High-Stakes Duel In D.C.: NAB Vs. FCC

This Monday was a bad day for broadcasting at the FCC, and perhaps a worse one for the National Association of Broadcasters, the lobby that is supposed to make sure the industry doesn’t have any bad days anywhere in Washington.

Despite the vigorous opposition of the NAB, the FCC closed loopholes in its local ownership rules that have allowed broadcasters to effectively operate multiple stations, sometimes two Big Four affiliates, in small and medium markets. It banned new joint sales agreements (JSAs) and ordered broadcasters to unwind existing ones within two years.

The agency also took steps that could undermine broadcasters’ ability to negotiate for higher retransmission consent fees from cable and satellite operators — revenue that broadcasters have been counting on to meet financial targets and keep pace with cable programmers.

It forbad stations from banding together to negotiate the retrans fees they charge cable and satellite for retransmitting broadcast TV signals. And it proposed eliminating its network nonduplication and syndicated exclusivity rules — bedrock regs that make it easier for broadcasters to protect the local exclusivity of their programming.

The NAB  is “getting pounded” at the FCC, said one group TV station executive and NAB member, who asked not to be identified. 

But the news out of the nation’s capital is not all bad for NAB, according to communications policy players. The association is holding its own on Capitol Hill, where the battles may be fewer, but the stakes are considerably higher.

The NAB gets kudos in particular for quashing a proposed provision in a draft House satellite bill that would have eliminated the requirement that pay-TV operators carry broadcast signals on the basic programming tier.

“NAB started in a hole and came out smelling like a rose,” said Preston Padden, a former Disney lobbyist who is now representing station owners considering participating in the FCC incentive auction.

NAB’s problems at the FCC come down to one man, Tom Wheeler. Since becoming the FCC chairman last November, he  has proved hostile to many of broadcasters’ interests and resistant to NAB’s arguments.

Industry lobbyists say that Wheeler, a former lobbyist for the cable TV and wireless industries, believes broadcasters are hogging spectrum that he feels they really don’t need to continue providing TV service, and that some of that spectrum should be repurposed for wireless services and new technology. He has, they say, little interest in protecting or encouraging the medium.

Wheeler’s prime mission at the FCC is to recover a great swath of TV spectrum through a so-called incentive auction, in which the FCC would buy spectrum from broadcasters and turn around and sell it to wireless carriers.

“Sometimes policymakers conflate the age of technology with the inefficiency of the technology,” said David Honig, president of the Minority Media and Telecommunications Council. “They [NAB] are facing a perfect storm of disruptive technology, regulatory and political excitement about all the shiny new things. That gives them a headwind to fight against.”

As Wheeler sees it, the curtailing of JSAs was needed to prevent broadcasters from routinely making end-runs around an agency rule that bars one company from owning more than one TV station in smaller markets.

But as broadcast lobbyists see it, he is simply promoting the anti-media consolidation agenda of Democratic liberal watchdog groups. Wheeler’s appointment to his job was due in large part to his success in raising large sums of money for the campaigns of America’s top Democrat, President Obama, they point out.

It has hurt NAB that Sinclair Broadcast Group has been one of the industry’s most aggressive proponents of JSA sidecar deals, and that the Baltimore-based station group has been a long-time booster of conservative GOP causes.

Among other things, Sinclair’s conservative politics have made it difficult for NAB to recruit Democratic leaders on Capitol Hill willing to tell their fellow Democrat at the FCC — Wheeler — to back down, broadcast lobbyists say.

Some broadcasters say Wheeler wants to hammer broadcast station values, thereby encouraging broadcasters to participate in the incentive auction.

“When you’ve got an FCC chairman who is dismissive of broadcasting and wants to push TV stations into an auction by diminishing their value and punish David Smith [Sinclair CEO], it’s tough to win,” says one broadcast industry source.

“Baloney,” said Wheeler, after Monday’s vote in response to a reporter’s question about whether he was attempting to hurt broadcasters financially to drive them into the auction.

Broadcasters also believe that Wheeler is far too cozy with cable operators, whom he represented in Washington in the 1980s as president of their principal lobby, the National Cable & Telecommunications Association.

One example of his continuing relationship with cable executives: Wheeler met privately with NCTA board members at the cable association’s Washington headquarters on Feb. 27, sources say. NCTA and FCC spokesmen declined comment on the topics discussed during the off-the-record session.

Cable and satellite TV operators lobbied hard at the FCC for Monday’s votes, contending that JSAs and joint retrans negotiations were driving up the retrans fees they pay and, ultimately, the cable bills their subscribers pay.

The operators formed and funded the American Television Alliance (ATVA), which has launched a constant barrage of anti-broadcast PR missiles.

In their call for retrans and ownership reforms, the operators found common cause with liberal watchdog groups, including Public Knowledge, which was headed by Gigi Sohn before she signed on as one of Wheeler’s top advisers. Public Knowledge is a member of the ATVA.

In an attempt to level the PR playing field, the NAB and individual TV station groups  launched their own lobbying group, TVfreedom.org, with the goal of holding pay TV “accountable for stifling innovation and repeatedly using their own customers as bargaining chips while increasing their record profits,” according to its website.

The NAB lost at the FCC on JSAs, even though association lobbyists went to the mat on the issue, with NAB TV board members making a series of personal pilgrimages to the offices of the FCC commissioners to plead for a break.

NAB President Gordon Smith visited Wheeler on two occasions and promoted a compromise that would have provided an exemption for many of the 85 JSAs that the FCC has tacitly approved since 2008.

Smith, a former Republican senator from the state of Oregon, and other broadcasters, reached out to Democratic FCC Commissioner Mignon Clyburn, who was widely perceived to be a swing vote on the JSA issue.

But while Clyburn reportedly promoted, behind the scenes, the facilitating of JSA waivers to mitigate the ban, Clyburn and the commission’s other Democrat — Jessica Rosenworcel — dutifully delivered the other two votes that Wheeler needed for his 3-2 majority.

In the final analysis, the support broadcasters received from the two GOP commissioners, Ajit Pai and Michael O’Rielly, did nothing for them, and Clyburn as swing vote turned out to be more illusion than reality.

“A great injustice has been done,” charged Smith in testimony on Capitol Hill the day after the FCC vote. “If the FCC had the intention to damage broadcasting, they made a good start with what they did. It has dramatically damaged a number of broadcast stocks.”

According to some, the broadcasters’ cause at the FCC suffered because some association members — notably the Big 4 TV networks — sat the battle out. The networks have no stake in the JSA fray and, according to some, were miffed that NAB was expending political capital on it.

The NAB’s ineffectiveness at the FCC is worrisome to broadcasters because other important issues are currently in the regulatory pipeline. Among them are  the UHF discount and the sports blackout rule. The FCC is considering eliminating both.

The discount allows TV station groups to exceed the nominal cap that limits them to coverage of no more than 39% of the nation’s TV homes. Eliminating the discount could prevent Sinclair in particular from continuing to buy stations. Absent the discount, its collective station reach is already close to the 39% benchmark.

Like the syndicated exclusivity and network nonduplication rules, the sports blackout rule is another bulwark protecting the local exclusivity of broadcast TV programming.

In addition, the FCC is soon expected to come out with regulations that will govern critical details of the incentive auction next year, including the repacking or reorganization of the TV band. The repacking regs will apply to the majority of stations that opt not to participate in the auctions, and they could hurt their ability to continue reaching their existing over-the-air audiences.

“The NAB has its work cut out for them,” a leading broadcast lobbyist said.

While the NAB attempts to check the damages at the FCC, it also has its hands full on Capitol Hill. The Satellite Television Extension and Localism Act, or STELA, is the one media-related bill that may move this year, and the pay TV industry is attempting to load up the bill with retrans reform provisions.

In one of the first rounds on STELA, NAB succeeded in blocking a pay TV-industry backed proposal to reform the “must-buy” requirement — the reg that requires cable operators to carry retrans signals on the basic tier.

But the bill, as approved by subcommittee on March 25, also includes a provision similar to the FCC’s new rules that would bar broadcasters from jointly negotiating for retransmission consent fees in their markets, unless the joint negotiations are requested by a pay TV operator.

Still another provision would eliminate a regulation that currently bars cable and satellite TV operators from dropping broadcast signals during retrans disputes that occur during ratings sweep periods.

While it plays defense, NAB has been pushing a provision that would essentially block the FCC’s tightening of the JSA rules. It was unclear at deadline whether the provision, which is a long shot, will even make it into a final House bill.

If NAB ultimately succeeds in getting the JSA provision enacted, it would be a major win.

“A modest change in retransmission consent regs for a rule blocking the FCC from barring JSAs?” says Jack Goodman, a communications attorney. “I would say that’s a huge victory, if that’s the tradeoff.”

Still other positives for NAB on Capitol Hill, according to one broadcast industry insider, is that the association has bottled up bills introduced by Rep. Anna Eshoo (D-Calif.) and Rep. Steve Scalise (R-La.) that would either reform or eliminate retransmission consent.

Under NAB’s watch, no retrans reform legislation has so far been introduced in the Senate.

Said a broadcast industry insider: “The pay TV lobby has spent millions of dollars trying to reform retrans using STELA as the vehicle. They are losing.”

A core reason that NAB has had been able to achieve greater success from its lobbying efforts on Capitol Hill than at the FCC, according to lobbyists, is that broadcasters continue to be important constituents for federal lawmakers, and there are many legislators for NAB to influence on Capitol Hill.

It has been particularly helpful for NAB that Rep. Greg Walden (R-Ore.), who chairs the House Communications and Technology Subcommittee, is a former broadcaster and industry supporter, the lobbyists say.

The NAB also have Smith. He served as a senator from 1996 to 2008 and is still greeted fondly by former Senate colleagues. During his Senate career, Smith served on the Senate Commerce Committee, which oversees communications legislation.

Despite the doom and gloom over NAB’s lobbying track record at the FCC, long-time public watchdog group lawyer Andrew Schwartzman says that NAB deserves points for having kept JSAs going at the agency for more than 10 years.

“I think the NAB has done very well on that until recently, and this was inevitable,” Schwartzman says. “There’s no way this could go unaddressed forever because we were going to take it up and everybody knew that.”

Adds MMTC’s Honig: “You can’t infer from the fact that they [NAB] are not winning on many things that they’re not good at what they do. They’re very good at what they do.”