The FCC's sports blackout rule is, in essence, one of three FCC bulwarks that help preserve broadcasters' local exclusivity to their programming. Any loss in stations' exclusivity leads to a loss of advertising income, and more important, a loss of muscle in their retransmission consent negotiations with cable and satellite. Local exclusivity, like the sports blackout rule, is fundamental to both of broadcasters' revenue streams.
Blackout Rule’s Real Value Is In Retrans Clout
Of all things, on Nov. 1, on her last day as acting chairwoman of the FCC, Mignon Clyburn issued a press release saying she had proposed eliminating the sports blackout rule, which prohibits cable and satellite operators from importing sports if they are blacked out locally.
To say the least, it was unusual.
To me, the moves smacks of those pardons presidents hand out to cronies on their last days in the White House so they don’t end up in Allenwood. I get the feeling that Clyburn was doing a friend or political ally a favor.
It’s an obscure rule, rarely invoked. The FCC adopted it 38 years ago to protect sports TV rights holders. Teams and leagues had their own local blackout rules. If they didn’t sell enough tickets, they could black out the local broadcast. The FCC rule supported the rules of the teams and leagues.
Over the years, the rule’s principal function has been to undergird the NFL rule, which now allows a team to blackout the local broadcasts of a home games if its stadium is not 85% sold out. The rule is baked into its rights contracts with the networks.
At one time, NFL teams exercised their blackout prerogative regularly. But not so much anymore. Most stadiums tend to exceed the 85% threshold, and blackouts tend to upset lawmakers. Congress granted the NFL an antitrust exemption in 1961 so that teams could jointly sell broadcast rights and thus it has the power to jerk the league around when it feels the urge. So far this season, no games have been blacked out, despite some empty-looking stadiums.
But the FCC proposal is about more than an occasional blackout of a football game because the home team can’t sell tickets. It’s also about retransmission consent.
The FCC sports blackout rule is, in essence, one of three FCC bulwarks that help preserve broadcasters’ local exclusivity to their programming. The others are network nonduplication and syndicated exclusivity, which prohibit cable operators from importing duplicative syndicated and network programming, respectively. Oddly, sports blackout applies to all MVPDs. Network non-dupe and syndex only to cable.
Local exclusivity is fundamental to broadcasting. In the advertising marketplace, each station relies on being the only outlet in town offering a show, whether it comes from a network, a Hollywood syndicator or a sports franchise. Loss of exclusivity would lead to a loss of advertising income.
More important, without exclusivity, broadcasters would suffer a loss of muscle in their retrans negotiations. What cable and satellite operators are buying in those negotiations are Sunday Night Football, The Big Bang Theory, Judge Judy and Dancing with the Stars. If they can get the same programming by importing another broadcast signal from somewhere else, they can walk away from the table.
The NFL is particularly important in retrans dealings. It was no coincidence that Time Warner Cable’s abject surrender in its bitter retrans fight with CBS came just as the NFL season was about to start. Imagine: no Giants in New York, no Cowboys in Dallas.
How do I know this proceeding is about retransmission consent?
Consider its genesis. It comes from a 2011 petition from several groups, notably the Sports Fan Coalition, one of the many phony grassroots organizations that sounds good until you look closely and see they have no roots at all — just a lot of money from corporations trying to get something done in Washington.
In the case of the Coalition, most of its money seems to have come from Time Warner Cable, Verizon and Dish — broadcasters’ public enemies No. 1, No. 2 and No. 3 in their battle to preserve retransmission consent and the considerable revenue that flows from it.
The Coalition is now being kept afloat by the American Television Alliance, another advocacy group backed by cable and satellite interests and dedicated to undermining broadcasters’ retrans rights. And it is led by David Goodfriend, a former Clinton White House staffer and legal adviser to one-time FCC Commissioner Susan Ness who has worked as a lobbyist for Dish. He likely holds some sway with the Democrats now running things at the FCC.
Finally, as the NAB points out in its comments on the petition, the Coalition has shown in other proceedings that its “primary motivation … is to weaken existing retransmission rules in a manner that would favor” cable and satellite. It has advocated, NAB says, “not just the elimination of the sports blackout rules, but all program exclusivity rules, thereby allowing cable system to import signals in the event of a carriage negotiation impasse.”
I wish I could report that the FCC took the advice of NAB and the sports interests and shelved the proposal to strike the FCC sports rule. It did not. On Tuesday, it went the other way, unanimously launching a rulemaking to dump the rule on the ground that it is obsolete. “[I]f the record in this proceeding … confirms that the sports blackout rules are no longer necessary to ensure the overall availability to the public of sports telecasts, we propose to repeal these rules.”
The three program exclusivity FCC rules — sports blackout, network non-dupe and syndex — are not the only barriers to cable and satellite operators’ interested in importing duplicative programming from distant markets.
Operators wishing to do so would have to get retransmission consent from the station they intended to import and they would have to pay stiff compulsory copyright licenses surcharges for the signals. For cable operators, those copyright fees may be prohibitively expensive. If they import a signal for just one afternoon, they would have to pay fees for six months. For satellite, the fees may be more manageable, I’m told. It only has to pay for a month.
These are significant hurdles.
Nonetheless, broadcasters should not take this proceeding lightly. They should fight to preserve the sports rule and any other law, rule or regulation that advances broadcasters’ local exclusivity.
Broadcasters have two principal sources of revenue — advertising and retrans fees. As I said, local exclusivity is fundamental to both.