more significant for individual TV stations than any made before.

To understand why, keep in mind that in the early days of must-carry/retransmission consent elections, the lack of local competition among cable providers allowed them to take a "my way or the highway" attitude toward television broadcasters. As cable subscribership soared, and local cable providers faced little or no competition for subscribers, broadcasters had little choice but to make their programming available for retransmission. Because cable providers were in a position to refuse to pay cash for retransmission rights, the largest broadcasters were limited to negotiating for non-monetary compensation (e.g., obtaining carriage for an affiliated program service, which led to the launch of Fox News, among others). Smaller broadcasters typically did worse, as they had a weaker negotiating position and little need for non-monetary compensation like guaranteed carriage of a non-existent second channel. These were the days before digital multicasting made such additional local channels at least plausible.

Faced with these challenges, many stations just elected must-carry, which guaranteed cable carriage while avoiding the need to engage in prolonged negotiations likely to result in little gain. That all changed with the arrival of satellite television providers, who provided competition to cable, and more importantly, needed local TV signals to take market share from cable providers. Both of these developments were critical to creating a free market for the retransmission of broadcast programming. First, because they lacked cable's monopoly position, satellite providers were willing to pay cash to obtain the broadcast programming that would allow them to compete for subscribers. Second, as subscribers left cable for satellite, cable providers suddenly had to compete for subscribers, and couldn't do it without ensuring continued access to local broadcast signals.

Continue reading "Time for Cable and Satellite Carriage Elections, and the Stakes Have Never Been Higher"

Posted April 5, 2011

By John K. Hane

Ever since Time Warner Cable released an app that allows users to watch two or three dozen cable channels on iPads we've been barraged by press reports of litigation and plans of other multichannel providers to launch similar services. Cablevision has announced it's launching a similar app that lets subscribers watch their entire channel lineup on an iPad.

Suddenly cable and satellite companies are rushing to review their programming and retransmission deals to figure out what rights they have obtained, while programmers frantically review distribution agreements to see what rights they may have given away. We can find a few lessons about retransmission consent agreements in the App Flap, but let's save those for another day.

What this really comes down to is whether the iPad apps qualify as "cable system" distribution, Internet distribution, or something else. Most programmers (and a few careful broadcasters) specifically carve out Internet distribution when signing carriage agreements - existing deals cover distribution for in-home viewing over cable and DBS systems. Internet distribution rights are negotiated separately, if at all. But many broadcasters who signed MSO form retrans agreements may have given away a lot more than they intended to.

Continue reading "The iPad App Flap - What's the Big Deal?"

Posted March 4, 2011

By Lauren Lynch Flick and Cydney Tune

On February 22, 2011, US District Court Judge Naomi Reice Buchwald of the Southern District of New York issued a 59-page decision enjoining ivi TV, Inc. from streaming the programming of various network-affiliated television stations on the Internet without their permission. The judge's opinion articulates a basic principle of copyright law -- that the creator of the content holds a bundle of rights which, with very few exceptions, it alone controls. Therefore, even in this age of proliferating distribution platforms, the fact that the copyright owner has made its content available via a number of different technologies does not diminish its ability to control whether and how to make it available on a new platform. The case will likely yield more examination of this issue, as ivi TV has sought a stay of the injunction.

Background
ivi TV began Internet streaming of the signals of several network affiliated television stations located in Seattle and New York in September 2010, and thereafter announced plans to add stations from Chicago, Los Angeles and San Francisco in the future. It offered subscribers located throughout the United States the ability to receive these television signals via an Internet connection for a monthly fee. Subscribers downloaded a player, chose the signals to watch, and the signals were delivered in an encrypted form. In anticipation of the content owners' lawsuit, ivi TV sought a Declaratory Ruling from a US District Court in Seattle that the company was not infringing the copyrights in the programming, but the court dismissed that case as an anticipatory filing. A consortium of television stations, the producers of programming shown on the stations, and Major League Baseball later commenced a lawsuit for copyright infringement in New York, seeking an injunction to prevent any further retransmissions of their content by ivi TV.

Continue reading "Client Advisory: A Look at the Decision Enjoining ivi TV From Streaming Broadcast Content on the Internet"

Posted February 9, 2011

By Clifford M. Harrington

For many television stations, network non-duplication and syndicated exclusivity protection are a distant memory. With the ever-increasing number of non-broadcast programming services available to cable operators, the number of distant station signals imported by cable and satellite into local markets has fallen dramatically. As a result, many local television stations are no longer vigilant in sending out network non-duplication or syndicated exclusivity notices. Recent developments arising in retransmission consent negotiations, however, make clear that television stations need to be more diligent than ever in making sure that they send out timely notices, and that the notices conform to all FCC requirements.

Recently, Smith Media (Smith) was unable to reach agreement with Time Warner Cable (TWC) regarding retransmission consent for the signals of several network-affiliated stations owned by Smith, so TWC dropped a number of Smith stations from its channel line-ups. Then TWC began to import distant network-affiliated station signals into the markets where it lost access to the Smith network-affiliated stations. It appears that Smith had not kept its network non-duplication notices up to date, opening a window in which TWC could avoid the exclusivity which Smith would normally have been able to enforce through its network contracts.

TWC threatened to do the same thing during its dispute with Sinclair Broadcast Group (Sinclair). While the Sinclair dispute appears to have been settled without its stations being dropped by TWC, an impasse in negotiations would have tested its non-duplication protection rights.

As noted in a recent trade periodical, not all broadcasters have been diligent in perfecting their non-duplication rights in recent years. Television station licensees facing retransmission consent negotiations should carefully review their non-duplication protection notices to ensure that they conform to FCC requirements. The notice rules are complex, and it may be advisable to review them with your counsel.

Because non-duplication notices must be sent to multichannel video program distributors within 60 days of execution of a network affiliation agreement, it may already be too late to cure a failure to give timely notice. In such a case, the station operator should consider contacting their network to amend or enter into a new network affiliation agreement in order to obtain updated network affiliation rights, thereby triggering a new 60-day notice period.

The Smith and Sinclair disputes raise two other important issues for television broadcasters. First, it appears that the reason that TWC could import distant network signals into Smith's markets is that the standard TWC retransmission consent agreement permits the carriage of the station being retransmitted by any TWC system anywhere, not just within the station's home market. It is advisable that all stations review the content of their retransmission consent agreements carefully, and, at least in the future, be sure to limit carriage rights to their own market, and perhaps to areas in which they are significantly viewed or have historically been carried.

Second, the other issue which came to light is that TWC has entered into an agreement with the FOX Network which allows TWC to carry a direct feed of FOX Network programming for a period of up to one year when a local FOX affiliate refuses to grant TWC consent to retransmit its signal. This could substantially reduce the local broadcaster's leverage in retransmission consent negotiations, and is certain to be a major topic of discussion between network affiliate organizations and their networks.

Posted December 29, 2010

By Scott R. Flick

Earlier this month we posted our 2011 Broadcasters Calendar on CommLawCenter as well as on our Pillsbury web page. We have been annually publishing the Broadcasters Calendar, which contains much information regarding broadcast station deadlines and legal requirements, for as long as I can recall. It has always been one of our most popular publications, and I usually get calls beginning in early November asking when next year's calendar will be available. The "easy to read" pdf version of the Calendar can be found here, and a text-searchable version is available here.

Even a brief review of the 2011 Broadcasters Calendar reminds us that 2011 will be a busy year for not just broadcasters, but for cable and satellite operators as well. October 1, 2011 is the deadline by which broadcasters qualifying for must-carry need to notify cable and satellite operators of their election between must-carry status and retransmission consent. Recent retransmission disputes once again remind us that retransmission negotiations and their associated revenue are critical to the future of broadcast television. However, the sheer volume of negotiations and carriage disputes likely to occur following the October 1 election deadline will almost certainly make this holiday season look tranquil by comparison.

Adding to the action will be continued efforts by the cable and satellite industries to draw Congress and the FCC into the fray, introducing legislative and regulatory uncertainties into an already complex negotiation process. Their chances for success will depend greatly upon how much disruption in carriage of broadcast programming occurs in 2011, and the public's perception of who is at fault for that disruption. Regardless of the outcome of this particular Washington confrontation, look for 2011 to be the year where economics force cable and satellite providers to more tightly link the number of viewers a program service attracts with the amount they agree to pay for that service. Overpaying for niche cable networks that don't pull in large numbers of viewers is so "last decade".

2011 also marks the beginning of the FCC's next eight-year license renewal cycle, with radio stations in DC, Maryland, Virginia, and West Virginia starting pre-filing announcements in April for their upcoming license renewal applications. The filing cycle will continue state by state until it concludes with television stations in Delaware and Pennsylvania running their last post-filing announcements on June 16, 2015.

However, many stations haven't had their last license renewal application granted because of indecency complaints still pending against them. The FCC has pretty much ceased processing indecency complaints while it awaits guidance from the courts as to whether it can legally enforce the prohibition on broadcast indecency, and if so, how it will be allowed to do that. I have been told that there are literally hundreds of thousands of indecency complaints now pending at the FCC, so unless the courts do the FCC the favor of finding the prohibition on indecency completely unconstitutional, it will take the FCC years to sift through these complaints in an effort to apply any refined indecency standard announced by the Supreme Court.

It is therefore reasonable to predict that indecency complaints will continue to play a large role in the processing of upcoming license renewal applications. 2011 will hopefully be the year when the courts tell us exactly how large (or small) that role will be. If the prohibition on indecency survives this latest round of judicial scrutiny, broadcasters and the FCC can expect a lot of complaint investigations and litigation as both struggle with where the line on content is being drawn.

Of course there are numerous other events that will contribute to 2011 being one of the busiest years in memory for broadcasters. A rebounding economy is slowly lifting most boats in the broadcast industry, with the obvious exception being those that burned their critical assets for fuel during the lean times, and don't have much boat left.

With a growing amount of money to fight over, the fights will begin in earnest (see "Retrans" above). Negotiations between the NAB and the recording industry over performance royalties will continue, and "performance tax" legislation will again rise in Congress with the same certainty that the slasher in a horror film returns for unending sequels.

Broadcasters and the FCC will also be implementing the latest generation of the Emergency Alert System in 2011, and the FCC will continue its efforts to repurpose broadcast spectrum for mobile broadband use, leading to new rules permitting multiple broadcasters to share a single channel, and potentially to legislation allowing participating broadcasters to share in the proceeds of broadband spectrum auctions. As with most of the items discussed above, there is both opportunity and peril for broadcasters here, and those that are inattentive risk missing the former and being battered by the latter.

Yes, 2011 will be a very busy year.

Posted December 20, 2010

Below is the text of our 2011 Broadcasters' Calendar, which lists deadlines that broadcasters should be aware of for 2011. If you would prefer to read the PDF version of the calendar, it can be found here.

Items of Note in 2011

1. Applications for Renewal of License: June 1, 2011 is the first filing date of the three-year period during which the licensees of all commercial and noncommercial AM, FM and FM Translator stations throughout the United States and its territories will be required to file their applications for renewal of broadcast station license. Licensees in the television services will commence this process in 2012. The date on which a station's application is due depends on the state or territory of its community of license. All licensees should familiarize themselves now with the dates associated with this important filing, including the dates on which public notice announcements must air in advance of the renewal filing; the filing date itself, which is approximately four months before the date of license expiration; and the dates on which post-filing announcements must air.

2. Biennial Ownership Report Filing Requirements for Commercial Radio and Television Stations: Licensees of commercial, full-power radio and television stations as well as Class A television and low power television stations should be ready to file their biennial ownership reports on FCC Form 323 by the new, uniform filing date of November 1, 2011. While these licensees may have filed a biennial report as recently as the summer of 2010, that report fulfilled the reporting obligation for the period that ended on November 1, 2009. Only because of difficulties with the FCC's electronic filing system was the November 1, 2009 deadline ultimately extended to July 8, 2010.

Continue reading "2011 Broadcasters' Calendar "

Posted December 10, 2010

By Paul A. Cicelski

As we discussed in a previous post and separate Client Advisory, the FCC released a Public Notice to implement a provision of the Satellite Television Extension and Localism Act (STELA) that requires the FCC to submit a report on in-state broadcast programming to Congress by August 11, 2011. The Public Notice was published in the Federal Register yesterday, which means that comments are due by January 24, 2011, with reply comments due by February 22, 2011.

As we discussed previously, the purpose of the FCC's Report to Congress is to address a concern of some members of Congress that subscribers located in markets that straddle a state line may be unable to receive broadcast news and information from their own state because the local stations made available by cable and satellite providers are all located in the "other" state. According to the FCC, the report will: (1) analyze the number of households in a state that receive the signals of local broadcast stations assigned to a community of license located in a different state; (2) evaluate the extent to which consumers in each local market have access to in-state broadcast programming over-the-air or from a multichannel video programming distributor; and (3) consider whether there are alternatives to DMAs for defining "local" markets that would provide consumers with more in-state broadcast programming.

This proceeding is relevant to retrans because there have been some efforts on Capitol Hill to introduce legislation allowing cable and satellite operators to import the signals of television stations from another market. While the official description of this situation describes these subscribers as being deprived of news and information regarding their own state, the more pragmatic concern of such viewers it is argued is that they aren't able to watch sports teams from their state as often as they would like. However, creating a legislative opportunity to import distant stations carrying such in-state sports (and other) programming would often mean importing a station that duplicates the network and syndicated programming of a local station already carried by cable systems and satellite providers in the market. Importing stations in this manner raises complex issues with respect to potentially siphoning off the local station's viewers (and advertisers), undercutting the local station's program exclusivity, and impacting the local station's leverage when it commences retransmission consent negotiations.

For those who plan on filing comments or replies, keep in mind that the FCC has specifically asked for data to help it analyze the issues relating to the availability of in-state broadcast stations for consumers, including the proper "methodologies, metrics, data sources, and level of granularity" that should be used in its report to Congress. The FCC is also asking for specific information to identify counties and populations within given states that have limited access to in-state broadcast programming.

As a result of efforts currently underway on the Hill with respect to potentially allowing the importation of in-state but out-of-market signals, those interested in retransmission consent should continue to monitor this matter closely.

Posted November 24, 2010

By Scott R. Flick

Yesterday, a day in advance of the November 24th statutory deadline to adopt rules implementing the Satellite Television Extension and Localism Act, the FCC released a flurry of STELA-related orders. STELA governs the satellite carriage of broadcast stations, and in particular, the importation of distant network stations, in local markets. Because STELA and its predecessor statutes lie at the nexus of communications and copyright law, they represent very complex and arcane matters that often leave even communications lawyers scratching their heads if they aren't experienced in the area.

For those interested in the details of yesterday's three Orders and the FCC's request for additional comments, I recommend taking a look at our Client Advisory on the subject from earlier today. For the rest of the population, suffice it to say that the major impact of these orders for broadcasters is how they affect the ability of satellite operators to import a "significantly viewed" ("SV") duplicating network signal into portions of a local market, thereby undercutting the local network affiliate's ratings, ad revenue, and retransmission negotiations.

As detailed in the Client Advisory, of the FCC's three Orders, one favors satellite operators by making it easier to import distant network stations into a market, while the other two favor broadcasters by limiting the proportion of satellite subscribers in a market that are eligible to sign up to receive a distant network station.

Of particular note is the FCC's conclusion in one of the Orders that "because SV status generally applies to only some areas in a DMA and not throughout an entire DMA, we find it unlikely that an SV station could permanently substitute for a local in-market station, even in the provision of network programming to the market." The FCC further stated that "because most viewers want to watch their local stations, we do not think that carriage of only SV stations would satisfy most subscribers for an extended time."

That is a comforting conclusion for broadcasters, and probably an accurate one. However, it may be cold comfort for the local broadcaster in heated retransmission negotiations where the satellite operator threatens to import a duplicative network station into the market. Because of that, and despite the complexity of the law in this area, television station owners and satellite operators need to acquire a keen understanding of each other's rights under STELA and the FCC's related rules, or proceed at their own peril.

Posted November 24, 2010

By Lauren Lynch Flick and Scott R. Flick

Yesterday, the Federal Communications Commission issued three Orders and a Public Notice designed to implement the new requirements of the Satellite Television Extension and Localism Act (STELA).

The FCC beat by one day the November 24, 2010 statutory deadline for adopting new rules governing several aspects of satellite operators' carriage of television broadcast signals under STELA. The first of three Orders favors satellite providers by making it easier for them to import the signals of significantly viewed ("SV") stations from neighboring markets into a station's local television market. However, the other two Orders favor broadcasters in updating the procedures for subscribers wishing to qualify to receive distant network television stations from their satellite operator. Lastly, the FCC issued a Public Notice seeking comments and data for a required report to Congress regarding the availability of in-state broadcast stations to cable and satellite subscribers located in markets straddling state borders.

Significantly Viewed Stations Order
In this Order, the FCC concluded that, under STELA, a satellite subscriber must generally subscribe to the local-into-local package before it can receive the signal of an out of market station significantly viewed (over-the-air) in that subscriber's area. Illogically, however, the subscriber does not have to receive the signal of the local affiliate of the same network as the imported SV network station. The subscriber's receipt by satellite of any local station is all that is needed. The FCC stated that its interpretation means that, where a local affiliate is not carried during negotiation of a retransmission consent agreement, the satellite carrier can provide certain subscribers with network programming from an SV network station in a neighboring market.

Continue reading "Client Alert: FCC Implements Satellite Television Extension and Localism Act"

Posted October 19, 2010

By John K. Hane

In the heat of the battle raging over carriage of various Fox networks on Cablevision's systems, Randy May, the founder and chief intellect of the Free State Foundation, has weighed in on the retransmission consent debate (available here). I read his comments with interest, because Randy often provides insightful observations on important telecommunications policy issues, and I care about retransmission consent.

I was disappointed. The paper only rehashes the cable television party line.

Surprisingly, Randy suggests that broadcasters' exercise of retransmission consent rights should be scrutinized and possibly regulated even more. One would have to dig pretty deep to find the last time Randy advocated solving a problem by throwing more government at it.

The party line Randy endorses goes something like this: broadcasters get special privileges from the government with respect to signal carriage, which give them a retrans "negotiating advantage." Retransmission consent negotiations don't happen in a free market goes the argument. The solution? Broadcasters' retransmission rights should be even more regulated than they are already.

Randy cites two "advantages" broadcasters supposedly enjoy in retrans negotiations: (1) must-carry and (2) program exclusivity. The cable industry party line is a little tortured, coming, as it does, from interests subject to a small fraction of the regulatory umbrella that shadows broadcasters. These are the same companies, after all, that argue government should stand back and let broadband carriers treat Internet traffic as they will.

The party line is also completely wrong about the carriage rules.

First, the existence of must-carry sometimes harms, but never helps, broadcasters that elect retransmission consent. Broadcasters must claim their retrans rights once every three years through a technical and exacting election process. If they make a mistake, they risk having to give away their signals for free. Cable companies routinely use this against broadcasters in retrans negotiations.

By definition, any broadcaster engaged in retransmission consent negotiations has forfeited its must-carry rights. It's either-or. Each broadcaster makes its election once every three years -- same election for all overlapping cable operators, no cherry-picking. If you elect retrans, you have no guarantee of being carried at all and no option to revert to must-carry if negotiations break down.

Must-carry benefits some broadcasters, no doubt. But it doesn't confer any advantage on a broadcaster that elects retransmission consent. The cable/DBS/telco party line suggests that must-carry gives broadcasters a retrans advantage, but it never identifies what that supposed advantage is. Randy doesn't explain the advantage either. There is none.

Second, the program exclusivity rules impose huge burdens on broadcasters. Start with the unregulated baseline: producers and distributors are free under the law to agree to exclusive distribution territories. The broadcast networks and affiliates, if they wanted to, could agree that each affiliate has unfettered nonduplication protection throughout its DMA. That would be a free market.

But this is anything but a free market: even if broadcasters purchase exclusivity rights, they may not enforce those rights except within limited, FCC-defined areas. If you doubt me, just read the notes to the network nonduplication and the syndicated exclusivity rules. And this is a bargaining advantage? A reason to pile more rules on broadcasters?

Having read hundreds of Randy's usually insightful postings over the years, I'm disappointed to see him republish boilerplate cable industry advocacy. His comments run counter to the Free State Foundation's guiding principles and lack Randy's trademark sharpness and passion. More to the point, they bizarrely suggest that the government somehow does broadcasters a favor by limiting their free market rights.

Posted May 17, 2010

By Scott R. Flick

The U.S. Supreme Court today announced that it is declining to hear Cablevision's challenge to the must-carry rules, letting stand a Second Circuit ruling upholding the validity of the 1992 rules. Approximately 40% of broadcast stations rely on must-carry to ensure carriage on their local cable systems, with the remainder electing to negotiate retransmission terms for carriage. A closely divided Supreme Court affirmed the validity of the must-carry rules over a decade ago, but Cablevision sought to argue that things have changed since the days of cable monopolies, and that the rules can't be justified in a world where cable now competes with satellite and other providers for subscribers. However, the real change that Cablevision was banking on was the change in the composition of the Court, with two of the five justices that voted to affirm must-carry in 1997 having left the court, and a third affirming vote, Justice Stevens, having now announced his impending retirement.

Cablevision therefore had reason to think that its appeal, which in many regards was just a "do over" of the earlier unsuccessful challenge, had a chance with the Court's new mix of justices. What is interesting, and reassuring for broadcasters, is that for the Supreme Court to agree to hear an appeal requires the votes of only four justices, rather than a majority of the nine justices. Declining to hear the appeal means that not even four justices, much less a majority of the court, were interested in reviewing the Second Circuit's affirmation of the must-carry rules.

So what does that mean? Well, a true optimist from the broadcasters' perspective would hope it means that three or less justices question the validity of the must-carry rules, and that future appeals will have a very uphill battle to claim five votes in favor of overturning the rules. An optimist for the cable industry would argue that a lot of factors go into determining whether the Court should grant certiorari, only one of which is the likelihood of a resulting decision reversing the lower court. The truth, of course, lies somewhere in the middle, and we may never find out whether the Court's decision to deny certiorari was a hard-fought internal battle over the merits of the appeal, or merely a simple vote where the justices expressed no appetite for revisiting the issue for any number of reasons.

In the meantime, must-carry remains the law of the land, and it will likely be a while before another appeal can work its way up through the system to reach the Supreme Court. As a result, broadcasters relying on must-carry rights can breath a sigh of relief, at least for now.