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Cable Operators

5 Ways to ‘Fix' Retransmission Consent

3/15/2010 3:17 PM Eastern

Retransmission consent has re-entered the public
consciousness in a big way in the past few months, with two high-profile battles
in New York and more on the way.

And last week, a group of cable operators led by Time Warner
Cable formally petitioned the Federal Communication Commission to do three
things that would bring an end to public fights and nasty deadlocks. The
petition asks the FCC to require independent arbitration during
retransmission-consent disputes, interim carriage during that arbitration and
to untie retransmission-consent negotiations from those involving other
programming services, such as co-owned cable channels and even Internet
content. FCC chairman Julius Genachowski told the Senate last week that the
agency was looking into whether "this framework makes sense or reforms are
neccessary."

The effort may have some traction, as rivals from other
industries are considering the move, including satellite-TV giants Dish Network
and DirecTV, as does telco Verizon Communications. Cable operators Mediacom
Communications and Charter Communications support the move, as well as
public-advocacy group Public Knowledge.

And a group of nine distributors and two associations (the
American Cable Association, Bright House Networks, Cablevision Systems,
Charter, DirecTV, Dish Network, Insight Communications, Mediacom, the
Organization for the Promotion and Advancement of Small Telecommunications
Companies, Suddenlink Communications and Time Warner Cable) last week wrote a
joint letter to congressmen and senators asking for their help in rectifying
the "imbalance" in retrans negotiations.

That the fight has escalated to this point is no accident.
On March 8, Cablevision Systems reached a tentative agreement with Walt Disney
Co.'s WABC broadcast station in New
York which put the station back on the air about 10
minutes into the 82nd Annual Academy Awards broadcast. That battle, marred by
increasingly nasty print, radio and television attack ads, came on the heels of
another bout between Fox Broadcasting and Time Warner Cable, which ended Jan. 1
after months of name-calling.

Time Warner is expected to re-enter the fray in the summer --
its carriage deal with ABC/Disney ends on Aug. 31.

While most programmers believe the system is fair,
distributors have their own solutions to end the stalemates. Multichannel News
talked to parties on both sides and listened to the various fixes. On the less-feasible
side are calls to rein in sports salaries, which some argue is the real culprit
in high programming costs. Most of the likely changes -- if any come at all --
would require FCC authority to make both sides negotiate in good faith.

1. Require Binding
Arbitration:
Cable operators have been calling for this measure for years,
starting with Mediacom's storied battles in the Iowa
market with Sinclair Broadcast Group. The call for binding arbitration was
again sounded in recent disputes -- both Time Warner Cable and Cablevision
Systems asked for it during their recent scuffles with Fox and ABC,
respectively. The concept is simple: if a broadcaster and distributor cannot
reach an agreement on their own as the deadline approaches, then an independent
third party arbitrator would step in to settle the dispute. Whatever the
arbitrator decides would be binding for both parties. How hard would it be to
impose? The FCC could conclude that the marketplace had changed sufficiently in
the past almost two decades to justify arbitration under the fair-dealing
provision. Congressional involvement is uncertain. Sen. John Kerry (D-Mass.)
was expected to introduce a bill requiring arbitration, but he's since said
that he would not pick sides in the dispute.

Pros: The threat
of arbitration itself could spur both distributors and programmers to hammer
out an agreement, mainly to avoid the risk of having a worse deal imposed on
them by an independent arbitrator. And in the event of arbitration, at least a
deal would be reached that would ensure no interruption of service.

Cons: Arbitration
doesn't work. The FCC has tried the arbitration route for smaller networks in
carriage disputes -- most notably the America Channel -- and years into the
process, that network still hasn't found its way onto all systems. There could
be a downside for cable, too, if it pushed some so-called must-carry stations
to instead choose retransmission consent.

2 Guarantee Interim
Carriage:
This would prohibit broadcasters from yanking their signals
during good-faith negotiations. Since retransmission disputes also tend to crop
up around major television events -- like the Super Bowl and, most recently,
the Academy Awards -- several politicians have jumped on this bandwagon,
including Kerry, Rep. Rick Boucher (D-Va.) and Rep. Joe Barton (R-Texas).

Kerry has called for limiting programmers' rights to pull
their signals during disputes. The prohibition would be little change from laws
that require distributors not to pull signals during ratings sweeps periods. The
FCC has not read its good faith bargaining authority broadly, but pressure from
Congress and a changed marketplace could justify the change, particularly given
that Congress wrote into the law the prohibition on pulling signals during
sweeps. "It is not as big a stretch as starting from zero," said one veteran
communications attorney. "The big question is, ‘Does retrans look in 2010
anything like what it did in 1992?' "

Pros: Keeping the
channels on the air would appear to serve the interests of all parties --
distributors are able to negotiate without constantly looking over their
shoulders, customers get to watch the programming they want to and programmers
don't have to reimburse advertisers for any lost audience. The provision also
could protect smaller operators who may be more vulnerable to getting their
signal pulled than distributors in larger areas.

"There are no established rate cards for these broadcast
signals to ensure transparency so that different distributors pay the same
price in a DMA," said Mediacom chairman and CEO Rocco Commisso. "Consequently,
the price paid becomes a function of relative leverage and the smaller
distributors suffer the most."

Cons: Removing a
programmer's ability to pull his signal cuts out their biggest bargaining chip
in retransmission consent negotiations. From a programmer's perspective, a
distributor has no incentive to reach a deal because it is more than willing to
keep the process going on indefinitely, paying the older, lower rates.

3 Repeal or Reform
the Cable Act:
Another favorite of distributors, who claim the 1992 Cable
Act -- which created the must-carry and retransmission-consent regime -- is an
outdated law written during a time when the broadcasting and cable businesses
were vastly different from what they are today. One suggestion is to replace
retrans with a local-signal compulsory license, like the one that allows
satellite providers to import distant network TV-station signals. Gigi Sohn,
president and co-founder of fair-use lobby Public Knowledge, said she would be
fine with that, but that must-carry should be retained as well.

Commisso said the retrans laws were enacted almost 20 years
ago to protect broadcasters from being dropped by the perceived cable
monopolies. "Today the roles are reversed," Commisso said. "Competition among
cable, satellite, and telephone video providers is fierce, while the
broadcasters retain government-granted exclusivity for their signal in any
given DMA. This monopoly power permits them to hold hostage different pay TV distributors
at different times, and we either have to cave in to their exorbitant price
demands or be forced to drop the signal."

Pros: Changes
have been made to the act before, through the passage of other legislation. The
Telecommunications Act of 1996 -- passed during a Democratic administration --
eliminated restrictions on cross-ownership between telecommunications and cable
service providers, which allowed cable companies into the phone business and
vice versa.

Cons: Asking the
government to step in on this matter also could invite them to scrutinize parts
of the business distributors and programmers don't want changed. And it could
take years -- it took four years and another presidential administration for
Congress to pass the Telecommunications Act of 1996, and the 1992 Cable Act
itself was an update of a 1982 law that included onerous pricing structures.

4 Allow Importing of
Distant Signals:
Current law allows satellite TV service providers to
import distant broadcast signals only to households that cannot receive "a same
network over the air local signal of sufficient intensity," according to the
National Cable and Telecommunications Association. And they are usually not
allowed to offer distant signals to new customers in any market where they
currently offer local broadcast signals.

Pros: Being able
to offer distant signals would serve the public interest in allowing viewers
uninterrupted access to programming. And it would benefit distributors, because
subscribers would not have to defect to competitive services like telco video
or satellite TV to receive the programming.

Cons: Replacing a
local signal with a distant one could run into complaints about a lack of local
news or sports, something Congress is attuned to on the satellite side. Aside
from the obvious competitive issues (What's to stop another broadcaster from
doing the same in their retrans negotiations?), there are also copyright
issues. Currently, cable operators must black out network programming from
distant stations. The FCC would need to scrap its network-duplication rule, and
perhaps would have to prevent networks or other distributors from including
language in their programming contracts that disallows out-of-market
retransmission consent.

5 Mandatory
Unbundling of Programming:
Often, retransmission consent deals expire in
concert with cable-carriage deals for channels owned by the same programmer. In
the past, that has allowed some distributors to technically avoid paying cash
for broadcast networks -- they would instead agree to carry a fledgling cable
channel owned by the same company or pay more for an existing cable channel.

But as the industry has matured, distributors have accused
programmers of using cable-network carriage negotiations as a club for
retransmission consent by, say, withholding a broadcast signal unless the cable
channel is carried.

Pros:
Distributors argue that they should be allowed to negotiate the value of each
channel separately, on its own merits. So the amount a distributor pays for a
broadcast station would not be unduly influenced by its ability to continue to
carry a popular cable network or group of networks.

Cons: Breaking
out negotiations into separate deals for each individual channels could have
two unwanted implications: it could drag out the process of negotiation much
longer and it would add more fuel to the push to a la carte, or selling
channels individually. While cable operators have long wanted to put expensive
cable channels on tiers, they have systematically avoided a la carte as bad for
business. So have the programmers, who are loath to give up the ad revenue and
carriage fees they currently receive by being located on the basic tier of
service.

 

Todd Spangler contributed
to this report.

September