Jessell | Put Affils, Not Nets, In Control of vMVPD Dollars

Everybody is bowing to the insatiable demands of the tyrannical COVID-19, even broadcasters lobbying the FCC.

Two weeks ago, the heads of the Big 4 affiliate boards and their counsel met with FCC Chairman Ajit Pai and his staff via Zoom.

The broadcasters reminded Pai of the good job TV stations have been doing covering both the pandemic and the protests that followed the George Floyd killing, despite the big hit on advertising sales wrought by the pandemic.

But they eventually got around to their real purpose: a plea for a little regulatory help.

There was talk of further relaxing the FCC ownership rules and getting the agency to intercede at the Justice Department, whose outdated view of the TV market is causing it to look askance at in-market Big 4 affiliate combos.

But the most interesting item on the broadcasters’ agenda was a rulemaking that Pai’s predecessor Tom Wheeler started in 2014, but that has been gathering dust ever since.

The affiliates want the FCC to act on it. And it should.

The rulemaking addresses the subset of TV streaming services known as virtual MVPDs or vMVPDs.

These are outfits like YouTube TV, Hulu + Live TV, fuboTV and AT&T TV Now that use the broadband pipes to do pretty much what conventional MVPDs (cable and satellite operators) do — offer a mix of local TV stations and cable networks to subscribers for a monthly fee.

In particular, the proposed rules would declare vMVPDs to be MVPDs for regulatory purposes and make them subject to retransmission consent obligations just as the MVPDs are.

The affiliates have been pushing the idea off-and-on for years, but not for the reason you might think.

They have no real beef with the vMVPDs. Their target is their own broadcast networks. The affiliates believe they not are getting a fair share of the programming fees that the vMVPDs are paying to carry their signals because the networks have usurped their negotiating rights.

Under the retransmission consent regime, MVPDs must seek permission from station owners to carry their signals. To get it, they have come to pay plenty — around $10 billion a year. Those retrans payments now account for 40% of station revenue. The industry could not do without them.

The affiliates don’t keep all they collect. They have to send a big chunk it to the networks to help cover the ever-rising cost of sports and primetime programming.

Several years ago, the vMVPDs appeared on the scene. They were first known as “skinny bundles” because they pitched themselves as low-cost alternatives to cable and satellite operators with their fat bundles.

Because they don’t use their own wires or satellite spectrum to reach subscribers, the broadband-based vMVPDs have managed to elude FCC regulation, including retransmission consent.

However, recognizing that they cannot carry broadcast signals without clearing copyright, the vMVPDs have been dutifully paying retrans-like programming fees to broadcasters. The broadcasters’ control of the copyright brings the vMVPDs to the table. Think of it as private-market retrans.

Those payments have risen steadily as the number of vMVPDs has grown and their subscriber rolls have increased. Analyst Rich Greenfield says they now have 7.7 million subs, about 10% of the MVPDs’ count.

So here is the affiliates’ problem.

Over time, the networks have cut the affiliates out of the vMVPD negotiations. The networks make all the deals, negotiating not just for the broadcast signals — those of their own O&Os and their affiliates — but also for their many cable networks. Then, they unilaterally decide how much the affiliates deserve and send checks to them.

According to one affiliate source, the money the affiliates receive through the networks from the vMVPDs has been increasing, but not as quickly as the money they receive from the MVPDs. Something is amiss.

Now back to the rulemaking.

If the FCC designates vMPVDs as bona fide MVPDs, the vMVPDs would be subject to the retrans rules and they would have to deal directly with the affiliates. The affiliates would negotiate the retrans fees, collect the money and hold the purse. They would be in a much stronger position to hang on to a larger portion of the vMVPD fees than they are now.

Unfortunately, the affiliates are unlikely to persuade the FCC’s current Republican majority to stretch retrans to cover the vMVPDs. As a rule, the Republicans are not big fans of regulations. When the Wheeler FCC launched the rulemaking in 2014, then Commissioner Pai issued a concurring statement expressing skepticism and calling it “premature.”

But there is a better than an even chance that the Democrats will be back in charge at the agency next January. They may be willing to finish what Wheeler started in 2014 and looking to do something for TV localism. After all, they aren’t going to give the broadcasters want they really want — further relaxation of the ownership limits.

Congress endowed broadcasters with retrans rights in 1992 to ensure that local TV broadcasting would continue to thrive and provide much-needed news and information as they shed viewers and advertising dollars at an alarming rate to cable.

Those rights have worked as intended. Local TV is strong, even as advertising dollars vaporize in the face of a pandemic-driven recession. It is a shame and a perversion of congressional intent that some “retrans” money is leeching away to the networks because of a regulatory quirk.

Harry A. Jessell is editor at large of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.