The clock is running down for the FCC’s sports blackout rules. The two-minute warning (actually, the 31-day warning) has been whistled.
As pretty much everybody expected, the Commission abolished its blackout rules late last month. That action is now set to take effect on November 24, 2014, according to a notice in the Federal Register.
Despite an aggressive defense mounted by the NAB and various sports leagues (including, most notably, the NFL), the Commission punted on the rules because they believed the rules were no longer necessary to ensure that sporting events remain widely available on television. Instead, the FCC was content to let blackout provisions be thrashed out privately between the leagues and their broadcast, cable, and satellite partners. In other words, sports blackouts may still occur, but not as a result of any FCC rule.
In a nutshell, the sports blackout rules prohibited MVPDs from carrying a live sporting event if that event was not available on local over-the-air television in a certain geographic area. The ability to invoke the rule required prior, private blackout-related agreements between leagues or teams and local broadcasters; the rules simply provided a separate mechanism for enforcing those private agreements.
As we noted in our earlier report on this proceeding, the FCC’s blackout rules were originally adopted because of a fear that sports teams and leagues might not grant any television rights unless they were able to block television viewers from seeing those games in the teams’ home markets. The availability of game telecasts would significantly erode attendance at games and thereby undermine gate receipts, or so the theory went.
While that theory may have held some water back when gate receipts were teams’ (and leagues’) primary source of revenue, times have changed. Now, according to the Commission, the importance of gate receipts is dwarfed by the value of television rights (estimated for just the NFL to be worth around $6 billion – with a B – in 2014). The Commission also noted that the number of blackouts actually occurring as a result of the rules has greatly diminished; as a practical matter, teams generally don’t have trouble selling out their stadiums. That being the case, the FCC figures that it’s highly unlikely that any games will be kept off the air just because the blackout rules are eliminated.
The NFL and NAB also argued that, without the blackout rules, the NFL would move games to pay television channels instead of over-the-air broadcast stations. This was based on the notion that, but for the blackout rules, the compulsory copyright license available to satellite and cable operators could allow them to import certain distant signals (e.g., those that are considered “significantly viewed”) against the wishes of the NFL, the team, and the local station affiliate.
The Commission didn’t buy it. The NFL’s current broadcast agreements run through 2022, after all, so any migration to cable or satellite is unlikely to occur in the near term. Moreover, the Commission found that, regardless of the compulsory copyright license, the retransmission consent rules (which did not exist when the blackout rules were adopted) and terms of retransmission consent and network affiliation agreements would still combine to prevent most distant signal issues.
Under the retransmission consent rules, a cable or satellite operator wishing to import a distant signal currently would need to obtain the consent of that distant station. But few stations carrying NFL games have granted such consent, probably because such grants are prohibited by many network affiliation agreements. So, again, the Commission wasn’t persuaded that the importation of distant signals would likely drive the NFL to move games to pay TV channels. Oh yeah, and let’s not forget that games carried on broadcast television stations currently draw far larger audiences than those on pay TV since they are available to all viewers. The FCC assumed, probably not unreasonably, that the NFL wouldn’t be eager to take actions likely to remove a very large portion of its audience.
Finally, the Commission concluded that any blackout protections the NFL might still need can be secured through private contractual arrangements between the NFL and its broadcast, cable, and satellite partners.
Bottom line: since the rules are no longer necessary to achieve their original purpose, they have been kicked out of the FCC’s rulebook.
So what happens next?
At least for the time being, probably very little. Not only does the NFL have existing agreements with broadcasters that will keep games on broadcast television through 2022, but within days of the Commission decision, the NFL also announced that it had signed a long-term deal with DirecTV. According to press reports, that deal prevents DirecTV from importing distant signals of games into their local markets.
In the medium-term, we may look for the NFL and its network partners to begin more aggressive pursuit of contractual protection of their blackout rights. In particular, network affiliates may see more pressure from networks not to grant any retransmission rights outside of their DMAs.
More far-reaching impacts could be felt if cable and satellite operators are successful in their ongoing battle to modify how the entire retransmission consent regime works. Among the various proposals for reform of the retrans consent rules have been measures that would prevent local stations from blocking access to NFL games and that could otherwise undermine the value to the NFL of affiliating with broadcast television stations. If those changes come to pass, then the FCC’s decision to repeal the sports blackout rules could have a more far-reaching impact.
But those changes, if they occur at all, probably won’t happen for some time to come. In the meantime, the FCC is out of the sports blackout business as of November 24.