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Representatives of the cable industry and the TV broadcasting business continue to spar over whether new laws are needed to govern the rapidly changing video services market.
The two sides squared off at a July 24 hearing of the Senate Commerce, Science, and Transportation Committee, in what served as a preview of the next big communications policy battle: a rewrite of the 20-year-old Cable Communications Policy Act.
Though Congress is not expected to take up any reform bill in this Congress, recent high-profile contract disputes between TV networks and pay-TV companies--some of which have left millions of Americans without access to certain TV channels for weeks at a time--has moved the issue to the front rank.
“Overheated rhetoric alleging greed and bad faith is of little comfort to someone paying for services they are not getting. When consumers lose channels in these corporate disputes, they should get a refund,” said committee Chairman John D. Rockefeller IV (D-W.Va.), in his opening statement. “It is only fair.”
The issue that attracted the most attention at the hearing was a provision in the Cable Act that sets forth what is known as “retransmission consent” negotiations.
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 through to consumers in the form of higher monthly rates.
The pay-TV industries claim the current rules favor the broadcasters and programmers, who can simply shut off their signal when negotiations reach an impasse.
Section 325(b)(1)(A) of the Cable Act 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.”
Under FCC rules implementing the 1992 Cable Act, a station, however, may be found to have violated “good faith” bargaining rules “based on the totality of the circumstances of a particular retransmission consent negotiation.” But for the past 20 years, there have been only two instances in which the FCC concluded that a company negotiated in “bad faith.”
The FCC launched a rulemaking proceeding a year ago to explore whether the agency should, or could, do more to prevent blackouts of television programming when negotiations to renew retransmission consent agreements stall. The agency has yet to take any substantive action.
FCC Chairman Julius Genachowski, as well as top FCC officials, have admitted publicly that absent congressional action, there is little the FCC can do under the current statute.
Sen. John Kerry (D-Mass.), who had urged the FCC to open the proceeding, said Congress must find a way to ensure that consumers do not see their channels go dark during negotiations.
At the same time, Kerry said he would not support “radical” proposals to eliminate the retransmission consent, compulsory licensing, and “must carry” provisions of the Cable Act, as has been put forward by Sen. Jim DeMint (R-S.C.) in a bill he introduced in December, the Next Generation Television Marketplace Act.
Testifying before the committee, Gordon Smith, the president and CEO of the National Association of Broadcasters, compared the three provisions to a “three-legged stool.”
Local TV affiliates and networks, for instance, rely on revenue from retransmission consent fees to serve local audiences and advertisers, he said.
“It's a delicate balance,” he said.
Under the Cable Act, there are two ways that local broadcast stations get on cable systems: “must-carry” or “retransmission consent.”
The act stipulates that cable operators generally must devote up to a third of their channel capacity to carrying signals from local broadcast stations. If a cable system has not reached that cap, a local broadcaster can state that the system must carry its signal. If a broadcast station asserts its must-carry rights, then it cannot demand a fee from the cable operator.
Rather than demand must-carry, a local broadcaster instead can say that the cable operator must negotiate what is known as retransmission consent. If a TV station chooses retransmission consent, until a price is negotiated, the cable operator is essentially prohibited from carrying the signal.
Martin Franks, executive vice president for planning, policy, and government affairs at CBS Corp., said the current system has “flaws,” but works.
“I almost don't recognize the environment in which I'm sitting,” Franks said, noting that 99 percent of retransmission deals get done without blackouts. They're [the pay-TV companies] describing a situation that doesn't exist.”
In response, Colleen Abdoulah, CEO and chairwoman of the board of WOW! Internet, Cable, and Phone, said she hopes Congress does not evaluate the success of the act based on the number of blackouts.
Even when deals are reached, she said, cable operators and satellite providers are being asked to pay “double-digit” and “triple-digit” increases that, to her, are not “rationalized.” And many of the terms of these deals cannot be disclosed publicly under law, she said.
“Some people may like the model; consumers don't,” she said.
Abdoulah said many cable companies cannot control costs because programmers keep raising fees.
Taken together, retransmission consent fees and program costs have forced 800 small cable operators out of business in the last four years, she said.
To address the problem, Abdoulah said the FCC could prohibit broadcasters in the same market from coordinating negotiations on retransmission consent, which can lead to higher fees.
Congress could also authorize the FCC to order interim carriage and arbitration when TV stations stage a signal blackout.
“Consumers take the brunt,” Abdoulah said.
For more information on the hearing, visit http://commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=df31aa95-2c78-4594-9d47-265ed87594de&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a.
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