OPEN MIKE BY JACK GOODMAN

Local Choice Retrans: Look Before You Leap

Sens. Rockefeller and Thune's "Local Choice" retrans reform proposal allowing the à la carte sale of channels to cable and MVPD customers would affect consumers, broadcasters, MVPDs and cable program suppliers and policy makers. Here's how.

Last Friday, Senate Commerce Committee staff circulated a memo setting out a proposal that Chairman Jay Rockefeller (D-Va.,) and ranking minority member John Thune (R-S.D.) plan to attach to the so-called STELA bill renewing the satellite distant signal compulsory license. Their “Local Choice” proposal, strongly supported (and perhaps drafted) by the American Cable Association, would upend the current retransmission consent rules.

Instead of broadcasters negotiating for carriage with multichannel video programming distributors (MVPDs), those who select retransmission consent would set a retail price for their channel. MVPDs would offer that channel to subscribers at the broadcaster-set price without any mark-up. Subscribers could choose to receive the channel or not; if they take the local channel, the fee would be added to their cable bill and all revenues would be remitted to the local TV station. All other rules — must carry, basic tier, local exclusivity, compulsory license — would be unchanged.

The senators believe that this would benefit consumers by eliminating “blackouts”; by making retransmission consent fees “transparent”; and by encouraging competition among local stations. Sounds like “win-win”? I’m not so sure. Let’s look at it from several perspectives:

For consumers:  The proposal would ban MVPDs from marking up the broadcaster price. But like most à la carte proposals, the Local Choice plan ignores the fact that it costs MVPDs something to deliver any channels. They have the cost of capital to construct their plant; the costs of operation and maintenance; the cost of consumer equipment such as set-top boxes; and the cost of billing, collecting and remitting the payments due local TV stations. How would they recoup those costs? No doubt, they would add a “system charge” to their bills, or else simply increase the costs to receive must-carry or other channels.

Right now, MVPDs charge consumers to receive channels they obtain under retransmission consent. Let’s say a cable system now pays $3.50 in retransmission costs for five local channels. If those stations now would impose their own charges on consumers, nothing in the Local Choice proposal circulated last week would require MVPDs to reduce the price they charge consumers by the decline in retransmission consent costs. Isn’t it likely that MVPDs will continue to charge consumers what they do now and then add the new broadcaster charges, thus leaving consumers having to pay twice for the same service?

To be sure, a Washington Post blog on Monday said, without identifying a source, that cable companies would have to reduce basic tier rates by the amount they now pay in retransmission fees. Even if that is the senators’ intent, how would that work? Would cable also have to reduce fees by any mark-up they now place on retransmission fees or other costs they allocate to carriage of those signals?

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And at the end of the day, retransmission fees represent only a tiny fraction of MVPD programming costs. The reduction in rates, even if one occurs, will probably not be significant for most consumers, and the price they will pay is losing access to the programs they most watch.

For the many cable systems that still offer analog tiers, and for subscribers to digital systems who have analog receivers, many retransmission consent agreements require that local signals be provided in HD, in analog, and sometimes in digital SD. Under Local Choice, broadcasters would have no ability to negotiate with cable systems, and cable systems would have the incentive to carry only one version of the TV signal. Consumers who have analog sets or who up to now have only purchased an analog tier would have to upgrade and obtain set-top boxes, increasing their costs again.

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For MVPDs and Cable Program Suppliers:  Certainly, for MVPDs and their program suppliers that have opposed à la carte, this is the camel’s nose under the tent. ACA’s Matt Polka makes no bones about it. Of course, while many cable companies – particularly those without programming interests – have supported proposals to require wholesale à la carte, so that they could pick and choose among programmers’ channel offerings, most MVPDs have shied away from support for the kind of retail à la carte regime that the Local Choice plan contemplates.

If cable customers can choose only the limited channel selections they want, much of the economics that support cable programming, advertising and delivery will be upended. But once MVPDs begin offering some channels à la carte, can there be any doubt that the pressure will grow from regulators to make them offer all channels that way?

As noted above, press reports say that the bill would require MVPDs to reduce basic tier rates by the amounts they now charge for local broadcasters electing retransmission consent. How would those amounts be determined? And if consumers disagree with the MVPD’s calculation, who would decide? The FCC? Local franchise authorities? The cable industry has been busy trying to remove the last vestiges of rate regulation, and satellite rates were never regulated. Do MVPDs really want to have their rate structures opened up once again for government review?

Local broadcast channels remain the most-watched programming on MVPD systems. Before retransmission consent, the cable industry did regular studies asking subscribers to estimate what part of their monthly bill they believed was allocated to various channels. The studies showed that consumers typically felt local channels represented more than two-third of their cable bill. If the costs of local channels are separated out, would there be pressure on MVPDs to reduce the far larger cost of receiving channels that consumers watch far less?

While many large cable systems have gone to all-digital plants, there remain hundreds (perhaps thousands) of non-upgraded systems. For those systems, turning a single signal on and off requires a truck roll to install or remove a trap or make a similar change. Let’s say that a subscriber declines to take the local Fox affiliate, but then in October realizes that Fox has the World Series and changes his mind. After a couple of months, he decides to give it up. That could be two truck rolls for the cable operator. Is that a cost the cable operator must absorb, or is that another charge placed on the consumer?

Many TV stations now allow very small cable systems to retransmit their signals solely in exchange for committing to carry their signal and perhaps a multicast stream. The Local Choice plan would require that broadcasters set one price for all MVPDs. It would prevent broadcasters from exempting those very small operators, and require those systems to develop more complicated billing and collection systems.

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For Broadcasters: While there might be some benefits to stations from the Local Choice proposal – setting their own retransmission rates, eliminating the growth of new cable programming channels if à la carte spreads to non-broadcast channels — there could be costs as well.

One of broadcasting’s major selling points to policymakers and to advertisers is that local broadcasting is universal; it’s available to everyone who has a TV. Under Local Choice, that may no longer be true. How would that affect broadcasters’ ad sales, particularly if cable consumers can opt in and out of purchasing local channels?

Many stations have invested time and money in new multicast services. Some of them have become very popular. A typical retransmission consent agreement requires cable systems, as part of their compensation for carrying the main signal, to carry multicast streams to consumers. The Local Choice plan does not seem to contemplate any negotiation between stations and MVPDs. Would there be any incentive for cable operators to carry these channels that sell ads in competition with their own programming? Or would cable operators seek to charge broadcasters for carriage of these channels? 

Most retransmission consent agreements now require MVPDs to pay stations within a specified period, and many also provide for audit rights. The proposal circulated last week was silent on those issues, and without a right to negotiate, could MVPDs collect from their customers and then delay remitting those amounts to TV stations?

Another Washington Post blog entry speculates that, if Congress passes Local Choice, that would give Aereo another opening to argue that it should be treated as a cable system. Whether that might happen is unknown, but isn’t that just one example of why changes to the retransmission consent regime — adopted as part of a comprehensive bill looked at by Congress over several years — should not be adopted piecemeal and without comprehensive review?

For Policymakers: A central purpose of the 1992 Cable Act was to ensure the continued universal availability of local television stations because, as Congress put it, “carriage of such signals is necessary to serve the goals” of the Communications Act. That was the policy basis of provisions such as must carry, basic tier regulation, and the viewability rule.

Local Choice seems to go the other way and make universal reach optional. But if a subscriber chooses not to take local stations, that subscriber may not receive crucial emergency information, or local news, or information about local elections from both news programming and ads placed by candidates.

Some might respond that the occasional “blackouts” of local stations because of retransmission consent have the same impact. But the small number of blackouts, usually resolved quickly, and often involving only one local station, are not remotely comparable to the potential that viewers would lose access to local information for long periods, and for some customers, possibly indefinitely.

Jack Goodman practices communications law in Washington. He was previously general counsel of the National Association of Broadcasters, where he was NAB’s chief legislative counsel on the 1992 Cable Act. He can be reached at [email protected].


Comments (38)

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Don Thompson says:

August 13, 2014 at 8:49 am

The American Cable Association backs a modern pro-consumer, Apple-iTunes template to local TV carriage…… The National Association of Broadcasters and its janissaries like the author of the above screed are IBM, chained to the past, all wearing white shirts with button-down collars, heavy on the starch ……………. Please follow me on Twitter @TedatACA

    Gene Johnson says:

    August 13, 2014 at 9:49 am

    Ted, what makes you any different, except that you play for the other side? Jack makes a number of good points in his discussion of potential consequences from the proposed legislation.

    Don Thompson says:

    August 13, 2014 at 10:09 am

    Sorry … This Op-Ed is a concatenation of red herrings invented by NAB’s reality twisters bent on preserving a legal status quo that bilks consumers for billions of dollars for “free TV.” ……………. It’s time to let consumers decide whether they want to pay “just a few pennies a day” for “free TV.” ……………….. Rockefeller-Thune would be a windfall for small-market TV stations because they wouldn’t have to sell out to Sinclair and because they could get fair-market value for their signals instead of the “pittance” tossed their way by Comcast. …………….. I’ll venture that today’s must carry stations — which receive no compensation — would develop a very healty second revenue stream under Rockefeller-Thune. …………….. But the big market O&Os and mega-affiliate groups don’t want the competition for scarce consumer pay-TV dollars ……..

    Wagner Pereira says:

    August 13, 2014 at 6:57 pm

    Ted: Cable Networks down 6.7% this Summer. How about a refund for Consumers with less viewing? Some major cable brands that have declined include: TNT (down 22.9%); TBS (14.7%); FX (16.5%); Fox News (4%); CNN (25.6%); MTV (19.0%); Nickelodeon (20.1%); TV Land (22.6%); ABC Family (6.5%); Discovery (down 16.5%); TLC (12.9%); Animal Planet (28.7%); and Nat Geo (4.5%).

John Bagwell says:

August 13, 2014 at 9:04 am

Hey Ted…Why doesn’t the ACA back that same plan for cable networks too? Why only local TV? Until you start answering the real questions, you are going to continue to look like a fool who has no idea what you are talking about on here.

    Don Thompson says:

    August 13, 2014 at 10:11 am

    At least you know who I am and where I’m coming from … It’s hard to evaluate your views with care when you post from the ambush of anonymity ………….. Please follow me on Twitter @TedatACA

    John Bagwell says:

    August 13, 2014 at 10:19 am

    That’s the only response you have? The facts are that you do not have a good answer to my question about why cable is not included in your “modern, pro-consumer, Apple-iTunes template”. Answer the question Ted.

    Wagner Pereira says:

    August 13, 2014 at 6:57 pm

    Ted: Cable Networks down 6.7% this Summer. How about a refund for Consumers with less viewing? Some major cable brands that have declined include: TNT (down 22.9%); TBS (14.7%); FX (16.5%); Fox News (4%); CNN (25.6%); MTV (19.0%); Nickelodeon (20.1%); TV Land (22.6%); ABC Family (6.5%); Discovery (down 16.5%); TLC (12.9%); Animal Planet (28.7%); and Nat Geo (4.5%).

Don Thompson says:

August 13, 2014 at 9:19 am

OMG, how will consumers ever pay their local stations?????????????………….. Amazon Unveils Mobile Payment App and Card Reader ………… ‘Local Register’ Works With iOS and Android, Challenging Square’s Existing Service ….. Please follow me on Twitter @TedatACA

    Kristen Lynch says:

    August 13, 2014 at 10:37 am

    Ted, Interesting but not sure how this is relevant since the Local Choice plan says that stations would set the rate but MVPDs would charge it on subscribers’ bills and remit what they collect to stations.

    Wagner Pereira says:

    August 13, 2014 at 6:58 pm

    Ted: Cable Networks down 6.7% this Summer. How about a refund for Consumers with less viewing? Some major cable brands that have declined include: TNT (down 22.9%); TBS (14.7%); FX (16.5%); Fox News (4%); CNN (25.6%); MTV (19.0%); Nickelodeon (20.1%); TV Land (22.6%); ABC Family (6.5%); Discovery (down 16.5%); TLC (12.9%); Animal Planet (28.7%); and Nat Geo (4.5%).

Tony Alexander says:

August 13, 2014 at 10:31 am

This all sounds like a GREAT idea, BUT, I as a consumer want my bill itemized so that I know what I’m paying for each channel that is now hidden from me. If it is a good idea to be transparent on the retrans fees, then I want to know all of the channel fees. To make it easy, let’s say the MVPD just sends me the fees once each year rather than monthly. We don’t have to get to a la carte pricing, we just need to know what each channel costs me as a subscriber. What is wrong with that?

Patrick Schooley says:

August 13, 2014 at 11:07 am

Anyone who pays for TV is a fool in my eyes…

To each their own.

    Joel Ordesky says:

    August 13, 2014 at 1:50 pm

    A happy cord-cutter, I still pay for Netflix but watch OTA for free. Works great for me.

Ellen Samrock says:

August 13, 2014 at 11:31 am

These are all good observations from Mr. Goodman. The current retrans arrangement may not be perfect but it’s obvious that “Local Choice” is going to open up a Pandora’s box of problems for MVPDs and ultimately consumers. The senators are just trading one set of problems for another with their proposal.

    Ellen Samrock says:

    August 13, 2014 at 9:26 pm

    And I should add that this is a prime example of politicians with scant knowledge of our industry, getting in the middle of it and trying to “fix” things. They ALWAYS manage to compound the problem.

Tim Darnell says:

August 13, 2014 at 1:43 pm

Ted, treat all cable channels the same (with a retail price offered to consumers) and this small market broadcaster would support. Pick a level playing field for all. As policymakers warn, they do not want to pick winners or losers. Let the market do that. The market cannot do that when only a few select channels are broken out and made to look bad.

Roxanne Tedeschi says:

August 13, 2014 at 3:34 pm

Lets take a deep breath….
When cable started, there were very few channels. Cable had to get a minimum cost for service to make broadcast signal delivery work as a business. That was more than 40 years ago. Today we have several hundred channels. The concept of one bill for all channels has outlived it’s usefulness.
People can decide what works for them and make choices of television entertainment as they like. But the greedy money grabbing ego driven peopled that are to be held accountable don’t like it.
The NAB is worried because of the true value of broadcast my be righted. There are many broadcast stations that are run over by the NAB policy and Big Four Networks…… You know what I mean…

Don Thompson says:

August 13, 2014 at 3:57 pm

Conservative News: “Retrans as a framework heavily favors broadcasters, on purpose, as an attempt to pick winners & losers” //bit.ly/XhSKTs …………… Please follow me on Twitter @TedatACA

    Wagner Pereira says:

    August 13, 2014 at 6:58 pm

    Ted: Cable Networks down 6.7% this Summer. How about a refund for Consumers with less viewing? Some major cable brands that have declined include: TNT (down 22.9%); TBS (14.7%); FX (16.5%); Fox News (4%); CNN (25.6%); MTV (19.0%); Nickelodeon (20.1%); TV Land (22.6%); ABC Family (6.5%); Discovery (down 16.5%); TLC (12.9%); Animal Planet (28.7%); and Nat Geo (4.5%).

Don Thompson says:

August 13, 2014 at 3:59 pm

Breaking with retrans-lovin’ American Conservative Union, Red State writer Neil Stevens says: “I support the LOCAL CHOICE plan by Sen. Rockefeller & Sen. JohnThune” …………… Please follow me on Twitter @TedatACA

    Wagner Pereira says:

    August 13, 2014 at 6:58 pm

    Ted: Cable Networks down 6.7% this Summer. How about a refund for Consumers with less viewing? Some major cable brands that have declined include: TNT (down 22.9%); TBS (14.7%); FX (16.5%); Fox News (4%); CNN (25.6%); MTV (19.0%); Nickelodeon (20.1%); TV Land (22.6%); ABC Family (6.5%); Discovery (down 16.5%); TLC (12.9%); Animal Planet (28.7%); and Nat Geo (4.5%).

Don Thompson says:

August 13, 2014 at 4:00 pm

No enemies on the right? …………. Red State analyst Neil Stevens stands up to retrans-loving American Conservative Union and backs Rockefeller-Thune Local Choice proposal ………….. Please follow me on Twitter @TedatACA

    John Bagwell says:

    August 13, 2014 at 4:22 pm

    Your failure to answer the question about why cable is not included in your “modern, pro-consumer, Apple-iTunes template” speaks volumes. Wouldn’t a true pro-consumer plan let the consumer choose the channels they want, regardless of being broadcast or cable? Of course you know that the cable systems you represent would not survive in a true ala carte world. And I promise you…nobody on here is going to follow you on twitter.

    Wagner Pereira says:

    August 13, 2014 at 6:51 pm

    The fact that Ted CANNOT answer the question and acts like an Ostrich with his head in sand speaks volume. No one wants to follow anyone on twitter has views that are inconsistent and they cannot support.

Wagner Pereira says:

August 13, 2014 at 6:52 pm

Everyone should report any post with “Please follow me on Twitter” as spam!

    Joe Adalian says:

    August 13, 2014 at 10:12 pm

    Ted is the perfect representative for Cable. No substance and all bluster. If I were in the cable industry I would be so embarrassed, He is so like the reps that sell that medium, Pathetic!

Don Thompson says:

August 13, 2014 at 10:43 pm

I can’t assess an a la carte proposal for cable programming that does not exist …. I don’t see how speculation would benefit the discussion … The Rockefeller-Thune Local Choice proposal is real and specific, which at least provides some context for a debate over the a la carte sale of local TV channels that demand compensation … I think some commenters are making much ado about nothing when I close my notes with ……..Please follow me on Twitter @TedatACA … It’s not like I’m asking you to pay me to follow me on Twitter.

    John Bagwell says:

    August 14, 2014 at 7:21 am

    Once again…not answering the question. Pathetic. It’s not that hard to “assess” Ted. Ala carte for just broadcast or ala carte for broadcast and cable. The consumers wants it for both. Is that too complicated for you to “assess”?

Joe Adalian says:

August 13, 2014 at 10:52 pm

Ted can’t assess but he can’t even imagine what we are talking about. As with all his arguments he avoids the obvious. And Ted, we all know who you are and I am not hiding in the blanket of anonymity, I’ve been in the television business for 30 years. 205-506-2014. Now give us some snake-oil B.S. that the cable industry built on!

Don Thompson says:

August 13, 2014 at 10:58 pm

I really had to laugh that Jack Goodman decided that his best argument was to raise concerns about rising cable bills under the Rockefeller-Thune Local Choice proposal ….. If that is what’s really bothering him, why isn’t he urging broadcasters to stop charging for “free TV,” which has become one of my favorite oxymorons since passage of the 1992 Cable Act ……………….
The fact is that the Rockefeller-Thune Local Choice proposal is a windfall for broadcasters, especially network affiliates in small and midsize markets …….. They won’t have to worry about getting squeezed by Comcast at the retrans table, and they can finally charge as much as ESPN with total impunity ……… Do you really think the local Big Four affiliate with the Super Bowl isn’t going to clean up under the a la carte template established by the Rockefeller-Thune Local Choice proposal? … The time has come to let consumers to decide whether to pay “just a few pennies a day” to access their favorite cashcasters without any interference from pay-TV gatekeepers …. Please follow me on Twitter @TedatACA

Don Thompson says:

August 13, 2014 at 11:26 pm

Goodman: “The proposal would ban MVPDs from marking up the broadcaster price.” …. That is false ….. The Rockefeller-Thune Local Choice proposal is an opt-out formula. Cable is required to carry every local TV station by default. Consumers who do not want to pay the fee demanded by a local TV station will lose cable access to that channel if the station so insists …. Please follow me on Twitter @TedatACA

Don Thompson says:

August 13, 2014 at 11:27 pm

Goodman: “And at the end of the day, retransmission fees represent only a tiny fraction of MVPD programming costs.” … What a load of bull that is …. The NAB cashcasters are notorious for tying retransmission consent to carriage of, and payment for, dozens of cable channels that no one wants to watch ……. So the real cost of retransmission consent is NOT some hypothetical “$3.50 in retransmission costs for five local channels,” as Goodman put it, but the total cost of the big, fat hyperinflation programming bundle that America’s content cartel imposes on consumers with messianic intensity …. Please follow me on Twitter @TedatACA

Don Thompson says:

August 13, 2014 at 11:28 pm

Goodman: “For the many cable systems that still offer analog tiers, and for subscribers to digital systems who have analog receivers, many retransmission consent agreements require that local signals be provided in HD, in analog, and sometimes in digital SD.” ….. My response is that taxpayers footed the $2 billion bill to subsidize consumer purchase of DTV converter boxes to watch new, off-air digital TV signals….. The NAB cashcasters paid nothing but they got access to $300 billion in free digital spectrum that should have been auctioned. …. Why don’t broadcasters use the a la carte windfall coming their way to pay to ensure all cable subscribers can see their digital TV signals? …………. Please follow me on Twitter @TedatACA

Don Thompson says:

August 13, 2014 at 11:29 pm

Goodman: “Certainly, for MVPDs and their program suppliers that have opposed à la carte, this is the camel’s nose under the tent. ACA’s Matt Polka makes no bones about it.” ……. If you want to have a debate out wholesale and retail a la carte, bring it on. But just remember that NAB board members control about 80-90% of the broadcast and cable programming in the USA. The distinction between cable and broadcasting is essentially meaningless in terms of ownership and control of the programming ……………… Please follow me on Twitter @TedatACA

briele poupko says:

August 18, 2014 at 10:35 am

This is a bad approach to a good goal. OTA needs to be encouraged and in no way punished. OTA provides free TV throughout the nation already. The ones who should penalized are content providers who do not. A better way to achieve the goal of expanded free and low cost viewing options would be to encourage more cable-only channels to migrate to OTA. To do that, I’d propose requiring any sports channel which offers programming from venues paid for in whole or in part by federal, state and/or local taxes to offer their programming ala carte and through streaming for a standalone monthly subscription of not more than the amount they currently receive from the highest of the three largest cable providers or the two largest satellite providers. That would allow cord cutters to get sports they can now only get via a cable/satellite bundle, which has been one of the biggest barriers to cord cutting. As viewers then leave cable/satellite in droves, this creates an incentive for other cable-only networks to either stream ala carte or go OTA. To encourage the latter, give tax incentives to OTA broadcasters based on the percentage of American households their OTA signal serves and expand the Must Carry rule to sub-channels.

This legislation rewards the cable/satellite industry (which is the cause of the problem) and punishes broadcasters, who are the solution.

    Wagner Pereira says:

    August 18, 2014 at 6:35 pm

    Well, to begin with, you do not understand Stadium’s relationship with promoters and events. Essentially, the performer/event is “renting” the facilities and thus the facility has no way to demand the event be Broadcast. All your proposal will do is move all Sports to PPV per event – just like WWE and Boxing.


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