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Retransmission Consent Isn’t Broken, So Why Fix It?


Last week, we listened to FCC Chairman Julius Genachowski speak at the National Association of Broadcasters convention in Las Vegas. One topic he made a point to discuss was the recent Petition filed by cable and satellite companies arguing that the retransmission consent process is unfair, and asking the government to intervene in private contractual disputes to decide how broadcasters can and cannot negotiate carriage deals, including mandating arbitration of disputes and requiring stations to permit “interim carriage” of their programming while negotiations are ongoing. However, the issue is not stations “yanking” their signals from cable and satellite operators while negotiations drag on, but the failure of operators to secure the right to retransmit the programming when their current retransmission agreement expires, as the Communications Act requires. Indeed, it is the same basic contractual process that cable and satellite operators go through when seeking to extend carriage of non-broadcast networks, except that non-broadcast networks wield nationwide control over access to their programming, whereas broadcasters wield such control only in individual markets.

While the Chairman did say in his speech that the marketplace is the “preferred method” for resolving disputes that come up during negotiations, he also referenced the Petition’s claim that broadcasters were to blame for a rise in cable fees, stating: “Some ask: Is free TV really free when cable rates go up because of retransmission fees?”
However, that rhetorical question is just that — rhetorical. Free TV can only survive as free TV if it is financially able to produce/compete for the programming also sought by non-broadcast networks. The only way that is possible in a 500-channel world is for broadcast stations to have the dual revenue stream (advertising and retransmission fees) enjoyed by their non-broadcast competitors. Only by being financially viable can broadcast stations remain as a free alternative for those wishing to “cut the cable” or “dump the dish.” In fact, as digital multicasting allows stations to deliver multiple free programming streams, free TV becomes a more attractive option and a more effective check on rising cable rates.

Unlike a cable network, a broadcaster can never “yank its signal” from the public when retransmission negotiations falter and what often seems to be missing from the debate is that the public does not “lose” a TV station’s signal when it is dropped by a cable system during a retransmission consent dispute because the signal is available to viewers for free over the air. The law merely prohibits a cable or satellite operator from reselling broadcast programming to viewers if the operator itself is unwilling to pay the going rate for it. In that regard, it is no different than any other business transaction, except that the public can always choose to “avoid the middleman” and obtain the programming directly from the television station (for free) by using an antenna. In this context, and particularly in light of the extreme rarity of program disruptions occurring during retransmission negotiations, cable and satellite operators have a difficult challenge making the case that carriage negotiations with broadcast stations are significantly different than carriage negotiations with cable networks.

The fundamental difference between these negotiations is mostly one of degree — broadcast programming tends to regularly be among the most popular programming, making it more valuable to those wishing to resell it to their subscribers. However, broadcast programming will only remain popular if broadcasters continue to earn the revenues necessary to produce and purchase such programming. A cynical observer might therefore conclude that the desire to prevent broadcasters from receiving a share of subscription revenues commensurate with audience ratings is only partially about reducing cable and satellite systems’ operating costs, and just as much about keeping those revenues out of the hands of those who compete with cable and satellite for ad sales and audience. Systems overpaying for fringe cable networks while underpaying for far more popular broadcast programming harms free local TV without any countervailing benefit (unless you are the owner of a fringe cable network).

Also, the problem with forcing interim carriage during negotiations (aside from the fact that its a violation of the Communications Act) is that the continued availability of a station’s programming for retransmission is not, as cable/satellite operators frequently claim, an unfair “bargaining chip” used by broadcasters in retransmission negotiations — it is the entire point of the negotiation. Requiring that broadcast programming continue to be made available at last year’s rate during negotiations, as the Petition urges, provides cable operators with an obvious incentive to drag out the negotiations as long as possible rather than bring them to a rapid conclusion and begin paying the current rate. Imposing an interim carriage requirement would actually destabilize retransmission negotiations, as broadcasters would be forced to declare the negotiations terminated in order to end the interim carriage and hopefully force the cable/satellite operator back to a serious negotiation. Encouraging cable/satellite operators to delay negotiations long past the expiration of their existing retransmission agreements, and then forcing broadcasters to declare an official end to the negotiations as the only way of ending lower cost interim carriage and forcing a serious offer from the cable/satellite operator, is inherently more likely to result in carriage disruptions than the current process.

Like homeowners in a buyer’s market, cable and satellite operators are no doubt unhappy that market conditions are currently less in their favor compared to the “good old days”, but that hardly makes the market “broken” or “unfair.” Trying to fix something that isn’t broken is a surefire way to break it badly, and it is the public that would be forced to pick up the pieces.