Kerry to Industry: Find Consumer-Friendlier Route to Retrans

Suggests that if solution not found, dialog could become government action

By John Eggerton -- Broadcasting & Cable, 11/17/2010 6:55:50 PM

Senator John Kerry (D-Mass.) appeared to achieve what he set out to do--which was to hold a "thoughtful dialog" on the retransmission consent regime--at the Nov. 17 hearing on the issue. By the end, he advised the participants to try to find a way to negotiate those deals that would not result in consumer dislocations. He suggested that if such a solution is not found, the dialog would become government action.

Kerry is chairman of the Senate Communications Subcommittee, which held the Wednesday hearing. The dialog was among major players on the cable and broadcast sides of the equation.

After hearing from Cablevision COO Tom Rutledge, News Corp. Chairman Chase Carey, Time Warner Cable Chairman Glenn Britt, Univision President Joe Uva and Ovation CEO Charles Segars, Kerry said he would continue to have a private dialog.

"To the degree that you want this to remain a sort-of hands-off, arms-length transaction where the marketplace has the maximum amount of ability to play itself out," he warned them, "and that would be our preference too, you have to think about what is the compromise mechanism here."

Kerrry said all the companies at the table were making a profit and that the public was not going to be thrilled with the idea of becoming pawns in whatever extra percentage of profitability is at stake, measured against the profits they already make, measured against the "government gift" of their right to take place in the marketplace. That last part appeared to be directed at broadcasters.

Kerry said that he wanted to put to rest the "myth" that it was a free marketplace. He pointed to broadcasters gift of billions of dollars worth of spectrum and the public interest obligation that went with it. Rutledge, in one of his most pointed criticisms of broadcasters, said they were using that spectrum "in a way that is abusing consumers." Carey pointed out that anybody who wanted to could have watched the World Series for free during the retrans impasse. "Which makes the notion of paying for it ridiculous," shot back Rutledge, drawing laughter from the audience.

When Chase Carey asserted that broadcasters were going from getting paid nothing for their signals to getting paid something, Kerry countered that getting carriage for co-owned cable channels had been compensation for earlier deals: "That was the quid pro quo." Carey conceded that the channels had been part of the deals, but was not conceding it as necessarily a "value transfer," calling it instead more of a win/win for broadcasters and cable operators with the creation of channels like Nat Geo and Fox Deportes. "Time Warner Group is a bundle, Discovery is a bundle," he said, It's the nature of the business."

Kerry asked what the difference was between the majority of retrans deals that get done without signals being pulled, and those, like the recent Fox/Cablevision impasse, where there are blackouts.

Rutledge said that the difference was when someone--he did not say News Corp.-asks for a very disruptive price, regardless of market conditions, and the degree to which that is an "exploitive request." Rutledge echoed Cablevision's criticism that Fox was asking for more than it paid CBS, ABC, NBC and Univision combined.

Carey said it was because in this case, the entity in question--he, also, did not mention Cablevision--wanted to politicize the negotiation and, rather than pay a more-than-fair rate, have government step in to mandate a solution.

And while News Corp. may be profitable, Carey said the Fox network had lost $200-$300 million over the past several years.

Sen. Kerry asked Carey if it wouldn't be possible for Fox to negotiate a deal without pulling a signal. Carey said it had in three out of the four retrans deals with major players.

Sen. Frank Lautenberg (D-N.J.) pointed out to Rutledge that while Cablevision has been involved in a couple of high-profile impasses in which signals have been pulled, its competition for the most part has not. Asked why, Rutledge said he was trying to hold the line on cable rates, saying it was fighting for its customers and had been successful for the most part in doing so.

Carey countered that he agreed cost of content is an issue with cable pricing, but that it needed to be looked at holistically over the hundreds of channels. He said broadcasters should not be relegated to second-class status in order to deal with the cost of content.

Carey several times talked about Fox's retrans price as only a fraction of the cost of an ESPN or MSG Netwokr (the latter co-owned by Cablevision).

Kerry asked Carey to reveal the price Cablevision paid. Carey declined. Senator Kerry also asked Britt how much TWC paid for ESPN. Britt said he did not know off the top of his head, though Carey quickly weighed in, saying it was five or six times what Fox was asking. ESPN is widely reported to commend over $4 per sub.

Kerry said the committee would probably need to get a better handle on those numbers, saying he would have to "mull that one over." Carey argued throughout the hearing that broadcasters need to start getting paid for their content so they can have the kind of dual revenue stream that allows its cable competitors to bid, and sometimes outbid, them for high-value content. Britt countered that if Fox wanted to look more like a cable net, that was fine with him, but that it should then give up all the government privileges--retrans, must-carry, market exclusivity--that cable channels don't get. Kerry seemed to be on the same page, saying later in the hearing a good case had been made, including by the Congressional Research Service, that there were government rules and regs that kept it from being a purely marketplace negotiation.

Outside of harsh media criticism from Commerce Committee Chairman Jay Rockefeller, the questioning was pointed rather than accusatory, and focus on the consumer impact of the negotiations.

Lautenberg, for one, called broadcasting a precious commodity and a necessity in people's lives approaching gas or electricity. Kerry suggested that was an argument for the FCC using its power to protect consumers.

Kerry said more than once that the subcommittee's predilection was to let the free marketplace decide rather than jumping into it. But he also suggested that the marketplace was not an entirely free one, which necessitated the committee's interest and, if need be, action, including his own draft of a bill to make the FCC a mediator, though not arbitrator, of disputes.

"We have to think this through carefully," Kerry said of the retrans reform issue. "I don't think any member wants to come leaping in in an inappropriate way."

But Kerry also asked them to think about his bill, which would require more transparency in terms of TV station retrans pricing, and direct the FCC to step in during impasses to vet the two sides' offers and positions and make a determination of whether the bargaining was in good faith, and if it is, then broadcasters would be allowed to pull their signals. "The bill requires a simple level of both transparency and judgment. Are they working in good faith. If you have a good faith argument based on the marketplace, based on competitors based on the various offerings available, people step back and say, 'OK. this is not our deal,' and you can still pull your signal."

"I just ask you to think about that," he said. Kerry suggested that if negotiations go forward in the current atmosphere, "some people may feel more compelled to press for an advantage and pull a signal. No one here, I think, is going to react very positively to that."