Reforming Retransmission System Should Be Part of STELA Debate, Sen. Pryor Says

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By Paul Barbagallo

Reform of the rules governing the retransmission of local broadcast TV signals by cable operators and satellite TV providers should be part of the debate over a reauthorization of the 2010 Satellite Television Extension and Localism Act, known as STELA, which expires in 2014, Sen. Mark Pryor (D-Ark.) said May 14.

His comment came during a hearing of the Senate Commerce, Science, and Transportation Committee's Communications, Technology, and the Internet Subcommittee, which Pryor chairs, titled “State of Video.”

In the question-and-answer portion of the hearing, Pryor noted that STELA, which authorizes satellite TV providers to retransmit broadcast signals, is the only must-pass legislation before the subcommittee, and could be a vehicle to make small changes to other laws, such as the Cable Television Consumer Protection and Competition Act of 1992.

“Retransmission consent deserves attention,” Pryor said, stopping short of indicating his support for any particular reform proposals.

The issue 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 claim the current retransmission system favors the broadcasters and programmers, which can simply shut off their signal when negotiations stall.

Under Section 325(b)(1)(A) of the Cable Act, which amended the Communications Act of 1934, 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.” And the Federal Communications Commission cannot mediate impasses in negotiations or even force the parties into arbitration; the agency can only investigate allegations of parties not negotiating in “good faith,” which is still an open-ended term.

Testifying before the subcommittee, R. Stanton Dodge, executive vice president and general counsel for Dish Network Corp., said that any ride-along bill to STELA should ensure that pay-TV subscribers continue to receive the broadcast network signal when the two sides are unable to agree on retransmission fees.

Cable Association Not Calling for Major Law Rewrite

Though the overarching theme of the hearing was the threat posed by online video to the pay-TV industry, the subtext was whether Congress should rewrite the Cable Act to reflect the way consumers watch video programming today.

Michael Powell, president and CEO of the National Cable & Telecommunications Association, which represents the largest cable operators in the United States, said the Cable Act is “frayed.” The act was written at a time when the cable TV industry had a monopoly on multichannel video programming distribution; today, cable operators face competition not only from satellite TV providers but also from “over the top” video providers such as Netflix Inc. and Hulu, Powell said.

“This insatiable appetite for content is remodeling the video marketplace,” Powell said, but added that the association is not calling for a comprehensive rewrite of the Cable Act. Instead, he said, Congress must “evaluate changes more surgically and deliberately as they arise.”

When pressed for further explanation, Powell explained that the association's members disagree on the approach to Cable Act reform, and also fear that the uncertainty of a comprehensive rewrite of the law will only serve to dampen investment. He called such a rewrite a “long, complicated, and uncertain exercise.”

Powell, a former chairman of the FCC, said the rulemaking process to implement the 1996 Telecommunications Act--and ensuing litigation--took a decade to settle down, and in that time the industry underinvested.

To date, many of the association's members have lobbied for changes to the retransmission system, but Powell balked at proposing specific legislation.

McCain Testifies on his a la Carte Bill

To be sure, the cable industry is opposed to legislation introduced last week by Sen. John McCain (R-Ariz.) that seeks to upend the multichannel video industry by forcing cable and satellite providers to allow customers to pay for channels a la carte, rather than in a bundle.

McCain, the former chairman of the full Senate committee, has been a longtime critic of the practice of bundling big channels with hardly known ones, which requires cable operators and satellite TV providers and their customers to pay programmers for channels that few people watch.

“I love ESPN and would never go without it,” McCain said in brief testimony to the subcommittee at the start of the May 14 hearing. “… But consumers shouldn't have to pay for television channels they don't watch and have no interest in watching.”

McCain's bill, the Television Consumer Freedom Act of 2013 (S. 912), does not include an outright ban on bundling channels, but rather attempts to force distributors' hands. Under the legislation, if the cable or satellite operator does not offer a broadcast TV station, or any other channel owned by the broadcaster, on an a la carte basis, then it cannot avail itself of the compulsory license that authorizes it to carry those channels.

“It seems logical that if you want less you'll pay less, but that's apparently not the case,” Powell said. “Forcing channel unbundling will actually reduce the diversity of content.”

In an a la carte system, some smaller, niche channels might be forced off the air if only 5 percent of subscribers or less subscribe; the cost per subscriber per month would simply be too high to sustain.

McCain's bill, while opposed by the pay-TV industry, also targets the retransmission system. In situations in which the two sides fail to reach an agreement, both must disclose their final offers to the FCC, under the bill.

Over-the-Air Broadcaster Controversies

At the same time, McCain's bill also takes aim at over-the-air TV broadcasters.

Under one provision, the Federal Communications Commission would be required to revoke the licenses of television broadcasters who decide to become cable channels, as some have threatened to do in the face of new market entrants like Aereo Inc., a service that uses tiny antennas to capture over-the-air broadcast signals that can then be streamed on the internet and viewed on a device of the customer's choice--all without compensating TV stations. Several big networks, most notably Fox Broadcasting Co., have warned that if they lose their legal battle with Aereo, they would consider exiting the broadcasting business.

During the hearing, Sen. Mark Warner (D-Va.) voiced support for the Aereo-related provisions in McCain's bill, saying that if broadcasters want to turn themselves into paid cable channels, other companies would be “happy to take the spectrum off your hands”--spectrum, Warner noted, the U.S. government gave to TV stations “for free.”

Gordon Smith, president and CEO of the National Association of Broadcasters, said that stations' spectrum “comes with public service obligations that only we deliver.” He said broadcasters earn their spectrum licenses every day by providing local news and weather information, preventing indecency, and offering children's and diversity programming.

“If you compromise broadcasting, who serves those interests?” Smith said. “The answer is no one steps up to those obligations.”

Commenting on Aereo specifically, Smith said copyright protection is a constitutional right. “Taking someone else's content and charging a fee for it is called piracy,” he said.

The hearing was the second under Pryor as the new subcommittee chairman. He said he is planning more “state of” hearings this year for other aspects of the communications landscape, such as wireless and broadband.


Witness testimony is available at http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=1ade29c4-6ce3-423e-bc1a-e33892af1f53&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a.