The compulsory license allows cable and satellite operators to carry TV signals for free at a time when broadcasting needs all the extra revenue it can get. Under the so-called market trigger proposal being floated, TV stations could opt to replace the compulsory license with a free-market scheme under which cable and satellite would have to pay to retransmit TV signals just as they do cable networks. The plan could yield new revenue for broadcasting if the networks and affiliates can work together and learn how to share.
I’m a big believer in John Tupper’s remedy for all that ails TV broadcasting: more money — much more money — from the cable and satellite operators who have built their multi-billion-dollar businesses on the backs of TV stations and their networks.
According to the former Fox affiliate board chairman and small-market station owner, broadcasters could take the cable/satellite cash and pump it into programming, insuring that they remain the go-to place not only for Big Events like the World Series and the Oscars, but also for the best in everyday drama, comedy, reality and news.
As is writ in the Broadcasting Bible: Great programming begets high ratings and high ratings beget mighty advertising revenue.
Tupper sees retransmission consent as the mechanism for extracting the money. Indeed, over the past few years, TV stations have been increasingly successful in getting cable and satellite to pay them in exchange for permission to carry their signals.
But the retrans payments broadcasters have been getting are not enough. They are receiving a quarter or two per sub per month from operators, when they should be getting — need to be getting — a dollar or two or three.
So, how do broadcasters get from two bits to $3?
The stations could just keep pushing hard on retransmission consent, insisting at each contract renewal for a little bit more. But that’s not going to cut it. Incremental retrans growth won’t produce the kind of cash broadcasters need to hang on to the best programming and the largest audiences. It’s like thinking you’re going to get rich off your Social Security COLA.
One alternative is turning over retrans negotiations to the networks. By aggregating the retrans rights of all their affiliates, they may have sufficient leverage to push retrans payment much higher, much faster. NBC, for one, has offered to fill that role. (Whether that offer would still stand if NBC turns into a subsidiary of Comcast is too much to consider in this column.)
Another option is far more radical and riskier. But maybe radical and risky is the way broadcasters should be thinking these days.
This approach involves undermining the compulsory copyright license, which permits cable and satellite operators to carry local TV stations with their patchwork of local, syndicated and network programming without having to pay royalties to the stations or any of the other copyright owners.
The license goes back to 1976. Congress concluded that cable carriage of TV stations was a good idea, but that it would be near impossible for the many tiny cable systems in the then unconsolidated industry to negotiate copyright deals with each and every TV station.
So it created a blanket copyright license that cable systems could use to carry local TV signals for free. They would have to pay modest royalties set by the government to import distant signals, however. The license is compulsory in the sense that copyright holders really have no say in the matter. They are forced to license their programming cable systems.
Disney and NBCU have been pushing the idea of overturning the license in Washington. As major copyright and station owners, they think it makes sense for themselves and, as operators of broadcast networks, they think it makes sense for their affiliates and broadcasting as a whole.
Their plan would allow TV stations to stick with the current compulsory license/must carry/retransmission consent regime. Or, they could opt for a free-market approach, under which cable and satellite could no longer hide from copyright payments under the compulsory license.
Stations would aggregate licensing rights from the networks, syndicators and other copyright holders whose programming fill their schedules and then turn around and license those same rights to the cable and satellite operators for big, fat payments. Or at least that’s the hope.
Proponents of the so-called market trigger say that it’s no different than what hundreds of cable networks now do. When TNT or Discovery licenses programming, it obtains the necessary retrans rights and passes them and their cost along to cable and satellite operators in the form of monthly license fees. There is no compulsory license in cable-to-cable dealings.
The market trigger has one great advantage for TV stations.
It gives them another chance to go back to cable and satellite operators and tell them to start paying for programming that they have been getting for free for more than three decades. It’s an opportunity to make a big leap toward the $2 or $3 that they need and deserve.
Market trigger has some other potential benefits. It creates a fallback position in case the cable industry is successful in gutting broadcasters’ retransmission consent rights. And it also gets the government out of the business of regulating where and under what circumstances cable and satellite systems may import distant TV signals into markets. Over the years, this regulation has worked against most TV stations.
The idea has been knocking around for some time and, from what I can gather, broadcasters aren’t buying it primarily because they don’t trust the networks much anymore.
Somehow, they figure, if the market trigger goes into effect, the networks will end up with most of the money. The networks will force the affiliates into opting in and then they’ll impose heavy copyright payments on the affiliates and tell them to simply pass them along to the cable and satellite operators.
Such suspicions arise from the squabbling now going on over the broadcasters’ retrans money. The networks are becoming increasingly insistent that broadcasters hand over large shares of their retrans revenue. The infighting has been going on behind closed doors, although it sometimes spills out into public as it did when Nexstar’s Perry Sook accepted B&C’s Broadcaster of the Year Award three weeks ago.
The market trigger will not win passage by Congress this year. Disney’s push was thwarted by strong opposition from cable, satellite and the studios without broadcast networks, and by the lack of support from NAB and the station community.
However, there is language in Senate legislation that would keep the idea alive. It would require the Copyright Office to come up with a report within one year on “mechanisms, methods and recommendations on how to implement a phase-out” of the compulsory license.
Affiliates and the network should put themselves on the same schedule. They should sit down and within a year see if they can come up with a way to split the copyright fees that might flow from the market trigger plan. Perhaps the affiliates could also get a commitment that a good portion of the networks’ end of the proceeds would be put into programming where it would benefit all.
With such assurances, it may make sense for TV stations to undergo the pain and hassle of licensing their programming to cable and satellite systems in a free and open market. They don’t have to pocket most of the money, if the pot is large enough and they can see the network share showing up in primetime every night.
Market trigger is radical and risky, not to mention complex. But it carries the promise of giving broadcasters — and here I refer to both stations and networks — the money they need to obtain great programming and reverse — or at least arrest — the loss of viewers to cable.
Broadcasters are getting 25 cents from cable and satellite. They need at least $2. If they can’t close the gap fairly quickly, they may soon find themselves second-class citizens in the TV world they created.
Harry A. Jessell is editor of TVNewsCheck. You can contact him at [email protected] or 973-701-1067.