The latest retrans reform plan advocating an a la carte system of payment by cable subs for broadcast channels would harm broadcasters and I’m not sure it benefits anybody other than some small cable operators. A better solution is for Congress to pass a law saying that if pay TV operators and broadcasters cannot agree on a retrans fee, the matter would be settled by so-called pendulum arbitration — just like in baseball.
Why are Sens. Jay Rockefeller (D-W.Va.) and John Thune (R-S.D.) picking on broadcasters?
The bipartisan duo is behind the Local Choice proposal floated on Capitol Hill last week. Instead of negotiating retransmission consent fees from pay TV operators, broadcasters would hawk their signals directly to subscribers at prices they set. Consumers would choose which signals they want, while pay TV operators manage the transaction and collect the fees for the broadcasters. It would apply only to stations that want to get compensation for carriage. Stations would still be able to opt for must-carry — mandated distribution to all subscribers with no fees attached.
As nutty as it is, Local Choice cannot be totally ignored. Rockefeller is the chairman of the Senate Commerce Committee and Thune is the ranking minority member. That gives it some legs.
But, again, why are they picking on broadcasters? Why are they singling them out?
By my last count, there are 12,467 cable channels, including something called cloo and another something called H2.
If the senators wants to be fair and really empower consumers, they should do it by giving them the ability to choose from among all the channels. This idea has a name — a la carte marketing — and it’s been kicking around for years and, by the way, it’s been vigorously opposed by cable operators and programmers.
The reason given for Local Choice is to curtail the blackouts that occur when retrans negotiations break down. But if the senators were regular readers of TVNewsCheck and other TV trades, they would know that retrans blackouts are relatively rare and that cable channels are also subject to blackouts when cable operator and programmer cannot agree on terms. The nastiest disputes are over regional sports networks, not broadcast channels.
Adoption of Local Choice would be bad news for broadcasters. Despite their popularity, the Big Four O&Os and affiliates would lose some percentage of their pay TV audience and the advertising and retrans revenue that come with it. I have no idea what that percentage would be, but even 10% or 15% would be terribly damaging. Broadcaster cannot afford to ever have anything less than 100% coverage. It’s their advertising edge.
The broadcasters would also have to waste valuable time and resources marketing themselves to subscribers. Worst of all, they would have to rely on pay TV operators to service their paying customers, making sure each one receives the signals they choose and only the signals they choose. Let’s just say cable has not exactly distinguished itself in the customer service department over the years.
Broadcasters would also have to rely on the pay TV operators to act as their auditors and collection agents. Another grim prospect.
While Local Choice harms broadcasters, I’m not sure it benefits anybody other than some small cable operators that are being crushed by the retrans burden.
In a column of TVNewsCheck we posted on Tuesday, communications attorney Jack Goodman, one of the founding fathers of retransmission consent, thoroughly dissects Local Choice, showing how it would hurt not only broadcasters, but also consumers and, for that matter, most cable operators.
Despite the proposal’s parentage, I’m not too concerned about it becoming law. Not only will broadcasters be working against it, but so will, I think, the big cable and satellite operators. They don’t want to deal with the logistics of it, and they certainly don’t want to encourage a la carte marketing by letting it take root here.
In an Q&A in The Hollywood Reporter last April, NCTA President Michael Powell once again made the case against a la carte, arguing that it would probably cost consumers more in the end and drive smaller niche channels like black-oriented TV One out of business. “I think the government would be mandating a model that actually might be harmful to consumers,” he said.
What does concern me is that Thune is now clearly on the side of those who believe that retransmission consent has to be “reformed.” Unlike Rockefeller, who is retiring at the end of this Congress, Thune will be back next year, and if the Republican National Committee has its way this fall, he likely will be chairman of the Senate Commerce Committee.
If Local Choice is not the fix, he’ll be looking for another and the pay TV lobby has a bunch of them from which to choose — all bad for broadcasters.
The old Washington axiom is that you can’t beat something with nothing. So, the broadcasters need something. That something, I suggest, is arbitration.
To prevent disruption of service and insure that broadcasters are fairly paid, the Congress would pass a law stipulating that if pay TV operators and broadcasters cannot agree on a retrans fee after a certain period of time, the matter would be settled by so-called pendulum arbitration. It would work just as it does in baseball. The pay TV operator makes the case for why the per-sub, per month fee should be X, while the broadcaster makes a case for why it should be Y. The arbitrator simply picks one.
To keep things on the up and up, the law must also stipulate that the fee — the arbitration judgment — has to be based on what cable operators are paying out for other cable channels and the performance of those channels in attracting viewers. With that criterion, broadcaster would be positioned for some hefty retrans increases.
Because they started asking for retrans fees only nine years ago, the fees they receive are far less than what they deserve based on what some cable channels, especially sports networks, are getting. ESPN is getting $5 or $6. Broadcast stations are getting way less than that, even though they are all hitting for a higher average with more RBI and home runs. You can look it up.
Broadcasters have one other option should things really start to go bad on the retrans front. That would be to join with the libertarian Republicans on the Hill and blow out the entire compulsory license-retransmission consent artifice. Broadcasters could then operate under the same conventional copyright regime that cable networks do and negotiate for comparable copyright compensation. But the changeover would take a lot of lawyering to implement and, as with all radical change, the ramifications are hard to fully calculate. I see it as a last resort.
Of course, the best thing broadcasters could do at this point is to turn Thune around, persuade him that all the “reforms” to retransmission consent are likely to do more harm than good to consumers by undermining the economics of broadcasting.
The broadcasters who demand compensation for carriage are the same ones that provide a valuable public service in the form of local news and disaster coverage. And like all broadcasters, they are committed to maintaining a over-the-air service that insures that every American — rich or poor or in between — may access that service along with high-quality entertainment for the one-time price of an antenna.
Instead of discriminating against such stations, Thune ought to be discriminating in favor of them.