CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Such disputes have been rare. But last year, after some particularly noisy set-tos, a group of cable operators asked the FCC to devise new rules governing retransmission consent negotiations. The petitioners wanted the Commission to block broadcasters from withdrawing retransmission consent during negotiations and to order binding arbitration in the event negotiations did not produce a result. Broadcasters countered that such requirements would undermine the free market nature of retransmission consent negotiations.

Responding to the petition, the NPRM recognizes that the FCC’s authority to involve itself in retrans negotiations is limited. Since 1999, the Communications Act has required broadcasters to negotiate with MVPDs in good faith – but it gave the Commission only a limited role in determining what “good faith” might involve in this context.   Acknowledging that limitation, the FCC in the NPRM rejects as beyond its statutory authority the ideas of imposing either (a) “interim” retransmission consent (providing the MVPD with a right to carry programming despite the broadcaster’s refusal) or (b) mandatory arbitration. 

Rather, the FCC focuses on tweaking existing rules that affect how parties to retransmission consent negotiations conduct themselves. Specifically, the FCC’s proposals address possible changes in rules relating to: (1) “strengthening” the “good faith” standard governing negotiations; (2) notice to subscribers; (3) deletion of channels during “sweeps” periods; and (4) syndicated exclusivity and network non-duplication rules.

Good Faith Negotiations. The FCC’s current rules require parties to engage in “good faith” negotiations for retransmission consent. Not surprisingly, then, the FCC’s proposals focus on whether the “good faith” rules might be strengthened by adding to the list of actions that are considered “per se” violations of the rules. For instance, should a station giving its network the right to approve retrans agreements be considered a “per se” violation of the station’s duty to negotiate in good faith? How about a station appointing another licensee (pursuant, say, to a JSA or LMA) to negotiate the retrans terms? Should one party’s refusal to agree to non-binding mediation in the event of a negotiation impasse be deemed a “per se” violation? The NPRM seeks comment on a range of conduct which might be deemed “per se” violations of the good faith requirement.

Notice to Subscribers. Noting that adequate warnings of impending retransmission consent disputes might help consumers prepare for disruptions, the NPRM looks at the Commission’s rules governing notices to subscribers. The rules currently require that cable operators give their subscribers 30 days prior notice before deleting channels or changing channel lineups. But the uncertainty produced by retransmission consent negotiations makes it difficult for cable operators to know 30 days in advance whether or not a particular broadcast channel is going to be deleted. Accordingly, the NPRM questions whether the rules should be amended to require notice of potential deletions in advance of retransmission consent negotiations and whether the notice requirements should extend to broadcasters, as well.

“Sweeps” Prohibition. Cable operators – but not other MVPDs (i.e., satellite providers) – are prohibited from deleting or repositioning channels during “sweeps” periods (i.e., when rating companies conduct audience measurements and, consequently, the networks roll out all the good episodes of your favorite shows). That could affect retrans negotiations, since the disparity accords non-cable MVPDs some greater freedom than their cable compatriots. The Commission questions whether it would be appropriate to put all MVPDs on an equal footing by extending the “sweeps” prohibition to non-cable MVPDs. The NPRM also raises the possibility of imposing a corresponding prohibition on broadcasters. On that point the Commission tentatively concludes that it doesn’t have the authority to do so; nevertheless, the FCC invites comment on whether or not it does have the authority.

Syndex/Network Non-dupe. Finally, and perhaps most significantly, the NPRM seeks comment on the possible elimination of the current rules governing syndicated programming exclusivity and network non-duplication. These rules generally protect the contractual rights of broadcasters in their programming by requiring cable and satellite operators to black out programming on other channels that duplicate programming for which a broadcaster holds exclusive rights. Since the exclusive programming rights they hold provide much of the broadcasters’ leverage in retransmission consent negotiations, changes to the FCC rules relating to those rights could affect the dynamics of retransmission consent negotiations. The underlying contractual rights to exclusivity would, of course, remain unchanged. But the elimination of the FCC’s rules would eliminate the FCC as a forum in which the parties’ rights could be adjudicated – meaning that parties would likely have to go to court in the first instance to enforce their rights. Whether that would really be a preferable alternative to either side in a retransmission dispute is far from clear.

Comments in this proceeding will be due 60 days after the NPRM is published in the Federal Register and reply comments will be due 30 days after that. Check back here for updates on that front. As this proceeding is certain to attract a lot of attention from all sides, interested parties should strongly consider making their views known.

STAs are not a rarity. They are routinely issued to, say, stations that suddenly lose their transmitter sites or that suffer equipment damage during a storm. LPTV stations may well need STAs during the process of transitioning from analog to digital operation – a transition that the FCC is proposing to make mandatory. An STA allows the station to continue to operate – possibly from an alternate site or with facilities other than those specified in its license (or license application) – until it can either (a) return to its authorized site/facilities or (b) obtain permanent authority for its modified site/facilities.

The Commission’s failure to include STAs in the white spaces database appears to be a serious slip. Operation pursuant to an STA is Commission-authorized broadcast operation which should be protected from white spaces devices to the same degree as “licensed” operation.  This error seems to us to merit a petition for reconsideration by the TV industry.

The other issue involves TV translators, LPTV stations, cable systems and other multichannel video programming distributors (let’s call them, collectively, “retransmitters”). As might be expected, retransmitters  retransmit other stations’ signals, signals which are generally received by the retransmitter over-the-air. If a white spaces device cranks up near the point at which the retransmitter ordinarily picks up the signal, the retransmitter’s ability to effectively operate is threatened.

The Commission recognizes this problem. In the 2008 version of the white spaces rules, the Commission permitted some (but not all) retransmitters to register their over-the-air receive sites in the white spaces database – but only if those sites were (a) within 80 kilometers (50 miles) of the originating station’s service contour but (b) outside that station’s protected contour. Now, however, at the suggestion of a number of parties the Commission has expanded the area in which receive sites may be registered. That expansion, though, is not gotcha free. 

Under the newly-announced revisions to the rules, all (not just some) retransmitters with over-the-air receive sites more than 80 kilometers from the edge of the received station’s protected service contour may submit waiver requests seeking to have those receive sites registered. The Commission will then issue a public notice soliciting comments on such waiver requests. After reviewing everything that comes in, the Commission will decide on a case-by-case basis whether or not to include each such site in the database.

Existing operators who may wish to take advantage of this potential registration opportunity should be particularly alert. Starting with the effective date of the new rules, such operators will have 90 days in which to submit their waiver requests. (Retransmitters who commence operations in the future will have 90 days from the date on which they start up.) The Commission has not provided a time frame during which its resolution of such requests can be expected.

The effective date of the new rules has not yet been announced, and won’t occur (at the earliest) until 30 days after the new rules have been published in the Federal Register. Additionally, it seems unlikely that the Commission will invite new registrations (or registration waiver requests) until a number of practical questions relating to the white spaces database have been resolved. For example, who will manage the database, how will registrations and the like be submitted, how will the database be implemented? Obviously, there is still much to be done before white spaces devices are likely be unleashed on us all.

Way back when, in the misty eons of time prior to the Cable Act of 1992, broadcast stations got carried on cable systems pursuant to the “must-carry” rules. In rough terms, the cable systems had to carry local stations, and broadcasters had to allow such carriage. But with the 1992 Act, Congress started to coax the players into a more market-oriented arrangement. In addition to must-carry (which remained in place as an alternative), broadcast carriage could be agreed-to through “retransmission consent” arrangements privately negotiated between TV station and cable operator. The broadcaster had to elect which approach it would take in advance of the relevant three-year term. Those electing retransmission consent (or “retrans”, to the cognoscenti) were then left to cut whatever deal they could.

The advantage to the broadcaster was that, if it could negotiate a favorable deal under retrans, it could get compensation for carriage that, under must-carry, it was giving up for free. The downside, of course, was that a broadcaster electing retrans and then unable to tie down a deal risked losing out on any carriage during the three-year term. Bummer. (All parties to retrans negotiations were, and still are, required to deal in good faith. While accusing the other side of acting in bad faith is a standard ploy, to date such claims have not moved the Commission to interject itself into retrans dealings. Basically, it’s beyond difficult to establish that the other guy is negotiating in bad faith – and in its petition Big Cable pretty much concedes as much.)

In the early rounds, the cable companies held most, if not all, of the cards. Since they were all monopolies in their respective areas, they could avail themselves – usually successfully – of the tried-and-true negotiation position of “my way or the highway”. Broadcasters electing retrans usually ended up getting access to one or more additional cable channels and maybe some advertising avails and the like –whatever scraps the cable company chose to leave on the table – but no cash payments for their programming.

Then a funny thing happened over the course of the last 18 years or so. Competition crept into the MVPD industry, through satellite services (i.e., DirecTV and Dish) and telephone company offerings like FIOS. And while 200+ channels of non-broadcast programming may sound tempting, the viewing public still demonstrated an abiding affection for local TV stations. This happy confluence of trends was good news for broadcasters. Not so much for Big Cable.

Fast forward to New Year’s Eve, 2009, when a negotiating impasse between Fox and Time-Warner (one of the Big Cable team) splashed across the headlines and threatened to deprive millions of viewers of Fox’s New Years Day programming (can you spell “BCS”?). A couple of months later, ABC went mano-a-mano with Cablevision in the NYC market, cutting off carriage of the Oscars® for the first 13 minutes of the show before a deal was struck and the show went on.

And two days after the Oscars® face-off, who shows up at the FCC but Big Cable, petition for rulemaking in hand.

According to Big Cable, the retrans system has unduly favored broadcasters from Day One. The only reason Congress adopted the retransmission consent/must carry regime, so their story goes, was to prevent then-dominant cable systems from undermining free over-the-air broadcasting by exercising the market power that their monopoly positions afforded cable operators.  They seem to think that, because broadcasters have gradually attained a more robust bargaining position, it’s time to have the guv’mint control the parties’ relationships. 

In its Petition Big Cable acknowledges that in the early days of retransmission consent, cable systems were able to deflect paying cash compensation by agreeing to provide “in-kind” compensation – e.g.,agreeing to carry other non-broadcast programming channels in return for the right to carry the primary broadcast signal. Now that broadcasters are negotiating for cash compensation, however, Big Cable says that they and their MVPD confrères are (horror of horrors!) being forced to either (a) pay the broadcasters and pass those costs along to consumers, or (b) run the risk of having to remove the broadcasters’ programming from their systems. And, according to Big Cable, broadcasters have taken to making unreasonable demands on cable and satellite operators. (Here, Big Cable bemoans the fact that the “good faith” negotiation requirement is so vague that MVPDs have not been able to show that broadcasters’ demands have ever constituted “bad faith” negotiating tactics. Go figure.)

To “reform” the system, Big Cable advances a number of proposals that would shift the balance of power back more in Big Cable’s direction. Here are the main ones:

First, the Commission should establish a mandatory dispute resolution system for retransmission consent negotiations, to bail out MVPD operators who find themselves unable to persuade the broadcaster that the offer on the table really should be acceptable to the broadcaster. This system would come into play not just on a showing of broadcaster bad faith (remember, that’s too difficult to prove), but any time a cable or satellite operator claims that the parties cannot reach an agreement. Once the dispute resolution process was invoked, the appropriate compensation level would be established by arbitrators or some type of expert panel – not through direct negotiation between the parties. 

Second, the new regime would effectively prohibit a broadcaster from demanding carriage of other programming services in return for the right to carry a broadcast signal by making such a demand a per se violation of the “good faith” negotiation requirement. Of course, Big Cable magnanimously suggests that the FCC should allow such arrangements, but only if the MVPD consents to them. That is, such an arrangement would be per se “bad faith” only if the MVPD didn’t like it.

Third, the Commission should impose an “interim” and continuing grant of retransmission consent for as long as (a) the MVPD continues to negotiate in good faith and/or (b) any dispute resolution process is ongoing. Adding that condition of “good faith” negotiation is interesting in view of Big Cable’s acknowledgement that it’s virtually impossible to establish that a party is negotiating in bad faith. So let’s get this straight. If the MVPD and broadcaster are negotiating, the MVPD gets to carry the broadcaster’s programming unless the MVPD is negotiating in bad faith, which is a showing everybody agrees can’t be made – so the MVPD gets to carry the programming. And if the negotiations reach an impasse (according to the MVPD), the only alternative is the mandatory and binding arbitration process – during which, again, the MVPD gets to keep carrying the programming. It would only be after the failure of both private negotiations and mandatory arbitration that a broadcaster could ever exercise its rights to prevent retransmission of its signals. It is unclear, however, how an arbitration process that is both mandatory and binding could ever fail.

The Big Cable proposals are stunning in their one-sidedness.  The broadcasters and MVPDs will negotiate – until the MVPDs decide the negotiations are at an impasse and demands arbitration.  A broadcaster seeking carriage of additional non-broadcast programming is automatically acting in bad faith – unless the MVPD agrees to it.  A broadcaster must extend its retrans consent until a deal is reached – and reaching a deal is mandatory.

And while Big Cable tries to depict itself as really just looking out for the consumer, it’s not at all clear that that self-serving claim withstands scrutiny. Big Cable’s claim is that, if MVPDs are forced (through the retrans negotiation process) to pay broadcasters for carriage, then those additional costs will be heaped on the broken and bleeding backs of the consumers, who will have to pay more to the MVPDs in order to watch broadcast fare. But who said that the cost of carriage has to be passed through to the consumer? Are MVPD profit margins so low that Big Cable can’t absorb those additional costs and still make a tidy profit? Serious attention should be paid to such questions before anybody swallows the “poor little consumer” claims of Big Cable. 

More fundamentally, the Big Cable proposal would transform the retrans consent bargaining process from a free market negotiation to a mandatory and binding arbitration, making it effectively impossible for a broadcaster ever to prevent a cable operator from retransmitting its signals.

It’s as if, back in 1992, Big Cable had agreed to play an ostensibly fair game of coin toss with broadcasters – but, because of cable’s then monopoly-based dominance, it was akin to playing with a two-headed coin, making it easy for Big Cable to win the toss each time. And now, 20 years or so into the game, with the two-headed coin removed and a more competitive normal coin put into play, Big Cable is saying that it’s happy to keep playing as long as the rules are tweaked ever so slightly to provide them with a “heads I win, tails you lose” option. 

Big Cable has not limited its push to the Commission. Cable and satellite operators have also gone to Congress, sending a letter raising many of the same points to the House and Senate Commerce Committees. In response, the NAB has fired back with its own letter to those committees. 

This is a fist fight that would ordinarily last some time, particularly because the Commission can be expected to be distracted from mundane mass media matters by its current preoccupation – nay, all-consuming obsession – for broadband issues uber alles. But in Congressional testimony on March 11, Chairman Genachowski said that the issue of the retrans consent process “is a subject that should be looked at seriously . . . for a framework that works for consumers.” Uh-oh. Cable’s play of the consumer card, heavy-handed and disingenuous though it may seem to many, may be the equivalent of Tinker Bell’s fairy dust which, when liberally sprinkled here and there, can cause otherwise flightless things to take wing. We shall see.

[Blogmeister’s Credit Report: This post was co-written by Dan Kirkpatrick, Jeff Gee and Harry Cole.  Technical limitations prevent more than one author from appearing in the credit line above.  The views expressed in this post are those of the authors and do not necessarily reflect the position of the law firm of Fletcher Heald & Hildreth, P.L.C.]

On the MVPD side, the Commission will require that notices be placed in the monthly consumer bills, providing notice of the DTV Transition, and referring the consumer to other sources of information, including www.DTV.org.  The Commission will require telecommunications carriers that provide Lifeline/Link-Up services to also include similar notices with their monthly bills.  As for equipment manufacturers, each television receiver or other device intended to work with television receivers (i.e., converter boxes) shipped after the effective date of the rules must include information relating to the DTV transition, including how the transition will affect the use of the purchased device.  Finally, the Commission committed to work with NTIA on making sure that their consumer help desks are staffed with persons knowledgeable about the transition. 
  
The rules adopted in the order will become effective as soon as they are published in the Federal Register.  The forms that are required to be filed will not become effective until after OMB approves them.