NCTA pans retrans

Industry sees public squabbles as Pyrric, but unites in opposing rules it says are hurtful

Cable chieftains donned masks of bravado and indignation last week at their annual gathering in New Orleans.

But even as they lauded Time Warner for battling a broadcast network just days before, cable's elders warned: too much blood has spilled already and additional fighting could prove costly.

Throughout the NCTA's annual convention in New Orleans, Time Warner's day-and-a-half showdown with ABC-Disney over retransmission contracts was topic No. 1. That was in part because there was little else to fill conversation for the 30,000 attendees-no major deals, no sweeping technology disclosures, no burning network start-ups.

Only parties. The show's home-team cheerleading crescendoed with a prediction by CS First Boston cable analyst Laura Martin of the "death of DBS," which has taken 10 million subscribers away from cable. Even the most bullish cable executives laughed at the comment.

Top executives of the leading systems repeatedly railed against government carriage rules that, they claim, give broadcasters too much power to wring expensive compensation from franchise holders seeking to carry local TV stations.

They also vowed to take their fight to Capitol Hill. "It's bad public policy, and we are going to change it," declared Time Warner Chairman Gerald Levin during the convention's opening session.

Broadcasters said they would vigorously fight attempts to alter the must-carry/retransmission consent rules.

"The National Association of Broadcasters will strenuously support the rules because this provides a modest restraint against the cable cartel's monopolist tendencies," said NAB spokesman Dennis Wharton. "If Gerry Levin thinks he can get rid of retransmission consent, he does not have a sense of where things are going," said one station-group executive, who asked not to be named.

Cable executives are out of sorts over eight-year-old carriage rules that allow a local broadcaster either to demand "must-carry" rights that obligate the hometown cable franchise to add the station to the channel lineup, or to choose "retransmission consent" negotiations in hopes of wringing concessions in return for permission to carry their signals.

The choice of which option to take usually depends on the bargaining position of the station.

Cable operators say the rules are unfair because only the most popular stations choose retransmission consent-generally major network O & Os or affiliates. As Time Warner's aborted decision to cut the ABC signals in seven metro markets demonstrated, system operators don't really have the option of eliminating market-leading stations.

That gives broadcasters tremendous leverage to win valuable compensation packages that include carriage of affiliated cable channels on a system's basic tier, according to operators. Cable subscribers ultimately are the losers, because customers are forced to pay for a lot of programming they don't watch.

In the standoff with ABC, for instance, parent Disney wanted to link carriage of network affiliates to placement of the new SoapNet channel on the Time Warner system and a $1 billion-plus, 10-year compensation package for the Disney Channel.

"The time has come to re-examine whether the current retransmission-consent mechanism really serves consumer interest," asserted National Cable Television Association President Robert Sachs.

Despite the calls for a crusade to Washington, however, Sachs conceded that the distraction of presidential campaigning provides almost no chance for such controversial legislation this year.

Instead, the cable industry will have to settle for "education" efforts aimed at explaining to lawmakers the cable industry's problems with the carriage rules, he said.

Such an outreach would help the NCTA gauge support for a real legislative effort in the next congressional session and could blunt the political fallout if more carriage fights erupt when other retransmission deals come up for negotiation in coming months.

Cable executives frankly acknowledged that it's best to avoid a fight for a variety of reasons, the least important of which may be the public-relations black eye Time Warner suffered for cutting off ABC signals.

They also risk heavy-handed government regulation of retransmission contracts and, what's even more ominous, public pressure to reverse the government's decision to shun access rules for cable Internet services.

Time Warner's plans to merge with America Online have been dragged into the controversy as well.

FCC Chairman William Kennard warned of the various pitfalls when he addressed an NCTA breakfast gathering and urged the industry to police its own.

"The industry has to insist that its members act responsibly. In the future, I hope disputes can be settled in the boardroom and not on a blank screen," he said.

If consumers feel they are little more than pawns to corporate giants, he continued, they will demand government intervention, just as they demanded rate regulation in the 1992 Cable Act.

By denying customers' the ABC signal, he added, Time Warner has reignited debate over the need for federal rules barring cable firms from discriminating against unaffiliated Internet providers.

"The Time Warner-ABC dispute raises demons of distrust among consumers. And it raises concerns about whether or not the cable industry is capable of being the honest gatekeeper to the Internet," Kennard said.

Cable industry officials were quick to pick up on Kennard's admonition, and expressed deep regret over Time Warner's decision to boot ABC off seven systems.

"There is no winner in these kinds of situations; its lose-lose," said Brian Roberts, President of Comcast Corp. "So we should try and privately work these things out. I hope that's a two-party discussion, not a public discussion."

If Washington revisits the carriage regime under public pressure-as opposed to cable industry pressure-the result could well be rules dictating channel-tier placements and re-regulating rates. "I don't think that's the model any of us want," Roberts said.

"It can get awfully hot, awfully quick," said J.D. Derderian, the House Commerce Committee's Republican staff director. "The time is ripe for someone to try settling a score" against business rivals rather than better laws. "If there's a way for business people to figure out how to deal with this, I urge you to do it."

Cox Communications CEO James Robbins-whose company's battle with FOX resulted in a six-day loss of Fox's TV signal earlier this year-said system operators and programmers alike should recognize that they can't live without each other.

"I certainly am going to appeal to our programming suppliers. We do represent 70 million customers that want that programming. So, let's not screw it up for everybody by getting it out of whack."

Even Time Warner Cable Chairman Joseph Collins was indicating contrition, though he continued to lay most of the blame for retransmission disputes on broadcasters' efforts to "extract" concessions from operators.

"Clearly, our customers are not happy, and the politicians don't like it either," he said. "There is much more chance that these issues will be worked out between the companies."

Already, some fallout has occurred in the nation's capital. The FCC plans to hold a hearing by early June on the AOL-Time Warner merger, and House Telecommunications Subcommittee Chairman Billy Tauzin (R-La.) has one in the works as well. A key focus of those hearings likely will be whether the merged company will have too much control over Internet access and content.

But lawmakers warn there's no chance of congressional aid anytime soon. Tauzin told conventioneers he "doesn't see it happening."

Some cable officials believe a limited strike might succeed. James Cicconi, AT & T's Washington lobbyist, said lawmakers need to create a retransmission process that allows cable operators separate retransmission compensation for local stations from that of affiliated cable channels.