JESSELL AT LARGE

Wheeler Leaves Misguided Broadcast Legacy

Rather than helping out broadcasters so they can continue to provide arguably the best all-around TV service to everyone for free, outgoing FCC Chairman Tom Wheeler worked to constrain the growth of station groups, tried to undercut their retrans leverage by eliminating the syndex rules and failed to champion ATSC 3.0. It's a legacy that says that broadcasting should be tightly managed, but not encouraged.

When President Obama personally announced in May 2013 that Tom Wheeler was to be his second-term FCC chairman, he made light of the fact that Wheeler was once a top lobbyist for cable and wireless. He is a member of both industries’ halls of fame, the president noted. “[H]e’s like … the Bo Jackson of telecom.”

As Wheeler now prepares to step aside to make way for the new administration and new chairman, I can assure you that he will not be inducted into the TV broadcasting hall of fame, even if there were such a thing.

Although he sometimes gave lip service to the value of broadcasting when the occasion demanded, I cannot think of a single Wheeler move to nurture or strengthen broadcasting, to make it better able to withstand the forces that have been grinding it down for the past 40 years.

If he had helped out broadcasting, he would have had solid public interest grounds to do so. The medium produces the best all-around TV service — news and entertainment and vital emergency information — and provides it indiscriminately to everybody, rich or poor, for FREE. All you need is a TV set and someplace to plug it in.

Instead, Wheeler stuck with the out-of-date Democratic playbook that says that broadcasting is so powerful and pervasive that the FCC must continue to regulate and constrain it as if it were still 1975. (When I say Wheeler here, I mean Wheeler and the two other Democratic commissioners who usually provided his necessary majority.)

Wheeler not only kept the onerous national and local broadcast ownership restrictions in place, he tightened them up (or tried to). In 2014, he banned joint sales agreements that broadcasters have been using to operate two full-power stations in markets where the rules say they couldn’t own them.

BRAND CONNECTIONS

In a related action, Wheeler said two separately owned stations in a market could not jointly negotiate for retrans fees, even if they are jointly operated via JSAs and shared services agreements. He meant it, too. This year, he forced Sinclair into a $9.5 million settlement for violating the prohibition.

Fortunately for broadcasters, Congress and a federal court countermanded the FCC’s JSA action to some extent. As things now stand, broadcasters can keep their existing JSAs and resulting duopolies and even transfer them. However, they can’t create any new ones that run afoul of the ownership limit, and they still can’t negotiate for retrans fees for stations they operate, but don’t own.

On the national side, Wheeler eliminated the so-called UHF discount, affirming that no group could serve markets covering more than 39% of TV homes. He grandfathered the handful of groups that now exceed that limit, but said they must come into compliance should they want to sell out.

Wheeler also inexplicably insisted on keeping in place the broadcast-newspaper crossownership rule, a regulatory relic that is now threatening to outlive newspapers. Every day it remains on the books is an embarrassment to good government.

The cynics in the broadcasting establishment (and there are more than a few) believe that Wheeler’s hard line on ownership was not due to his trying to preserve diversity of “voices” or competition, but to his desire to squeeze the financial life out of broadcasters so that they would be more apt to sell their spectrum in his prized incentive auction.

This goes back to Clinton-era FCC Chairman Reed Hundt, who promulgated the notion that broadcasting is an inefficient and fundamentally undemocratic medium and that its spectrum would be better used by wireless carriers. The idea led directly to the incentive auction.

The Wheeler commission could have been even worse for broadcasters.

At one point, under a congressional mandate, Wheeler was considering regulating retransmission consent in ways that would have made it tougher for broadcasters to negotiate for higher fees. And on his own initiative, he tried to get rid of the network non-duplication and syndicated exclusivity rules, which undergird retrans.

He eventually dropped the retrans rulemaking, perhaps figuring he didn’t have statutory authority to do much. And he gave up on non-dupe and syndex in the face of stiff bipartisan congressional resistance.

Still, it was a bit of a close call. Without the ability to increase retrans fees, the broadcasting business goes from slow growth to no growth.

Also, the FCC’s dalliance with retrans “reform” created problems for broadcasters (and the public) by causing some cable and satellite operators to take harder lines in negotiations, figuring that an occasional retrans blackout of stations would trigger a backlash against broadcasters and  help spur favorable action in Washington.

Like most other Democrats, Wheeler was not a stickler on broadcast indecency, long a thorn in the side of the industry. However, in 2016, he forced Schurz Communications to pay $325,000 as a condition of the FCC’s dismissing an indecency complaint against Schurz’s WDVJ Roanoke, Va., and granting the $443 million sale of its broadcast stations to Gray Television. It was bureaucratic extortion that denied Schurz due process.

Wheeler could have helped broadcasters by championing ATSC 3.0, the new broadcast standard that promises to transform the medium by increasing its capacity, integrating it with the internet and enabling its reception on smartphones and at home without rooftop antennas.

But he mostly chose to ignore it, perhaps fearing that it would discourage broadcasters from participating in his incentive auction. Broadcasters, consumer electronics manufacturers and other tech companies were on their own in developing the standard and a workable transition plan.

Broadcasters petitioned the FCC for a rulemaking to allow the use of 3.0 on a voluntary basis last April. We still haven’t seen it. He is simply leaving it for the next guy to deal with.

Wheeler has poured a lot agency resources into the incentive auction, a mechanism for buying spectrum from broadcasters and turning around and selling it to wireless carriers.

I guess you could count the auction as one of Wheeler signal accomplishments. Obama’s first-term FCC Chairman Julius Genachowski cooked it up, but Wheeler brought it to fruition, writing the complex rules, developing the equally complex software and finally getting it started late last summer.

But for many broadcasters it will be a bitter disappointment. Wheeler raised expectations high to insure that there would be widespread participation by broadcasters on the sell side.

But he badly misjudged the demand side. The wireless carriers have not shown up in the numbers or with great wads of cash that not only Wheeler, but just about everybody else thought they would. Rather than $40 billion or $45 billion flowing from wireless carriers to broadcasters in the auction, now the talk is of $20 billion.

The auction could fizzle out altogether, but probably not. So, some broadcasters will still cash in, but not as many as once supposed, and those who do may not get as much money as they once thought.

For most broadcasters, the incentive auction will not mean a fat check, but the hassle of having to move to their stations to new channels in the TV band repack that will follow the auction.

At least the government will pay for the migration out of auction proceeds, and so it becomes a way for broadcasters to upgrade their RF facilities for free. If they are smart, they will figure out a way to fold in some of the RF infrastructure changes they will need to implement ATSC 3.0.

Broadcasting isn’t the only FCC-regulated industry that will be happy to see Wheeler go. He stiffed his old comrades in cable, too.

The former head of NCTA failed to deliver much relief from broadcasters’ retransmission consent demands, imposed net neutrality regulations on operators’ lucrative broadband business and tried to force cable operators to allow third parties to offer competitive set-top-boxes and other TV navigation devices.

The current head of NCTA, Michael Powell, in May characterized the Wheeler years as a “relentless regulatory assault.”

But the man did have his fans, namely the beneficiaries of net neutrality (Google, Amazon, Netflix and other big broadband content providers) and the set-top-box initiative (Google).

I suspect plans are already being laid to welcome Wheeler into the Silicon Valley Hall of Fame.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.


Comments (9)

Leave a Reply

Bill Evans says:

December 23, 2016 at 10:05 am

How ironic it is that “The Bo Jackson of Telecom” was shafted by those same people in the auction by not spending.

    Andrea Rader says:

    December 23, 2016 at 11:13 pm

    Shafted by telecom? More like another gift of cheap spectrum for his telecom buddies, and broadcasters got the shaft.

Ron Burrus says:

December 23, 2016 at 11:08 am

Well written Harry. A text book on why these people had to go – just not soon enough.

Amneris Vargas says:

December 23, 2016 at 11:29 am

Good one Harry.

Warren Harmon says:

December 23, 2016 at 12:48 pm

Very well put Harry, let us pray the new adminisration will help the broadcast industry get back on it’s feet and thrive.

Ellen Samrock says:

December 23, 2016 at 2:22 pm

Great editorial to close out the year, Harry. The Destructive Duo, Genachowski & Wheeler, doing the bidding of the most broadcast unfriendly administration ever concocted. The only criticism I have of the article is this sentence, “At least the government will pay for the migration out of auction proceeds, and so it becomes a way for broadcasters to upgrade their RF facilities for free.” That will certainly NOT be the case for the thousands (yes, thousands) of LPTV and translator stations that will have to move. The majority of low power stations, 83%, are on channels above 37. The GAO study says that it will cost low power stations anywhere from 50K-350K to relocate. So this incentive auction will yield nothing but an expensive lump of coal LPTV station owners.

John Murray says:

December 23, 2016 at 2:24 pm

Adding here to the pats on Harry’s back. Wheeler’s FCC was a perfect example of “progressive” regulatory agencies picking winners and losers. In the case of energy regulation, this administration targeted legacy energy industries (coal, oil & gas) with restrictions while attempting to nurture “clean-tech” (solar, wind). This FCC primarily targeted broadcasters in an effort to nurture Silicon Valley (as though Silicon Valley needs anyone’s help these days…). Silicon Valley “progressives” are every bit as guilty of living-inside-the-Bubble as they accuse conservatives of doing. The environmentalist champion, Silicon Valley hedge fund billionaire Tom Steyer recently (and predictably) groused that Pennsylvania didn’t deserve its outsize influence in the presidential election because coal only employs about 75,000 Pennsylvanians while clean energy employs about 1 million Californians. Hey Tom, how about waking up to political reality and figuring out a way to funnel, oh, say 200,000 or so of those “clean-tech” jobs to states like Penn. and Ohio that actually matter on the presidential stage?

Don Thompson says:

December 24, 2016 at 12:34 pm

Please Follow Me On Twitter: @TedatACA or @AmericanCable

http://www.philly.com/philly/business/Free-TV-now-socks-consumers-with-billions-of-.html

Why is your pay-TV bill rising? ‘Free’ TV now socks consumers with billions in fees

Updated: DECEMBER 23, 2016 – 4:58 PM EST

Why is your pay-TV bill rising? ‘Free’ TV now socks consumers with billions in fees

Even as consumers complain about soaring cable bills, one of the fastest-growing parts of those bills is entertainment and news that’s free for Americans: the broadcast-TV networks ABC, CBS, Fox, and NBC.

Comcast Corp., Verizon Communications Inc., and other pay-TV distributors will collect about $7.7 billion in fees this year for the rights to distribute over-the-air TV stations. The payments add to consumers’ bills while fattening the profits of TV networks and local TV stations, which have shrinking audiences and flat advertising.

So-called retransmission fees rose about 30 times over the last decade while the network prime-time audiences fell by almost half, according to the ratings tracker Nielsen and the research firm SNL Kagan.

Comcast, in the latest example of this cost spiral, will raise fees for over-the-air TV networks on millions of Xfinity TV customers to $7 a month from $5 in early January, the Philadelphia company told subscribers this month. These would be fees for Philadelphia’s CBS3, NBC10, and 6ABC and are separate from regional sports fees.

Charging More for Fewer Viewers

“The broadcasters always slap themselves on the back, telling Washington they are your free and local TV stations,” said Matthew Polka, the president of the American Cable Association of small cable operators. “There is nothing further from the truth.”

And ultimately, it’s Washington that “has allowed [TV] broadcasters to maximize their monopolies,” Polka said.

He and other critics say that the fees exist because of a patchwork of telecom laws and federal regulations that created local TV monopolies.

Chris Fenger, chief operating officer for the Princeton-based cable operator RCN, said the hikes in fees for free broadcast TV channels are “out of control” and are pricing the pay-TV product “out of the market” across the industry.

Fenger cited the bargaining power of major content conglomerates that now own both the TV networks and cable channels. These include Comcast, the Walt Disney Co., and 20th Century Fox.

As a cable operator, Fenger noted, if “people are not watching the content, we don’t want them to have to pay for it, but we are forced to carry and charge for it by the market power of those networks.”

The fees also can confuse consumers who aren’t aware of them and cannot make an informed decision. “How do you competitively price when these fees just pop up out of nowhere?” asked Steve Traylor, the executive director of the National Association of Telecommunications Officers and Advisors.

Plaintiffs lawyers filed federal class-action lawsuits against Comcast, Time Warner Cable, and Charter Communications in October and November, claiming the retransmission and regional sports fees violate consumer-protection laws.

Comcast conceals the fees in its advertising and disguises them in bills, the suit contends. When consumers call to complain, Comcast call-center employees say the retransmission and regional sports charges are “government-related fees or taxes over which Comcast has no control,” the suit says.

Comcast spokeswoman Jenni Moyer said that the company itemizes the broadcast-TV fees to be “more transparent about the factors driving price changes” and they are listed in the “Other Charges & Credits” section of the bill. She said the fees were “a portion of our costs to carry and distribute these channels.”

The TV networks ABC, CBS, and NBC say it is time they were paid for popular shows such as The Big Bang Theory and NFL games on Sunday. The broadcast-TV shows remain the most-watched programs on television and the fees charged for their programs are much lower than the charges for cable networks, broadcast-TV officials say.

“Pay-TV companies built billion-dollar businesses on the backs of broadcast TV programming. So it’s only reasonable for local TV stations to be compensated fairly when our most popular programming is resold to pay-TV customers,” said Dennis Wharton, the spokesman for the National Association of Broadcasters.

“Broadcast fees are small compared to fees for cable programmers, set-top boxes, regional sports networks, and the like,” he said. “Regulators have repeatedly found that no new rules are needed that would give an unfair advantage to pay-TV titans at the expense of local television stations, and we agree.”

Comcast, Disney, 20th Century Fox, and CBS Corp., which own national TV networks, benefit in two ways from retransmission fees.

These companies own TV stations in large metropolitan areas and directly collect the retransmission fees. But in midsized and small cities, Comcast, Disney, 20th Century Fox, and CBS Corp. don’t own TV stations and don’t get the fees. Instead they insist that local TV stations remit part of the fees to them as reverse compensation — thus, if a TV affiliate in Cleveland or Nashville wants access to network shows, that TV station has to pay the reverse compensation to the network owner.

A leader among the TV networks in fee deals has been CBS, which is aiming to collect $2 billion in retransmission fees, including reverse compensation, by 2020. “These are dollars that fall right to the bottom line,” cheered CBS Corp. chief executive Leslie Moonves, speaking to Wall Street analysts in August 2015.

Comcast participates on both sides of the retransmission-fee ecosystem — as the nation’s largest cable operator and as the owner of the NBC network. Comcast charges its TV subscribers for the retransmission fees, including those at NBC, which benefits from the fees. Comcast officials say that retransmission fees will amount to about $800 million a year.

“They are playing both sides as a cable operator and a network operator,” said Justin Nielson, senior research analyst at SNL Kagan, part of S&P Global Market Intelligence.

Spokesman John Demming said that Comcast and NBC negotiate the retransmission fees on an “arm’s length” basis just as Comcast negotiates the fees with ABC, CBS, or Fox.

In July, the chairman of the Federal Communications Commission, Tom Wheeler, decided not to seek reforms in retransmission, saying in a blog that “what we need is not more rules, but for both sides in retransmission consent negotiations to take seriously their responsibility to consumers, who expect to watch their preferred broadcast programming without interruption.”

For consumers, the most obvious solution is to cancel cable and grab free network channels with an antenna and order Netflix on-demand streaming services or other content streamers. These “cord cutters” are growing as cable bills keep climbing.

Most Americans still have no idea they’re paying for free TV because for many years cable distributors and broadcast-TV stations worked cooperatively. This began changing with the 1992 Cable Act. Under that law, local TV stations could opt for carriage on cable systems under one of two designations: “must carry” for free, or “retransmission” with some form of compensation.

Under retransmission, TV stations could be paid with cash or something of value. For years, this compensation came in the form of advertising that the cable firm purchased on the TV station or new cable channels. Around 2007, the big entertainment companies and groups that owned local TV stations began seeking cash for the rights to transmit the local stations.

SNL Kagan, the research firm, projects that retransmission fees could jump 50 percent to $11.6 billion by 2022, adding pressure on pay-TV distributors to recoup those costs from consumers.

Congress and the FCC have created “the laws and regulations that are forcing consumers to pay more every month for what they consider free TV,” Polka said. “It’s making your cable or satellite bill go higher and higher.”

    Darrell Bengson says:

    January 4, 2017 at 1:54 pm

    Another rant by Ted the rip off artists cable consortium fan boy…. full of biased half truth, lies and make believe….looking at his past posts though, I wonder what PR outlet wrote it for him…he did not seem to be able to formulate any coherent thought in his past postings… ya all can do whatever you want, but follow Ted at your own risk…you may develop brain shrinkage reading his rants too often.


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