Don’t Let Being A Broadcaster Limit Your Role

Have you ever thought about the creative genius that went into imagining innovations like the smartphone and the digital tablet while the rest of the world was focusing on making a smaller cellphone? It’s a matter of perspective. Or, as a character in an Oscar Wilde play remarked: “We are all in the gutter, but some of us are looking at the stars.”

TV stations, like those Oscar Wilde characters, seem to have been held in the gutter for a while now. They’ve been battered by the HD conversion, OTT subscription services and an increasing consumer appetite for on demand instead of appointment viewing.

Of course, there have been those who’ve chosen to look at the stars. Witness the proposal by Jeff Smulyan to create a mini cable system by pooling the spectrum made available by the HD conversion.

Weigel Broadcasting and Tribune Entertainment saw the spectrum as an opportunity to create new networks — MeTV and Antenna TV respectively — while other groups added locally produced news and/or weather channels. More recently there’s been the Pearl TV partnership and the announcement of ATSC 3.0.

Creating A Virtual TV Station

For those with eyes focused firmly on the stars, the spectrum auction creates another opportunity. While stations are precluded from discussing whether they are participating in the auction, you can be sure that most are weighing opportunities in a post-auction or post-repack world.

Imagine, for example, a community-focused UHF station in a market with high demand for additional wireless capacity that is offered a significant sum of money in return for its spectrum. It could decide to participate in the auction and then use those funds as a means of expanding both its production and content distribution capabilities, including leasing broadcast time or opting for the FCC’s channel-sharing option.

Rethinking TV’s Copyright Rules

Media industry veteran Preston Padden, the man who is credited with securing the auction’s channel-sharing option (among other concessions) when he served as executive director of the Expanding Opportunities for Broadcasters Coalition, was interviewed in a keynote session at MFM’s Media Finance Focus 2016 conference in May.

Currently principal at Boulder Thinking LCC, Padden has a long and storied television industry history. His 38 years’ of experience include serving as president of the ABC Television Network, EVP of The Walt Disney Co., president of network distribution for Fox Broadcasting and president of The Association of Independent Television Stations.

Padden’s perspective on retransmission consent certainly got attendees’ attention. He shared his belief that while a second revenue stream is essential for TV broadcasters, the retransmission consent statute, coupled with compulsory license, is not a strong foundation for generating that second revenue stream. Instead he argued that a pure copyright negotiation between stations and cable/satellite/online retransmitters would be better.  

Naturally that raised eyebrows. Television business models have grown to count on the revenues they receive from MVPDs. As TVNewsCheck’s Harry Jessell recently pointed out, retrans has grown from 1% of station revenue in 2006 to 24% this year and is projected by SNL Kagan to stand at 31% in 2022. The average TV station’s retrans fee per sub per month is expected to rise from $1.40 in 2016 to $2.21 by 2022, with stations collecting anywhere from $0.60 to $1.59 per MVPD subscriber.

Padden’s observation was top of mind for me a few weeks ago when I read an account of remarks by CBS President-CEO Les Moonves at the Cannes Lions advertising festival. He said “OTT is our future.” When you consider Moonves successfully pioneered cash-based compensation for retransmission consent, it adds weight to the notion that TV businesses are continuing to adapt and respond to new revenue opportunities brought about by a dynamic marketplace.

So how exactly would stations receive compensation for their content using a copyright-driven model? Padden laid out his vision in a presentation before Congress in 2012, when he was serving as senior fellow of the University Of Colorado Law School’s Silicon Flatirons Center.

He prefaced his remarks by saying it was his first appearance before Congress where he wasn’t speaking on behalf of an industry group or company but instead as someone who is “passionate about allowing dynamic market forces to provide consumers with the best possible television services.”

From there, he discussed the aspects of retransmission consent and compulsory license that run counter to that objective. With its earlier must carry rules, he believes “the government seized the private property of program creators — all the programs on local TV stations — and gave them for free to for-profit cable and satellite companies under compulsory licenses.”

The ‘Fundamental Flaw’ Of Retransmission Consent

In 1992, the government “layered on” retransmission consent rather than removing compulsory license. As Padden explained: “The retransmission consent statute operates under the legal fiction that retransmitters are paying for the station’s signal – not its programming, which they continue to get for free under the compulsory license.”

The rules also stipulate broadcasters must negotiate in “good faith,” which Padden has said is not only a vague term but something that’s not required of copyright owners. Copyright owners are “free to withhold their consent — even in bad faith.” It’s also important to remember that the network nonduplication rule and the syndicated exclusivity rule wouldn’t be needed if compulsory license was removed.  

Padden stressed the cable/satellite companies and other MVPDs will continue to try to weaken retransmission consent with more requirements like “good faith.” By contrast, he notes that a copyright owner’s rights are absolute. So stations would be better off negotiating their second revenue stream from the solid foundation of a copyright owner. This would enable broadcasters to negotiate with MVPDs and other distributors the same way as non-broadcast television channels.

As Padden told MFM conference attendees: “The owners of these channels produce or license programs, secure the right to sublicense those programs to MVPDs and then offer those MVPDs a simple ‘one-stop-shopping’ source to license the necessary performance rights in the programs.”

Continued Challenges To Current Copyright Rules

Of course, an overhaul to compulsory license or retransmission consent isn’t currently on the FCC’s packed agenda. As TVNewsCheck’s Guide To Washington Issues points out, the NPRM (notice of proposed rulemaking) it issued last September focuses on whether or not the “good faith” requirements are working. And recently, FCC Chairman Tom Wheeler announced the commission has determined it doesn’t need to add any additional factors to its current test for “de facto bad faith.”

In a move that supports Padden’s warning, the Commission was asked to eliminate the network nonduplication protection rules and the syndicated exclusivity rules. This would allow an MVPD to replace the programming of a television station that does not agree to proposed retransmission consent fees with the signal of another distant television station carrying the same programming.

The FCC has also been considering a proposed rule that would broaden its interpretation of the term “MVPD” to include online programming distributors. If passed, OTT providers like Teletopia would use the retransmission consent rules to secure agreements with local broadcasters and launch a package of local TV programming for roughly $15 per month.

Looking Above And Beyond

Padden says these inquiries are just the latest examples of trying to make bad policy better rather than removing the compulsory license rule, which impedes broadcasters’ right to negotiate with cable/satellite based on copyright. Whether copyright policies change or not, TV stations will need to continue adapting to a (mostly) dynamic marketplace in order to ensure future growth and profitability.

In addition to Padden’s keynote, MFM-BCCA’s 2016 conference featured a number of sessions that explored how stations are taking advantage of new platforms and tools for increasing the scope and value of their video assets. They are summarized in the current issue of MFM’s The Financial Manager magazine; an electronic copy is available to non-members via our website for a limited time.

With the spectrum auction continuing to unfold, we have decided to reprise a conference session entitled “Tax and Accounting Implications of the Spectrum Auction” on Aug. 11. Stephen Theuer, a partner in the audit and enterprise risk services group at Deloitte & Touche, has agreed to make his presentation available to a wider audience and entertain additional questions. More information about this webinar can be found on the MFM website.

While we cannot predict the actions of Congress or the FCC, as an industry we can continue to turn our eyes from the gutter. MFM is dedicated to helping TV stations and other media businesses discover the stars that represent a brighter future for the industry. We invite our fellow star gazers join us as we explore the industry’s next and brightest opportunities.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary. She can be reached at [email protected]. Her column appears in TVNewsCheck every other week. You can read her earlier columns here.