The FCC has launched what promises to be a comprehensive review of the good-faith standard in retransmission consent negotiations, something cable operators have been pushing, and broadcasters fighting.
While the review was prompted by Congress—arguably as a way to deal the issue off to the FCC in order to get an approvable satellite bill—the FCC is taking the bit and running with it.
No group has been fighting harder on the cable side for reforms than the American Television Alliance (ATVA). Many of the group’s issues with the regime are teed up in the FCC Notice of Proposed Rulemaking.
Even as the commission was releasing the notice, B&C Washington bureau chief John Eggerton was talking with ATVA members Matt Polka, president of the American Cable Association, and Jeff Blum, senior VP and deputy general counsel of Dish, about what should happen next. An edited transcript of their conversation follows.
What do you specifically want the FCC to do?
Matt Polka: We have added a number of important things to the record and asked the FCC to address, whether it is stopping online blackouts, preventing tying of non-broadcast-related programming to the retrans channel, blackouts right before marquee events, or limits on use of equipment.
Isn’t bundling programming or removing a signal during a blackout just broadcasters exercising their marketplace leverage?
Polka: This is about the off-air signal. That is what the rules were intended to initially cover. Affiliated nonbroadcast programming complicates the negotiation, and certainly raises prices to consumers.
More than that, what we have seen from broadcasters today is that companies like Sinclair will come to our members and say, ‘We want you to agree to launch a channel sometime in the future once we develop it [Sinclair is looking to roll out a national news channel, for example], but you have to start setting aside space for it and pay for it.’ And that just isn’t good faith, in our view.
If the broadcasters want to negotiate for the primary signal, we’re happy to do that. But bringing in other affiliated programming just further complicates the issue and harms consumers.
ATVA has some things it wants the FCC to make per se violations. We thought the FCC was just asked by Congress to look at the “totality of circumstances” test.
Polka: The Congress directed the FCC on a bipartisan basis to look at its rules related to its totality of circumstance. But, look, all things are on the table, and I think the FCC has the ability and authority to look at the facts and what they can do on the commission level to help address things that inform the rules and protect consumers. We are asking for them to look at some things we know are egregious and should be considered per se violations.
Why do you think the rhetoric on retrans between broadcasters and cable has become so heated? Is it all about the money?
Polka: Well, ask the broadcasters as the bad actors. It is kind of ironic that they would suggest something like a ‘bad actor’ test. When you look back at the 535 blackouts since 2010, I think we know that is kind of a red herring.
This is about an industry with networks and broadcast affiliates losing ratings; they’re losing share, they’re losing advertising dollars. And they are looking to cable and satellite consumers to make up for it.
The networks are tired of the affiliates getting paid for retrans just to sell essentially their network programming so that the networks have now gone whole hog into reverse compensation, which has jacked up the price of retrans dramatically. And the stations have to collect it and remit it back to the networks as well as what the networks collect for retrans [their owned stations].
So this is a problem that is affecting consumers. And we are glad that Congress last year on a bipartisan basis directed the FCC to address this issue, and the FCC is taking steps to do it.
Jeff, from your perspective, what would Dish like to see in the retrans revamp?
Jeff Blum: As part of ATVA, we have seven examples of specific broadcasters’ conduct that should be per se violations [online blocking, forced bundling, timing blackouts to marquee events, blocking out-of-market signals, ceding rights to negotiate, equipment restrictions, charging fees for subscribers that don’t get service]. This conduct increases the chance of a blackout and the rates [multichannel video programming distributors] will have to pay that are ultimately passed on to the consumer. This is on top of the whole system that hasn’t been updated for decades and that broadcasters, in the past five years, have taken advantage of.
[Broadcasters] realize that blackouts hurt MVPDs. We get calls, lose customers. It’s very harmful.
You say there are a lot more blackouts. Why?
Blum: Broadcasters actually benefit from blackouts because it puts all the pressure on MVPDs to capitulate and pay these outrageous rates that have gone up 8600%.
Broadcasters have decided it is their strategy to ask for outrageous fees, black out the signals, refuse extension requests. This is a real crisis. We don’t want blackouts. They are bad for us and our consumers. We ask broadcasters for extensions while we negotiate, then we can true it up and backdate those payments. The broadcasters say no because the blackouts help them get a better deal on the backs of consumers.
They’re using consumers as hostages because they know the consumer will be upset and leave DirecTV or Time Warner or Dish. There is so much pressure on MVPDs that they will capitulate and pay higher rates.
That is why rates are going up and blackouts are going up. That is why Congress recognized the marketplace has changed since 1992 when there was a cable monopoly and a broadcast monopoly. Now, there is still a broadcast monopoly but there is a lot of competition among MVPDs and telco and Internet.
Broadcasters know they can play MVPDs off one another, and that’s what they’re doing.
The last time the FCC opened a retrans inquiry it sat around for years. It looks like this FCC is ready for action. What is the difference?
Blum: ATVA is optimistic that the FCC, after they look at all the evidence and analyze the facts, are going to conclude that the system is no longer working for consumers and meaningful reform has to be imposed to address the retrans crisis, and that’s what it is. It used to be bad; it’s getting worse. Congress told them to do something about it and I think there is a willingness to take a hard look at the system.
We are confident that the evidence will show consumers are being harmed by broadcasters’ behavior and the FCC needs to update the rules meaningfully. They can’t solve the problem. Only Congress can solve the problem. But the FCC can do meaningful reforms that will reduce blackouts and level the playing field a little bit. The rules all favor broadcasters and MVPDs have almost no leverage.
If the FCC levels the playing field it will bring the parties together more often, allow for reasonable negotiations, reduce blackouts and put some restraint on these out-of-control costs. We believe the time for them to act is now and that they will act.
You said only Congress could solve the problem? How, by getting rid of must-carry?
Yes, or [passing] the Mobile Choice Act, which Sen. [John] Thune [R-S.D.] introduced in the last Congress.
MVPDs could pass the cost of a channel on to subscribers and then they could choose whether they want the channel or not. There would be no more blackouts if mobile choice passed. The broadcaster has an incentive to set a reasonable rate because the consumer has the power of choice. But it also incentivizes broadcasters to produce great local news and programming so they can justify the price they charge.
It is deregulatory, solves the problem, empowers consumers and incentivizes broadcasters to provide great content.
But this is an election year; realistically that’s not going to happen, right? So you have to look to the FCC.
Blum: That is correct. We are looking to the FCC to do something now to address the retrans crisis.
Polka: We have been talking about what can be done. But it is important to point out what has already been done.
For years, the broadcasters successfully avoided any changes to the current retransmission consent rules, giving them the ultimate monopoly leverage. But in the past year and a half we have seen the FCC prohibit coordinated negotiations and limit JSAs. Congress in STELAR essentially did the same thing, as well as send it back to the FCC for further rulemaking. This is something that is moving despite the broadcasters’ best efforts to derail it.
They would like to derail it, but I think it is too late. Congress would not have directed the FCC to put out the rulemaking if they did not think there was a legitimate issue affecting consumers.
But realistically, sending this retrans issue back to the FCC to review was a way to get a STELAR bill that would pass.
Polka: Yes, sure. But this commission has already demonstrated that it is going to look at these issues seriously. That is all we can ask for and what we are prepared to advocate at the FCC.
On a related topic, why should syndicated exclusivity and network non-duplication go away and, if so, should the compulsory license go away, too?
Polka: Network nondupe and syndex have prevented competition. I think chairman Wheeler wants to try to encourage carriage of additional signals and address the orphan county issue.
But you can eliminate the rules and the networks can just dictate the same thing and prevent competition through their affiliate agreements. So, I know we will be telling the FCC that you have to address the contract issue if you want to encourage competition.
As for the compulsory license. From a small cable operator perspective, it has created a very efficient process for smaller cable operators to clear copyrights. It is bad enough that every three years they have to renegotiate retransmission consent with four, five or six broadcasters, and it multiplies because they have many markets, compared to taking every copyright holder and saying, OK, small cable operators, you have to clear copyright in an agreement with every one of those copyright holders before you can carry their programming.
If retrans is bad today, and it clearly is, eliminating that compulsory license would be far worse. Retrans is the issue; the compulsory license actually works.