Telecom Companies Are Using Fight Interrupting Oscar Ceremony Broadcast To Manipulate Public and FCC, Argue Broadcasters

FCC May 21st, 2010

, Contributing Editor

SAN FRANCISCO, May 21, 2010 – U.S. telecom companies are using a high profile programming dispute that broke into public view this March to influence the shaping of the rules regarding retransmission consent fees against the broadcasting industry, its lawyers argued in a filing with the Federal Communications Commission earlier this week.

The rules governing retransmission consent fees aren't outdated, argue the National Association of Broadcasters, and a group of affiliate associations. Photo by: gbaku

“It is the petitioners themselves who are creating an artificial ‘problem’ and then asking the government to solve it,” according to the National Association of Broadcasters, and the associations for ABC, CBS, FBC and NBC affiliates.

The 139-page argument, packed with statistics, came in response to a petition signed this March by a group of non-profits, think tanks, the American Cable Association, and 10 of the 13 largest multichannel video programming distributors in the nation.

The fight between the broadcasters and the video distributors is of interest to lawmakers because cable rates are regulated by law and the sharp increases in pay TV rates over the years has been a concern to constituents.

The current petition came after a high profile incident just before the Oscar ceremonies this March when negotiations over retransmission consent fees between ABC and Cablevision broke down, leaving more than three million Cablevision customers in the New York City area without the channel for the day, and high and dry until the beginning of the ceremonies.

But the service interruption didn’t just spark off outrage among Oscar party hosts in the New York City region. It precipitated action by the cable, telecom and satellite TV companies, who charge that the broadcasters are abusing the rules laid down in a 1992 law to both extort ever-higher levels of compensation for the retransmission of their signals, and to force the inclusion of programming that the distributors’ customers don’t want — all resulting in ever-escalating monthly cable bills for those customers.

The broadcasters themselves point to a 2008 FCC report on cable industry prices that shows that the weighted average price of cable television service has increased by 163 percent between 1995 and 2008, while the Consumer Price Index increased by only 38.4 percent. The authors of the letter argue through detailed analysis how retransmission fees can’t be the source of this rise in cable bills. They also reference a 2003 Government Accountability Office Report that said it was a lack of competition, and not retransmission consent fees, that was to blame for rising cable bills.

But all these points are just a red herring, argues a telecom industry source. The prices are going up because the cost of paying for all the programming – for the copyright fees associated with the programs, as well as the fees for the signal, are increasing. Cable companies feel that they must have the programming from the broadcasters, but broadcasters will often only make their broadcast channel available on certain conditions.

“The broadcasters use the leverage of the retransmission consent negotiations to extract higher fees for all of their programming,” said the executive.

“Programming costs going up is definitely a result of retransmission consent fees … they are able to, by tying/connecting the licensing process of the other channels to the broadcast signal, charge higher fees for everything.”

For example, as part of some past retransmission consent compensation packages, broadcasters required cable companies to carry new channels.

“That’s how FX was launched, that’s how SOAPnet was launched, that’s how the FOOD Network was launched – these were all channels that were launched as compensation for retransmission consent.”

The petition asks the FCC to establish a “dispute resolution mechanism” when the two sides can’t reach an agreement over retransmission consent fees, and that the programming distributors should be allowed to continue carrying the broadcasters’ signals even if an agreement has not been reached by the time that their contracts have expired.

Retransmission consent fees are the cash fees and other forms of compensation that cable and satellite companies pay to broadcasters to carry their signals. Congress established the regulatory regime governing the marketplace through the 1992 Cable Act on the basis that cable companies were local monopolies.

But the programming distributors say that the marketplace has changed dramatically since 1992, and that they don’t have the monopoly market power that they wielded back then because of today’s increased competition between providers in the television marketplace.

That’s bunk, argue the broadcast industry’s lawyers, calling the coalition’s explanation of the 1992 Cable Act “revisionist history,” replete with “rhetorical hyperbole –not facts.”

“In the end, the petition is really about the fact that the pay TV industry preferred it when they could force television stations to give away their signals at a discounted rate or, in many cases, for free,” they argue.

But the bargain between all parties–the broadcasters, the video distributors and the public — is far more complex than what’s portrayed in the filing.

“When you look at the question of interim carriage, it’s very important to think about the public interest here,” shoots back the industry executive. “The copyright fees have already been paid to the creators and producers of the programming. The signal belongs to the public — it’s the retransmission of a broadcast signal, and the spectrum is the public’s asset, which broadcasters get for free, but for which they are charging.”

The broadcasters also argue that the ABC-Cablevision incident is a rare occurrence.

“In tens of thousands of retransmission and consent negotiations, there have been few showdowns, even fewer shutdowns, less than a handful of complaint adjudications by the Commission – just four in total – and zero findings by the Commission that a broadcast station has failed to negotiate in good faith or has otherwise abused the Commission’s rules or processes (the same, unfortunately, cannot be said with respect to MVPDs,)” write the broadcasters’ lawyers.

The lawyers recounted a radically different historical narrative than the one provided by the petitioners to bolster their argument that interim carriage is not something that can be even contemplated by the FCC.

“To the same extent a television station is not permitted to retransmit and resell the signal of another station without its consent, a cable system should not be permitted to retransmit or resell the signal of a television station without its consent,” they argue.

But this isn’t just another marketplace, argues the industry insider.

Because of the history of the development of the two markets, and the perception that cable was a monopoly, the rules governing the business negotiations between the two sides favors the broadcast industry while the cable industry is hamstrung by a thicket of rules that prevent them from searching out alternatives.

“It’s a marketplace where you’re going to the supermarket, and being told what you have to buy,” said the industry executive.

The petitioners include the American Cable Association, Cablevision, Charter Communications, DIRECTV, Dish Network, Public Knowledge, The New America Foundation, Time Warner Cable, and Verizon. Notably, it doesn’t include Comcast, which is in the process of buying NBC.

BroadbandBreakfast.com is hosting a panel discussion about retransmission fees and video program licensing issues June 8 at Clyde’s of Gallery Place in Washington, DC. The event is free and open to the public. Join us!

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