This week's FCC ruling that municipalities can no longer regulate the rates of local cable systems could have harmful consequences for broadcasters. It seems that under a certain interpretation, systems would be able to move broadcast channels out of basic cable tiers that have the nice attribute of reaching 100% of subscribers, a potent weapon come retrans negotiating time. And that wasn't the first piece of broadcasters' retrans clout that the Wheeler FCC whittled away. What's next?
Death Of Retrans By A Thousand Cuts
If broadcasters one day find it nearly impossible to negotiate for a hike in retransmission consent fees or even to renew a deal with no increase, it will not be because the FCC took away their retrans rights in one big rulemaking. It will be because the agency chipped away at their ability to negotiate in a series of small ones.
By an unusual 3-2 vote, in which the two Republican commissioners sided with Democratic Chairman Tom Wheeler, the agency this week effectively ruled that municipalities can no longer regulate the rates of their local cable systems. It did so by declaring a presumption that all cable systems faced “effective competition” from satellite and other TV providers. And by law, municipalities may not regulate systems with effective competition.
A determined municipality can still regulate its local system, but only if it can overcome the presumption by showing that the system does not face effective competition. That’s not going to happen too often.
So what does all this have to do with retrans?
It seems that under a certain interpretation of the law, systems with effective competition would also be unleashed to move broadcast channels out of basic cable tiers that have the nice attribute of reaching 100% of subscribers.
In others words, if that interpretation is correct, the FCC this week has handed cable operators a big bargaining chip that they can now use in their next retrans face-off.
Before we talk money, the cable guy will be able to say to the broadcaster, let’s talk about our plan to put your station on a tier without other broadcast channels and that is, by the way, not available to all of our subscribers.
It’s that prospect that spurred broadcasters, led by the NAB, to vigorously oppose the FCC action. They filed elaborate comments questioning the legality of the action and they lobbied the agency on multiple occasions. In the effort, they were in league with an unlikely bunch of allies — municipalities, consumer advocates and liberal Democratic lawmakers.
Of course, as good allies, broadcasters dutifully feigned interest in rising cable subscriber fee, even though their real — and perhaps sole — interest is those basic tiers and their place in them.
In any event, it was all to no avail. Wheeler was determined to put a swift end to nearly a quarter-century of rate regulation in one fell swoop.
In justifying the action, Wheeler pointed out that most cable systems were, in fact, subject to effective competition as defined by the law — more than one pay TV provider servicing more than 15% of the market.
What’s more, thousands of individual cable systems have been able to win deregulation for themselves over the years by making a showing of effective competition, he said.
Such systems constitute “a sizable cohort of real life examples, not hypotheses,” and the average price of basic service among them is lower than it is among regulated systems, he said. “This is not surprising since competitive choice is the most efficient market regulator.”
He went on to dismiss the chief concern of the broadcasters. “There has been no evidence in this proceeding to suggest that our previous findings of effective competition in thousands of communities led to any changes in the tier placement of local broadcast stations.”
Broadcasters found no solace in Wheeler’s assurances. NAB spokesman Dennis Wheeler said it is “disappointing and surprising that as cable customer satisfaction ratings plunge to a record low, the FCC believes it is wise to gut the one protection that allows local municipalities a chance to protect consumers from abusive treatment and consistently skyrocketing rates.”
I suspect that the NAB may take the FCC to court on this one, perhaps joining with the municipalities and other aggrieved parties. The NAB’s formal comments in the proceeding read like a legal brief on how the FCC is overstepping its authority.
I’m not sure what motivated Wheeler to snub his usual constituency of Democratic lawmakers and consumer groups. It’s been suggested to me by a few broadcasters that he was trying to make up with his friends in the cable industry. The one-time cable lobbyist stung many of them this year by first imposing a tough net neutrality regime and then by nixing the Comcast-Time Warner Cable merger.
What broadcasters have to worry about is where Wheeler might go next in undermining their retrans rights and threatening the billions of dollars that now flow from them.
Teed up for action is a rulemaking that would eliminate the FCC’s network non-duplication and syndicated exclusivity (syndex) rules, which would have grave consequences for broadcasters’ ability to negotiate for retrans.
With the rules in place, a stations that denies its signals to a cable system because retrans negotiations go bad can call on the FCC to block the system from importing a station with the same network or syndicated programming from another market.
Without the rules, the station would be forced to go to court to enforce its exclusivity, a slow and costly process. And this unwieldy approach presumes that the broadcaster had been smart enough (rich enough?) to lock up exclusivity contractually with the network and syndicators.
The FCC signaled where it is going on network non-dupe and syndex last fall when it knocked out the sports blackout rule. Similar to two other rules, it barred cable operators from importing sports programming for which a station had local rights.
And that wasn’t the first piece of broadcasters’ retrans clout that the Wheeler FCC whittled away. In April 2014, as part of its crackdown on joint sales agreements, the FCC banned independently owned stations in the same market from jointly negotiating for retrans.
A more serious threat is in the offing. Current law says broadcasters must negotiate retrans deals in “good faith” and Congress has now directed the FCC to define what exactly that means. If so inclined, the FCC can come up with plenty of definitions that could sap broadcasters negotiating clout — and it has been urged to do so by cable operators tired of broadcasters’ increasing demands.
No, the FCC is not going to open a rulemaking to do away with retrans. For one thing, it doesn’t have the authority. The right was granted by Congress. But the agency can undermine the right bit by bit by bit until there is little left of it.