While the FCC’s desire to get back TV spectrum from stations is grabbing a lot of attention, there’s another issue that shouldn’t fall under the industry’s radar. The attempt by cable and satellite operators to get the commission to change the retransmission consent rules to decrease the broadcasters’ leverage. This second revenue stream is vital and is growing more important each year. This is a dangerous proceeding. If broadcasters don’t pay enough attention, all their spread sheets showing steadily rising retrans revenue over the next decade could suddenly become moot.
The NAB and just about every other broadcast lobbyist in Washington is focused on the FCC’s push to get congressional authorization to start auctioning off TV spectrum to wireless carriers who, the FCC has convinced itself, will put the natural resource to far better use.
As Kim McAvoy reported for us on Wednesday, the so-called incentive auction proposal will likely pop up in the deliberations of the Super Committee, which is looking for revenue raisers like spectrum auctions and which is on a fast track. If the Super Committee embraces the proposal, the FCC could have its authority by Christmas.
But there is another issue that is only slightly less urgent, and possibly a greater threat financially to broadcasting: the FCC’s retransmission consent proceeding, in which the agency is listening to the complaints of cable and satellite operators that broadcasters are driving too hard a bargain in retrans negotiations and rules must be changed to decrease their leverage.
This is tricky business. A small change in the rules could choke off hundreds of millions of dollars in retrans revenue — the second revenue stream that could very well make or break local TV broadcasting over the next decade.
I was reminded of this threat to broadcasting when Time Warner Cable dutifully revealed that its CEO, Glenn Britt, and DirecTV CEO Michael White on Tuesday visited FCC Commissioners Robert McDowell and Michael Copps as well as Media Bureau Chief Bill Lake to press their case for retrans “reform.”
“We explained that the retransmission consent fees demanded by broadcast stations continue to skyrocket and that the outdated regulatory regime, which prevents true marketplace negotiations, results in harm to consumers,” Time Warner Cable writes in its notice of the meeting.
“We asked the FCC to explore changes to its rules to protect consumers and promote more balanced negotiations, including: waiving rules to enable MVPDs to import distant signals when the local broadcaster pulls its signal; strengthening enforcement of media ownership rules; and requiring the unbundling of broadcast and cable programming channels.”
So far, FCC Chairman Julius Genachowski has shown little sympathy for the cable and satellite operators or interest in making substantive changes to the rules. But that could change.
Every time negotiations break down and subscribers lose access to their favorite broadcast programming, the cable operator screams that it’s the broadcasters’ fault and that Washington must intervene to protect consumers from the excessive demands of the broadcasters. This is precisely what is happening right now is the feud between LIN Media and Mediacom.
Such disruptions are rare. But one of the things I’ve learned in my 30 years of writing about Washington is that legislation and regulations are written more often on the basis of anecdote and politics than they are on the basis of smart analysis. In other words, if a retrans negotiation blows up in the wrong congressional district or state at the wrong time, the FCC’s retrans reform proceeding could suddenly heat up.
If I remember correctly, much of the impetus behind the Cable Act of 1992, which granted broadcasters retrans rights in the first place, came from Sen. Daniel Inouye, who was upset by rate hikes that a few cable systems in his home state of Hawaii were imposing.
The FCC doesn’t have a lot of authority to meddle in retrans, but it has enough. All it really has to do is fiddle around a little bit with its network non-dupe and syndicated exclusivity rules and, in essence, allow multichannel providers to import stations from neighboring markets. If KableTown can’t make a retrans deal with the local ABC affiliate, it will simply get one from the next market over. Most viewers won’t care so long as they can still watch Dancing with the Stars.
The FCC fielded reply comments in its retrans proceeding at the end of June, which means that it could bring the proceeding to a vote any time that it wants. In fact, Mediacom CEO Rocco Commisso, in the middle of the battle with LIN, was complaining to Commissioner Mignon Clyburn’s office this week about the FCC’s foot dragging.
“It is … essential that the commission fulfill its duty to ensure that broadcasters operate in the public interest by taking swift action to protect all consumers against the broadcasters’ coercive retransmission consent negotiating tactics,” Mediacom writes in its notice.
Broadcasters might have been in real trouble if not for Comcast’s takeover of NBCUniversal. Once it closed on that deal, the No. 1 cable operator in the country also became the No. 4 broadcaster. Instead of opposing retrans, Comcast is now a big proponent of it.
“Retransmission consent dollars is not a good thing for the cable side of Comcast, but it’s going to be a very good thing for NBCU,” Comcast EVP and NBCUniversal CEO Steve Burke told investors last week at Bank of America’s annual media conference. “I don’t think we’re going to be leading the charge, but we will try to get compensation similar to CBS, ABC and Fox.”
An analysis by Wells Fargo’s Marci Ryvicker shows why Burke is talking like that. By 2016, her analysis shows, NBCU will be taking in $462 million a year from retrans through it O&Os and affiliates. (NBC expects to get a 50% share of the affiliates’ retrans revenue.) The take ramps up to nearly $1 billion a year in 2022. The total for 2013-2022: $14.3 billion.
Those kinds of figures not only put Comcast in the broadcast camp on retrans, it keeps the National Cable & Telecommunications Association on the sideline since Comcast is it biggest dues payer. That’s why the likes of DirecTV and Time Warner Cable — the No. 2 and No. 4 multichannel providers, respectively — have had to lead the charge.
But my point is not to give broadcasters assurances that the FCC retrans proceeding will come to nothing. My point is that is a dangerous proceeding. If broadcasters don’t pay enough attention, all their spread sheets showing steadily rising retrans revenue over the next decade could suddenly become moot.