Consumer-friendly (?) Big Cable seeks Big Cable-friendly overhaul of retransmission consent process
A group consisting of some of the major multichannel video program distributors (MVPDs) has run to the Commission asking for changes in the retransmission consent rules. The group – for convenience, let’s refer to them collectively as “Big Cable”, although they include (in addition to major cable operators) non-cablers DirecTV, Dish, a couple of phone companies, and even some supposedly independent advocacy/think tank groups – is concerned that Big Cable’s ability to call the shots when it comes to carriage of broadcast signals has gone away, and Big Cable understandably wants it back. Who wouldn’t?
In a Petition for Rulemaking, Big Cable declares that the retransmission consent system is “broken”. Not surprisingly, Big Cable had this particular epiphany immediately after several very public sets of carriage negotiations in which, e.g., Fox and ABC demonstrated their negotiating acumen, and clout, in facing down some very major cable operators. Who “won” or who “lost” those negotiations is, of course, a matter of opinion and spin. But Big Cable is now urging the FCC to impose a mandatory arbitration process and to require that MVPDs continue to carry stations when parties can’t reach a deal.
Sure sounds like Big Cable may be thinking that, nowadays at least, the broadcaster-MVPD negotiation process isn’t exactly what it was cracked up to be . . . at least for Big Cable.
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.]