Cable Industry Intensifies Lobbying For 'Retransmission Consent' Reform

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The Federal Communications Commission has been lobbied heavily over the past month to bring parity to the process by which cable operators negotiate with television networks to retransmit broadcast programming, according to disclosure filings surveyed by BNA.

With the FCC scheduled to vote March 3 to launch a new rulemaking proceeding aimed at reforming the current process, video content distributors have renewed their call en masse for firm assurances against being whipsawed with escalating price demands from the major networks.

“We [urge] the commission to seek comment on a broad range of reforms, including new dispute-resolution procedures and interim carriage requirements, to address the consumer harms arising under the existing rules,” Matthew Brill, counsel for Time Warner, wrote in a Feb. 23 ex-parte filing with the FCC.

Time Warner officials had met with aides to Commissioners Mignon Clyburn and Michael Copps a day earlier to argue in favor of the agency moving forward immediately under its current statutory authority.

Current Process Generates Controversy.

The current “retransmission consent” negotiation process, which was established by the Cable Act of 1992, allows broadcasters to seek fees from distributors like Comcast Corp. and Time Warner Cable in exchange for retransmitting their signals, even though the signals are free over the public airwaves.

With advertising revenues continuing to decline, local broadcasting stations are more determined than ever to take in a higher percentage of fees from distributors, money that is eventually passed through to consumers in the form of higher monthly cable rates.

When the two sides fail to come to an agreement, viewers sometimes see their channels go dark, as was the case last year after a dispute between Cablevision Systems Corp. and Fox Broadcasting Corp, when Cablevision had refused to give in to Fox's demands for more than $150 million a year--more than double what the company has reportedly paid for Fox's programming.

While these types of contract disputes have been waged for years, the last year also witnessed much-publicized standoffs between Cablevision and Disney--which left 3 million Cablevision subscribers in New York, New Jersey, and Connecticut temporarily without access to ABC--and between Time Warner Cable Inc. and News Corp.--which nearly left 14 million homes without Fox Broadcasting Corp. programming on New Year's Day, one of the biggest sports days of the year.

The dispute between Fox and Cablevision left nearly three million Cablevision customers in New York, New Jersey, and Connecticut without access to Fox programming for 15 days.

FCC Authority in Question.

But despite this recent spate of highly publicized standoffs, some industry observers question the FCC's authority to intervene under the current law.

Under FCC rules, a broadcaster may be found to have violated “good faith” bargaining rules “on the totality of the circumstances of a particular retransmission consent negotiation.” In defense of the status quo, the National Association of Broadcasters points to Section 325(b)(1)(A) of the Cable Act, which states that a television station's signal may not be retransmitted by a multichannel video programming distributor, or MVPD, without the “express authority of the originating station.”

Time Warner disagrees. “The commission has uncommonly broad authority under section 325 to 'govern the exercise by television broadcast stations of the right to grant retransmission consent,' ” the company wrote in its ex-parte filing.

Time Warner notes that, together with the commission's broad public interest authority over broadcast licensees under section 309 of the act and the commission's ancillary authority under sections 4(i) and 303(r), the section 325 mandate empowers the commission to take “whatever remedial actions are necessary to protect consumers from abuses of the retransmission consent process.”

“The Communications Act and relevant precedent demonstrate the commission's authority to require interim carriage in the event of retransmission consent disputes, and at a bare minimum create an issue worthy of further exploration in the upcoming notice of propose rulemaking,” the company added. “We cautioned [in Time Warner's meeting with Commissioners Copps and Clyburn] that reaching premature conclusions about potential limits on the commission's authority would prevent development of a complete record and could hamper the commission's ability to adopt appropriate remedies in this proceeding and beyond.”

ACA Flags Big-4 Coordination.

In similar meetings with commissioners, the American Cable Association, which represents smaller cable operators, underscored the importance of including language in the NPRM that seeks comments on “carriage fee increases resulting from joint negotiations involving multiple 'Big 4' broadcast affiliates in a single market and price discrimination against smaller MVPDs.”

“Separately owned Big 4 broadcast stations in the same [demographic market area] sometimes agree to jointly negotiate retransmission consent agreements,” the ACA noted in a presentation to FCC officials. “Such arrangements are often negotiated as part of more comprehensive agreements that transfer control of all or part of the operations of one station to the management of another station.”

According to an ex parte filing by Suddenlink Communications, a small cable provider, joint control or ownership of Big 4 stations in the same demographic market area results in retransmission consent fees that are 21.6 percent higher than when there is no joint control or ownership.

Broadcasters Urge FCC to Take Balanced Approach.

Broadcasting industry groups, meanwhile, continue to make the point that retransmission fights rarely last longer than a day or two, and most end without channels going dark.

Following a meeting with FCC Commissioner Robert McDowell, the National Association of Broadcasters wrote to the commission to advocate it approach the issue in a “balanced manner,” and not from the “incorrect assumption that the current system is not working.”

“We emphasized that any notice should ask questions about the roles that both broadcasters and pay television providers play in the retransmission consent marketplace,” wrote Erin Dozier, senior vice president and deputy general counsel for legal and regulatory affairs for NAB. “We noted that changes proposed by the pay television industry would tilt the market-based retransmission consent system in their favor, harming competition and local stations' service to their communities.”

The FCC is slated to consider the notice of proposed rulemaking along with six other items.

By Paul Barbagallo