Jessell | The Ergen-Locast Link And Other Vital Matters

HBO’s Bill Maher does an occasional bit called, “I don’t know it for a fact; I just know that it’s true.” So, with a bow to Bill, I say, I don’t know it for a fact, but I know that it’s true that Charlie Ergen is the money behind Locast, the OTT service that is streaming the local broadcast signals in nine large markets and has ambitions to do so in many more.

Locast, if allowed to flourish, will become a bona fide retrans killer. If, say, a Dish subscriber can get the local Big Four signals for free, he or she will no longer need to pay for Dish’s broadcast bundle and Dish will no longer need to pay the broadcasters whose signals are in the bundle.

Of course, if it works for Dish, it will work for any cable or satellite operator tired of the ever-increasing retrans payments.

I confess my evidence of Ergen’s financial involvement with Locast is circumstantial.

The founder of Locast is David Goodfriend who used to represent Dish in Washington and is still tight with Ergen. Goodfriend now has his own lobbying shop. Before Dish, he established himself in Washington as an aide in the Clinton White House, on Capitol Hill and on the staff of former FCC Commissioner Susan Ness.

In a Jan. 31 story in the New York Times, he denied that Ergen was paying any bills. “No, Charlie hasn’t given me any money,” Goodfriend said, although he has asked. “Charlie just said, ‘Good luck.’ He’s been very encouraging. I’m still working on him to get some funding.”

Goodfriend told the Times reporter that he draws no salary from Locast and, to fund it, he took out a high-interest loan of $700,000.

Our reporter Doug Halonen followed up the Times story by talking to Goodfriend’s lobbying partner, Brian Hess. He, too, denied that Ergen is the source of the loan or other funding. However, he acknowledged, he and Goodfriend have been soliciting funds from MVPDs as well as foundations and individuals.

Hmm…

Ergen had a semi-public opportunity to deny that he is financing the service, but didn’t take it. During Dish’s fourth quarter earnings call on Feb. 13, Ergen flatly declined to comment when analyst Marci Ryvicker asked if he or Dish was backing Locast. That’s not an admission, but it comes close.

Another reason to believe Ergen has chips in the game is that Dish’s Hopper platform now allows subscribers to seamlessly access Locast along with other streaming services like Netflix and YouTube.

So, Dish subs in Locast markets now have a handy alternative source of local broadcast signals should there be a retrans blackout.

With Locast, the question always comes up: How can it get away with retransmitting broadcast signals under the copyright laws, when others like Aereo and FilmOn X were shut down by the courts?

Well, Locast claims that its nonprofit status exempts it from copyright liability. Broadcasters believe that argument won’t hold up in court, but apparently they are waiting to see if Locast gets legs in the marketplace before going to the expense of litigation.

The prospect of that suit is why Goodfriend and Hess have to be careful about where their money comes from. I would think that its nonprofit status would be undermined to the extent that it takes money from Dish or other MVPDs to further their business interests.

RETRANS KILLER II

Locast is just one way retrans is being targeted these days.

Another is through the law, now known as STELAR, that empowers satellite operators to import distant signals of network O&Os into areas where subscribers cannot receive local affiliates off air.

Doug Halonen wrote all about it for TVNewsCheck readers last Wednesday.

The law has been around for years and it comes up for renewal every five. 2019 is one of those years.

There is a lot that broadcasters don’t like about the law. Among them is that it provides an opportunity for the MVPDs to move anti-retrans legislation.

In the last go-round, in 2014, they attached a provision that prohibits separately owned stations in a market from jointly negotiating for retrans.

However, they failed with another far more disruptive measure. It would have eliminated retrans and replaced it with a direct-to-consumer option.

Called Local Choice, it would have allowed pay subscribers to pick what broadcast signals they want at prices set by the broadcasters. They could choose to receive all available broadcast signals, some or none. The MVPDs would be reduced to mere billing agents, collecting the money from the subs and passing it on to the broadcasters.

As Halonen’s story points out, the NAB is fully aware of the danger that STELAR poses and it has made it a top priority this year. They want to kill the bill or, failing that, make sure it doesn’t pick up any stray anti-retrans language like Local Choice on the way to the president’s desk.

I understand that the MVPDs have resurrected Local Choice this year and that they have fortified it with a new argument.

Just a month after broadcasters succeeded in cutting Local Choice out of the 2014 measure, CBS launched CBS All Access, a direct-to-consumer streaming service including the CBS O&Os and its affiliates.

It may be difficult for broadcasters to knock Local Choice on cable and satellite, while one of the most prominent broadcasters is aggressively marketing the very same service on the internet.

We should find out more about how the MVPDs will proceed on STELAR this year at the American Cable Association’s annual conference, which has a three-day run in Washington starting tomorrow.

NAB is right to make STELAR a priority. The financial health of the entire TV broadcasting business over the next several years, particularly that of the publicly traded companies, hangs on double-digit growth of retrans (see Fox Corp. below) from the current retrans regime.

Hear this, broadcasters: If you have any stroke with a lawmaker or a member of his or her staff, this is the time to use it.

NEW FOX LIKE OLD FOX

With the Disney-Fox deal expected to close this week, MoffettNathanson initiated coverage of what will be known as Fox Corp. Its bullish first report contains a forecast of broadcast fees — retrans and reverse comp — that should warm investors, but chill Fox affiliates.

Fox Corp. will comprise the leftover parts of the Murdochs’ once vast TV and studio holdings — essentially the Fox network and stations, Fox News Channel and a few lesser cable networks.

According to the MN numbers, Fox’s broadcast fees will grow 58.3% from $1.6 billion to $2.6 billion over the next five years (2019-23). That’s a good thing, because Fox is going to need a lot of cash to reup with the NFL. The current deal expires in 2022.

But here’s the rub for affiliates: Most of the broadcast fee growth will come from reverse comp — that is, out of the pockets of affiliates — rather than from direct retrans payments for the Fox O&Os.

Reverse comp will grow twice as fast as retrans over the five years, MN says. Of the nearly $952 million in new broadcast fees, $602 will come from reverse comp, while just $350 million comes from retrans.

And in 2023, reverse comp will account for 50.6% of total broadcast fees compared to just 43.3% today.

In other words, Fox affiliates, don’t expect Fox to let up in its reverse comp demands.

MN notes that its numbers may be conservative. Total broadcast fees could flow in more quickly, hitting $2.5 billion in 2021, now that Fox “no longer has to defend their long-tail cable networks” in retrans negotiations.

O’RIELLY: DON’T TREAD ON ME

I want to give a belated shout out to FCC Commissioner Michael O’Rielly for a speech he delivered to broadcasters during their annual march on Washington (The NAB State Leadership Conference) a few weeks ago. Like me, he has noticed that the antitrust division of the Department of Justice has been stepping on the FCC’s turf and frustrating its efforts to loosen the local TV ownership rules.

“For quite a while, I have been waving the caution flag that DOJ has been improperly blocking certain media transactions that would be permitted by this FCC under this administration. For instance, numerous parties have been told that despite the commission’s actions to consider and potentially approve — on a case-by-case basis — a combination of two television stations that are both in the top four in terms of ratings in a market, DOJ staff have signaled it would never allow it.  What?

“Would DOJ carelessly reject any proposed combination of the third and fourth largest stations in a small market? Really? How could it be that DOJ leadership would allow such a strict policy, notwithstanding the facts in an application? Such an approach befuddles me. It can’t be that DOJ staff is running amok with little supervision, right?”

In fact, commissioner, that is exactly some people believe is happening. I’m told that a small group of lawyers in the media, entertainment and professional service section of the antitrust division has decided that they are going to put a halt to any further consolidation of Big Four network affiliates in all markets — either through ownership or through joint sales and shared services agreements.

In his speech, O’Rielly promised that antitrust chief Makan Delrahim has agreed to hold a “workshop” to take a fresh look at broadcast concentration in light of digital competition. (Allow me to add that Delrahim has twice promised the workshop, once last September and once in January.)

A workshop “may seem one step above chatting at a bake sale or the water cooler,” the commissioner said. “Even so, I hold out some hope that this can serve as a starting point to fix a broken process and change the minds of those staffers as need be. Trust me when I tell you that I will not be content to let this issue stop at a workshop level and neither should you.”

I second that.

As it happens, both Delrahim and O’Rielly are scheduled to appear this Wednesday at the American Cable Association annual meeting in Washington.

I would expect them to address the local ownership rules. ACA has been opposing their liberalization, knowing that local duopolies have more clout in retrans negotiations than stand-alones.

FCC Chairman Ajit Pai, who hasn’t had anything to say about DOJ’s encroaching on his turf, will have an opportunity do so at the conference. He is slated to speak on Thursday morning.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here.