The president of the American Cable Association hopes that by joining forces with NCTA, as well as satellite operators DirecTV and Dish, Congress or the FCC will be convinced to adopt new policies that will end what ACA sees as price discrimination against small cable systems. He also expects the effort will trigger a “formidable fight” with broadcasters.
After the DTV transition, the big issue facing broadcasters in Washington may well be a drive by the cable and satellite TV industry to water down broadcasters’ retransmission consent rights — that is, their ability to negotiate for monthly carriage fees.
For the past few years, the fight for retrans reform has been led by the American Cable Association, a group comprising the nation’s small operators. Its 1,000-plus member companies count just seven million subscribers in 50 states.
Like their larger counterparts, ACA members are not keen about paying monthly retrans fees. But what has energized their retrans fight is their belief that broadcasters discriminate against small operators by extracting higher fees than they do from large operators.
In this interview with TVNewsCheck Editor Harry A. Jessell, ACA President Matt Polka predicts a “formidable fight” over retrans in 2009 with all elements of the cable and satellite industry allied and engaged, but suggests that ACA would be content with a plan that simply puts small operators on retrans parity with their larger counterparts.
An edited transcript:
How do you think the retrans issue is going to play out in Washington this year?
The new Congress, the new administration, the new FCC are coming in focused on campaign promises. From a communications perspective, that means stimulus for broadband deployment, net neutrality and reforming the universal service fund. Then, of course, there’s this little thing called the DTV transition.
So, I don’t expect the chairmen of the committees where the retrans issues will get played out will be thinking about retrans probably until late in this first quarter or the beginning of the second quarter. Then, they’ll have to turn their attention to must-pass legislation this year, which includes the satellite home viewer improvement and reauthorization act.
The thing that will bring this issue back to the new FCC chairman will be the issue of consumer rates. We will try to show the FCC that the reason that cable rates are like they are is because of outdated retransmission consent rules.
So you think the satellite home viewer act in the vehicle for retrans reform in Congress.
It could be. It’s one that we think is a legitimate vehicle for consideration of retrans reform. The actual good faith rules, which govern retransmission consent at the FCC, have been implemented through the satellite home viewer act and the prohibition on exclusive retransmission agreements is also contained in that authorizing legislation. So I do think it is germane.
It’s not just ACA in the fight as it has been for a lot of years. Now you have both satellite operators. Dish TV has always been an advocate for retransmission reform, and DirecTV, because it is no longer linked to the mother ship of Fox, is now an independent, not tied to a major network or programmer. It’s seeing retrans from our perspective and it hurts.
And NCTA has gotten off the fence and will be engaged on retrans, right?
Yes. That’s another thing. So what you have this year is certainly a formidable fight. Hey, we’re not disillusioned about that, but this year you have more industry participants involved than ever before.
What exactly are you looking for in retrans reform?
From our perspective as smaller independent operators, we are sensitive to the concerns of smaller businesses, whether cable or broadcast. We know that a lot of what happens in a retransmission consent negotiation occurs because of size and leverage. In our case, our members have limited market share compared to the larger operators. We’re generally under 10 percent of a DMA, which, to a broadcaster, is meaningless. If you’ve got less than 10 percent, there’s really not a negotiation. The broadcaster extends the rate and says, here’s the rate; you must pay, period.
Compare that to a Comcast or a Time Warner in the same market that has 60, 70 or 80 percent of the viewership. If the broadcasters lost that, it would have a serious impact on their advertising revenue. So, there ought to be some balance of that marketplace leverage.
How do you bring about that balance?
You could have a most-favored-nation provision where the rate extended to larger operators in a DMA would be extended to the smaller cable operators, some sort of statutory fee for smaller providers, conditions similar to what the FCC imposed on Fox when it purchased Direct TV or simply some limited requirement to provide retransmission consent at no compensation for the very smallest cable operators.
Our members have gotten really tired of this negotiation process, which, as I said, is really not a negotiation. It’s just awful process where broadcasters have the choice to elect retransmission consent and then prevent any competition in the marketplace through network non-duplication.
The small operators have no choice but to essentially acquiesce to the demands of the broadcasters. Frankly, from their perspective, if Congress decided to create a statutory rate for retransmission consent or to have some process to determine that, they’d be happy.
What kind of money are broadcasters demanding in negotiations with small operators?
We’re working this quarter to get the real-time data in from our members. Some of the deals are still in progress because of extensions. But, in general, our members who were paying before have seen an increase of about 40 to 50 cents per subscriber per month.
So you’re talking about going from maybe 10 cents to maybe 50 or 60 cents per subscriber per month with escalators over the next three years. So if it’s 50 now, it might be 60 or 70 in year three. I know it doesn’t sound like a lot, but it adds several dollars to the retail price of the bill.
Because several stations are involved in each market?
Yes. If you have four or five stations in a market, particularly if you’re in an urban market or on the edge of a urban market where you have a lot of stations, you could literally add $3 or $4 in wholesale costs.
So you wouldn’t object to paying a statutory fee or a fee set by a mediation panel of some kind?
Absolutely not. This has been kind of a red herring that NAB and Disney and others have used from time to time when they say that ACA and its members just don’t want to pay. That has never been our position.
Our position has always been that because broadcasters have the right to seek retransmission consent as well as the right to exclude stations from other markets, the price for retransmission consent has never been set in what is a true and fair marketplace. It is not a competitive market. Our position has not been that we don’t want to pay, but rather that we want to negotiate in a marketplace where a marketplace range can be set based on the competition.
An alternative you mentioned would be a most-favored-nation clause, in which the small operators would get the same rate as the large operators. Is that right?
Sure. Absolutely. I mean price discrimination against smaller operators has been a huge concern of ours from day one, whether it’s the price for retransmission consent or the price for cable programming
We showed last year in the FCC’s rulemaking that our members generally pay 200 to 400 percent more for retransmission consent than the larger cable operators in the same market. There’s no reason why such a difference should exist economically. So we face price discrimination and we don’t think it’s fair.
It’s not entirely clear to me that your interests are aligned with those of the big operators represented by NCTA. Are you going to be in league with them in the retrans fight this year?
We are concerned first and foremost about relief for our members, for independent companies that have de minimis market presence. At the same time, as I said before, we’re happy that more entities, interests, industries are coming in to fight because it helps to elevate the issue. It brings additional resources to the fight. And, yes, we will be very willing to work with them as we collectively try to seek reform, but ACA will always be out looking for relief for its members.
Broadcasters resist any kind of retrans reform and one of their arguments is that cable operators readily pay cable networks license fees even though their programming is nowhere near as popular as the broadcast programming.
Well, the difference is that those services are subscription services whereas a broadcast station is available free over the air. It’s not the same kind of service. We understand their view. We just don’t agree with it. They’re not like an ESPN, they’re not like a Disney Channel, they’re not like a CNN. They’re available free over the air and that changes the nature of their signal.
If they want to be treated like a [cable] programmer then we ought to be able to treat them like a programmer. We should be able to decide what tier to put them on. Well, we can’t do that because the law says we have to make a broadcast signal available to everybody.
But broadcasters fear that if they don’t get substantial retrans fees they are going to lose their ability to compete with the cable networks for the best entertainment and sports programming. They have already lost much of it.
That may argue for why they shouldn’t be charging so much. How can they be charging more than ever for a product that’s losing ratings more precipitously than ever before?