U.S. broadcasters’ influence showing in FCC review of retransmission regime, analysts say

As the U.S. Federal Communications Commission (FCC) reevaluates its broadcasting retransmission regime, one American analyst says the commission, in retrospect, would have liked to prevent carriage negotiations from degenerating into blackouts. But analysts add that, due to the political influence of U.S. broadcasters, the FCC is more likely to tweak its retransmission policy than overhaul it. Monday of last week marked the FCC’s deadline for reply comments for a review to clarify and streamline its existing retransmission consent regime, which since 1992 has allowed broadcasters to charge a fee for the carriage of their over-the-air signals. The review’s primary objective is to assess whether and how the FCC can ensure negotiations between broadcasters and distributors are effective and minimize service disruptions. The FCC review comes as Canada is planning to implement its own value-for-signal regime, which may end up before the Supreme Court. Broadcasting distributors have filed for leave to appeal a lower court decision that ruled the CRTC has the jurisdiction to introduce the highly-contested regulatory framework. In the U.S., the FCC launched its review after a series of standoffs in recent years have led to blackouts of major television events, including World Series baseball games on Fox. Late last year, William Lake, head of the FCC’s media bureau, said in a speech that the commission wants fewer “failed deals and dropped signals.” The country’s broadcasting industry is now torn over whether the regulator has the right to intervene to ensure negotiations are carried out in good faith. American broadcasters, which have seen revenues rise under the retransmission regime, argue in their submissions that government intervention is unnecessary. “Substantial changes in the existing FCC regulations governing retransmission consent are unnecessary, would (in many cases) exceed the Commission‘s authority, and would be harmful to the public interest,” the National Association of Broadcasters wrote in its reply comments. “The current retransmission consent marketplace is a successful and efficient means to deliver broadcast television programming to subscribers ... Broadcasters have turned the retransmission consent fees they negotiate into predictable revenue streams that enable them to deliver high quality content to viewers.” But distributors and public interest groups are advocating major changes to establish a level playing field. “The retransmission consent ‘market’ is not working as Congress intended, and the Commission should proceed to reform its regulations to restore balance to retransmission consent negotiations for access to local and distant broadcast station signals,” the American Cable Association wrote in its reply comments. “The record shows that broadcast stations and networks are harming and their subscribers by anticompetitive, unfair and discriminatory practices that disrupt viewer access to over-the-air broadcast signals delivered by their and drive up retransmission consent prices beyond those achievable under competitive market conditions.” Paul Gallant, a telecom and media analyst at MF Global and a former legal advisor to the chairman of the FCC, said in an interview with The Wire Report that the retransmission issue has emerged in the United States because the broadcasting market has evolved considerably since the FCC implemented the regime. “In 1992 ... the law ensured that broadcasters, at a minimum, would be carried on a cable system if the cable system didn't really want to carry them. If it happened to be a TV station that actually had more leverage in negotiations with a cable company, Congress gave that station the right to extract money from a cable company,” he said. The scales have tipped in favour of broadcasters, he added. “That law was written when there was one cable company in every city and there were no satellite TV companies and no phone companies providing TV ... That balance of power has changed a lot since 1992. Broadcasters now have a lot more leverage in that negotiation than they had 19 years ago because they can play off one pay TV company against another.” A central question now is whether the FCC has the authority, under existing law, to intervene in a dispute. “The FCC strongly suggested, when it wrote the proposed rule-making in February, that it does not have such authority to intervene in a dispute,” Gallant said. The cleanest solution would be for Congress to change the law and clarify that broadcasters do not have the right to withdraw their signals during a dispute, he said, but added that outcome seems unlikely. Jeffrey Silva, senior policy director of telecommunications, media and technology at Medley Global Advisors LLC in Washington, said in an interview that the likely outcome of the consultation, given the U.S. political climate, is a policy tweak rather than an overhaul. “It’s not going to be anything significant because there would have to be legislation … that would reduce the bargaining powers of broadcasters,” he said. Silva said there’s little political will to confront influential broadcasters as the country approaches a presidential election next year. “ are very wary of taking on broadcasters, whether it’s on retransmission consent or on the idea of broadcasters returning some of their spectrum for mobile broadband.” Another factor is that the American government and broadcasters have yet to reach an agreement for the repurposing of their spectrum for mobile wireless services. “The FCC has to look at how much they want to anger broadcasters in this retransmission consent proceeding because they still are trying to entice broadcasters to relinquish some of their spectrum, although they would compensate them with some of the auction proceeds,” Silva said. “When you put that all together the status quo is not likely to change a lot.” But if the FCC could rethink its retransmission regime from scratch, it would probably consider protective measures for consumers, Silva said. “Probably policy makers would try to prevent consumers from being caught in the middle and be victims of blackouts because of a dispute between two commercial entities,” Silva said. “One thing the policy makers probably would try to work into a new regime would be a component whereby, if there was an ongoing dispute, there wouldn’t be blackouts.” Like the current American system, the CRTC’s proposed value-for-signal regime would give broadcasters the power to pull their signals from distributors when carriage negotiations fail. The CRTC declined to discuss its proposed regime because it continues to be debated before the courts, but speaking before the House of Commons heritage committee last November, CRTC chairman Konrad von Finckenstein said carriage negotiations in Canada may take on a “totally different” form than their American counterparts due to vertical integration. Richard J. Paradis, president of consulting firm Groupe CIC and an instructor at the Université de Montréal’s communications department, said in an interview that there are few lessons to be learned from the American regime due to differences in market size and levels of vertical integration. “A lot of the cable operators that appeared at the vertical integration hearing said they didn’t want to be put in a position where broadcasters would have that kind of power to take away the signal,” he said. “But it’s a balanced situation because if they don’t have the right to pull their signal, they don’t have much ground to negotiate with BDUs that are vertically integrated.” Paradis said the CRTC demonstrated a consumer-oriented focus during the hearing and is laying the groundwork to give it the power to intervene if negotiations break down. The CRTC has also asked industry players to participate in the creation of an industry code of conduct. “Probably at the top of that list will be the issue of access for broadcast distribution undertakings and the conditions under which they will negotiate,” Paradis said. He said the code in all likelihood would give the CRTC enough power to rapidly intervene in cases of a breach of rules during carriage negotiations. news@thewirereport.ca

U.S. broadcasters’ influence showing in FCC review of retransmission regime, analysts say

Broadcast | July 4, 2011

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