Amid CBS Fight, Time Warner Urges FCC to Reform Retransmission System

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By Paul Barbagallo  

 

The continued blackout of CBS Corp. stations for millions of Time Warner Cable Inc. customers across the country has refocused attention on the Federal Communications Commission, which has been weighing whether to change the rules governing the retransmission of local broadcast TV signals by cable operators and satellite TV providers since 2011--but has yet to act.

Time Warner, whose customers living in New York, Los Angeles, and Dallas have been blocked from watching CBS shows like “Under the Dome,” has now once again made a plea for the FCC to move forward with reforms, saying that its latest showdown with CBS highlights a “broken” retransmission consent regime.

“The commission, working in tandem with Congress, could pursue a deregulatory path aimed at eliminating the special protections for broadcasters that cause significant marketplace distortions under the existing rules, thus facilitating genuine market-based negotiations,” Matthew Brill, counsel for Time Warner Cable, wrote in an ex parte letter made public Aug. 6. “Such reforms would include repealing the network non-duplication and syndicated exclusivity provisions, clarifying and modifying the tier-placement requirements applicable to stations electing retransmission consent, and amending the 'good faith' rules to prevent anticompetitive conduct by networks and stations alike. Alternatively, if such regulatory protections for broadcasters remain in place, the commission should amend its rules to curb broadcasters' abuses of the regulatory regime, including in particular their use of threatened and actual blackouts to drive up fees and extract burdensome carriage terms.”

Despite the continuing impasse, however, the primary reason why the FCC has failed to act is a perceived lack of authority.

Section 325(b)(1)(A) of the Cable Television Consumer Protection and Competition Act of 1992, which amended the Communications Act of 1934, states that a local television station's signal may not be retransmitted by a multichannel video programming distributor, or MVPD, without the “express authority of the originating station.” Most broadly, the Cable Act charged the FCC with ensuring only that the parties negotiate in “good faith”; the commission cannot mediate breakdowns in negotiations or even force the parties into arbitration.

Still, the commission in March 2011 decided to open a rulemaking docket to consider new definitions of what constitutes good faith, and to determine whether and how the agency can avert TV blackouts during such contract standoffs. But the agency, at least so far, has appeared reluctant to propose final rules.

“While the commission has expressed uncertainty as to whether it can grant such relief in the retransmission consent context, Section 325 [of the Cable Act] plainly confers the necessary authority,” Brill argued in the ex parte letter. “Section 325 provides the commission with uncommonly broad power 'to govern the exercise by television broadcast stations of the right to grant retransmission consent.' In addition to that general mandate, Congress directed the commission to consider 'the impact that the grant of retransmission consent by television stations may have on the rates for the basic service tier' and 'to ensure that the rates for the basic service tier are reasonable.' As the legislative history of Section 325 confirms, this far-reaching grant of authority empowers the commission to take the steps necessary to protect consumers affected by retransmission consent disputes, including by ordering interim carriage to maintain the status quo.”

Brill added that the FCC's ancillary authority “complements” these statutory responsibilities and authorizes the agency to issue an order maintaining the status quo in cable carriage disputes where “the public interest demands interim relief.”

Rising Fee Demands Creating Blackouts

The issue of retransmission consent has been one of the more disputed aspects of the Cable Act in recent years.

With advertising revenues declining and the price of sports rights soaring, TV broadcasters have been fighting distributors for higher and higher fees to retransmit their network programming, money that is eventually passed on to consumers in the form of higher monthly rates.

Cable operators and satellite TV providers, on one hand, claim the current system favors the broadcasters and programmers, which can simply shut off their signal when negotiations stall.

Broadcasters, on the other, defend the system as a means of reclaiming the costs of their programming, which they contend is often expensive to produce.

In the CBS-Time Warner standoff, CBS has asked for an increase from about $1 per subscriber to about $2, according to several industry sources surveyed by BNA. (Nothing in the Cable Act requires the negotiations--or final fee agreements--to be made public.)

“You already pay ten networks on your channel lineup more than you compensate CBS, all of which have far fewer viewers,” Leslie Moonves, president and CEO of CBS, wrote in a letter to Time Warner's Chairman and CEO Glenn Britt Aug. 6. “What we are looking for, have always been looking for, is fair compensation for our content. CBS is the most popular programmer in the world.”

In a statement on a matter, Neil Grace, an FCC spokesman, said the agency's primary concern “remains with consumers and viewers in the affected markets.”

“We urge all parties involved to resolve this situation as soon as possible,” Grace said.

The agency has indicated whether it will take action.