Commission prohibits same-market Top Four stations from joining forces in any way in striking retransmission consent deals.
It’s official. After several weeks of grim anticipation (marked by, among other things, an unusual, ominous public notice from the Media Bureau), the Commission has significantly altered the playing field for television broadcasters. In two separate items, the FCC has (a) changed its approach to ownership attribution of joint sales agreements (JSAs) and (b) barred non-commonly-owned Top Four ranked stations in a given market from engaging in joint retransmission consent negotiations. The following is an analysis of the retrans consent decision; we’ll follow up with a review of the JSA order when it is released by the Commission.
The short version: when the FCC’s Report and Order and Further Notice of Proposed Rulemaking (Retrans R&O) takes effect, joint retransmission consent negotiations between two non-commonly owned “Top Four” stations in the same market will be prohibited. And before you get any ideas, the term “joint negotiations” as the FCC uses it is extraordinarily broad, as we will discuss below.
The back story on retransmission consent is well known. For the last 20 years TV stations have been able to elect cable and satellite coverage either by “must carry” or “retransmission consent”. When a broadcaster opts for the latter, it is required by statute to negotiate in “good faith” with cable and satellite providers (collectively, MVPDs). The Commission has the statutory authority to enforce this good faith negotiation requirement, but historically it has identified only a small handful of relatively obvious indicia of a lack of good faith – e.g., refusing to negotiate at all, or failing to respond to the other party’s offer.
The Retrans R&O adds one more indicium.
It is now a per se violation of the good faith negotiation requirement for two non-commonly-owned Top Four TV stations in the same market to coordinate their retransmission consent negotiations. (A “Top Four” station is defined in the same manner as in the Commission’s multiple ownership rules: a station “ranked among the top four stations in a DMA, based on the most recent all-day (9 a.m.-midnight) audience share, as measured by Nielsen Media Research or by any comparable professional, accepted audience ratings service”. Note that network affiliation is not a factor in the definition of a “Top Four” station for these purposes.)
According to the Commission, Top Four stations in a local market are at least partial substitutes for each other, so coordinated negotiation among such stations raises retransmission rates above what the market would otherwise produce. Interestingly, the Commission makes clear that it is not relying on any increase in prices paid by consumers to their MVPDs, but rather only on an increase in the prices paid by those MVPDs to broadcasters. The Commission figures that joint negotiation by Top Four stations leads to higher prices paid by MVPDs due to (a) diminished competition between broadcast stations and (b) the ability of broadcasters acting in concert to extract higher rates by threatening to remove two Top Four stations from an MVPD at the same time.
What constitutes “joint negotiation”? Obviously, if two stations have a written agreement providing for coordinated retrans consent negotiations, that would be prohibited “joint negotiation”. But the prohibition also extends to other, less formal, activities. One Top Four station can’t informally delegate authority to another in the same market to negotiate on its behalf. Nor can two Top Four stations in a given market each delegate negotiation authority to a common third party. (Lawyers in particular should note that this appears to preclude an individual attorney – and probably even a single law firm – from representing two same-market Top Four station in retransmission consent deals.) In fact, any conduct at all that signals collusion is prohibited – so any arrangement by which two same-market Top Four stations might share terms or prices is verboten unless required or authorized by the Commission or a court.
The Retrans R&O does not address joint negotiations between a Top Four and a non-Top Four station, although the Commission remains open to lowering the boom there, too, if it receives evidence suggesting that such action is warranted. Also left unanswered for now: how changes in a station’s rating position might affect the station’s ability to coordinate carriage negotiations with another station in the market. For example, if joint negotiations are begun by a Number Two station and a Number Five station, will those negotiations need to stop if the Number Five station moves up to Top Four status before a deal is reached? Alternatively, if a Top Four station falls out of that status when its retransmission consent deal is expiring, may it then negotiate together with a remaining Top Four station?
Curiously (or not, depending on how you happen to view the Commission’s attitude toward broadcasting generally), the Commission did not feel the need to impose any reciprocal prohibition on MVPDs to prevent them from colluding in their negotiations with broadcasters. While the FCC conceded that in some circumstances, such joint negotiation could violate the good faith requirement under a “totality of the circumstances” test, it concluded that there was insufficient evidence that MVPDs in fact engage in widespread joint negotiations with broadcasters.
The prohibition against joint negotiation will take effect immediately after the effective date of the Retrans R&O, regardless of any terms included in any pre-existing agreements between broadcasters allowing or requiring such negotiations. (The effective date of the Retrans R&O has not yet been set. Check back here for updates.) Existing retransmission consent agreements entered into as a result of joint negotiation will not be disturbed, but no new agreements based on joint negotiations will be allowed, even if negotiations have already begun.
Joint negotiations would probably also be ill-advised even if an MVPD wants to negotiate in that manner. The new rules don’t provide any exemption for MVPD consent. As a result, it’s at least conceivable that an MVPD initially willing to participate in joint negotiation might change its mind before the completion of negotiation, in which case it could file a complaint at that time. In that situation, the joint negotiation might be considered a per se violation of the rules notwithstanding the MVPDs willing participation at the outset.
The Retrans R&O also includes a separate Further Notice of Proposed Rulemaking (FNPRM) portion in which the Commission requests comment on the possible elimination of the Commission’s existing network non-duplication and syndicated exclusivity rules. Those rules allow broadcasters to ask the Commission to enforce exclusivity rights granted in network affiliation or syndication agreements. While not themselves establishing such rights, the FCC’s rules do set out the maximum areas in which such rights may be granted, and provide a framework through which broadcasters can enforce those rights to prohibit MVPDs from importing distant signals.
The Commission tentatively concludes that it has the authority to repeal the network nonduplication and syndicated exclusivity rules, but it nonetheless requests comment on that conclusion. It also requests comment on a broad range of issues related to these rules, including:
- whether the rules remain necessary, including specifically on what effect their repeal would have on local broadcasters, MVPDs, and viewers;
- whether broadcasters would be able to enforce, and potentially expand, exclusivity rights as a contractual matter even if the Commission’s rules were repealed;
- what impact repeal of the rules would have on retransmission consent negotiations; and
- what impact repeal of the rules would have on existing agreements (for example, the many affiliation and syndication agreements that defined the scope of protection by specific reference to the rules).
Whether the Commission ultimately modifies the exclusivity rules is still very much up in the air. Any parties with strong opinions on the matter should be sure to let the Commission know. The deadlines for comments and replies in response to the FNPRM have not yet been announced. (Again, check back here for updates.)
Regardless of what happens with exclusivity rules, though, absent a court challenge, the issue of joint retransmission consent negotiations between same market Top Four stations has now been decided. Any broadcasters who have previously engaged in such negotiations, or have agreements to do so, should begin to consider alternative plans, particularly if they have retransmission consent deals expiring soon.