It’s A Long, Hard Road To Retrans Reform

Cable and satellite operators may compete for subscribers, but they are united in their determination to gut the retransmission consent rights that the broadcasters were granted in the 1992 Cable Act and have used effectively to wrest billions of dollars in carriage fees from cable and satellite.

The operators will need to be determined. With broadcasters vowing to resist any changes to the law, convincing Congress to reform the law will not be easy or quick. Even the most optimistic cable reps concede it could take years.

The push for the change is led Time Warner Cable, DirecTV, Dish Network, the American Cable Association, Public Knowledge, Verizon, U.S. Telecom and the 27 other members of the American Television Alliance, a coalition that plans to keep the heat on this fall and into the next Congress. 

On the retrans sidelines are Comcast, which promised NBC affiliates during its courting of NBCUniversal not to disrupt the existing framework, and the National Cable and Telecommunications Association, which has members on both sides of the issue.

“The fact of the matter is that it’s everybody for reform, except the broadcast industry,” said Matt Polka, president of the American Cable Association, which comprises smaller cable operators. ” We’re going to be very proactive in continuing to encourage the committees in both the House and the Senate to undertake reform.”

Cable officials insist that only a legislative solution can guarantee broadcasters won’t pull signals to gain an upper hand in retrans negotiations. The disruption of service is what draws the attention and sometimes ire of lawmakers and regulators.

The retransmission consent law says that cable and satellite may not carry broadcast signals without permission. For years, broadcasters granted that permission without asking for much in return. Then, in the mid-2000s, they began demanding per-subscriber fees.

What started as a trickle is now a vital source of broadcast revenue, rising from $215 million in 2006 to nearly $1.5 billion last year, and expected to surpass $2 billion this year, according to SNL Kagan. Broadcasters note that basic cable networks received far more from operators, $26.7 billion last year, in exchange for carriage.

With Congress on summer recess, and only must-pass bills expected to see action during the short work period scheduled for September and any lame-duck session following the presidential election, don’t expect near-term fixes to retrans, communications policy experts said.

Instead, the lobbying and legislative battle is poised to intensify next year. Recent hearings in both chambers on the future of video, last month’s Senate Commerce hearing on the Cable Act, and last year’s introduction  of deregulatory cable bills by Sen. Jim DeMint (R-S.C.) and Rep. Steve Scalise (R-La.), lay the groundwork for a deeper congressional review when the new Congress convenes in January, they noted. The DeMint-Scalise bill would flat-out repeal retransmission consent.

Proponents of sweeping reform cite the 2014 reauthorization of the Satellite Television Extension and Localism Act of 2010, or STELA, as a possible legislative vehicle for overhauling retrans and other cable laws they consider outdated.

The satellite measure is a potential catalyst for two reasons: Congress must reauthorize or repeal STELA before it expires Dec. 31, 2014, and it is germane to the Cable Act, they said. “It will potentially be a vehicle for all sorts of mischief,” a broadcast source close to these issues conceded. “There is recognition that the Cable Act is 20 years old, and everything in the Cable Act should be reviewed.”

Assuming lawmakers decide to extend STELA, they might be hesitant to bog it down with too many ancillary and controversial provisions, other sources suggested. Even a barebones version would face a tough hurdle in clearing the four committees — the House and Senate Judiciary and Commerce panels — that share jurisdiction. As a result, a cable industry source said, Congress might instead seek to enact a streamlined, two-year reauthorization of STELA to give lawmakers more time to hash out the thornier issues raised by the Cable Act.

These subtleties prompted experts to caution that continued congressional scrutiny of the Cable Act does not guarantee passage of legislation updating it. “[It’s] an uphill battle to move legislation,” said Jeffrey Silva, a telecommunications and media analyst with Medley Global Advisors. “It’s very complicated as a political matter.”

Broadcast and cable officials agree that the presidential election is unlikely to have much impact on the outcome of the congressional review since communications policy is usually bipartisan, although the fate of the Senate could be a factor.

A Republican takeover of the upper chamber is would put Sen. DeMint in charge of the influential Senate Commerce panel. That would give prominence to his kill-retrans bill, although it is generally seen as no more than a discussion draft.  If Democrats hold the Senate, Sen. John Kerry (D-Mass.), who drafted legislation in late 2010 that would let the FCC fine parties for failing to negotiate retrans in good faith and impose binding arbitration, could emerge as a key player.

The FCC remains a wild card. While the agency launched a rulemaking in March 2011 that contemplates changes to retrans, Chairman Julius Genachowski has said the commission has limited authority to act. With Genachowski expected to exit the FCC next year even if President Obama wins reelection, and certain to be replaced by a Republican if Mitt Romney takes the White House, there’s an opportunity for his successor to craft a different legal interpretation. Yet most agency watchers anticipate that Congress, and not the commission, will carry the mantle on any overhaul of retrans and the Cable Act.

Cable and satellite reps are floating a range of solutions to address perceived problems with retrans, including elimination of the entire process, government arbitration, a ban on the cessation of signals during disputes, and better notification to subscribers about possible disruptions.

Broadcasters insist most of these ideas are designed to benefit cable systems, though they support a 60-day notification to viewers of approaching carriage deadlines and have endorsed a proposal from Senate Commerce Chairman Jay Rockefeller (D-W.Va.) that subscribers who lose programming as result of a retrans dispute receive refunds.

Cable companies also want Congress to rescind the Cable Act must-carry provisions that require operators to carry broadcast signals on their least expensive tiers because satellite TV services do not have a similar requirement. Polka complained that the rule forces operators to offer stations that viewers don’t watch. Broadcasters say the proposed change would harm less popular stations, such as religious and foreign-language ones, that are nonetheless vital links to viewers.

Furthermore, pay TV providers want to nullify the FCC’s syndicated exclusivity and network non-duplication rules, which the commission recommended in its 2011 retrans proceeding, to provide greater flexibility in carriage negotiations. Broadcasters say the rules ensure their competitiveness, and that without them, cable and satellite systems would have more leverage during retrans talks. If the rules are rescinded, broadcasters fear it will be easier for pay TV services to replace them with competing stations from other markets when negotiations stall.

The ACA’s Polka recommends that legislation also tighten up broadcast ownership rules, particularly those limiting the number of stations that a single broadcaster may own or manage in a market. Owning or managing multiple stations give broadcasters undue negotiating leverage, he said. “We will be encouraging the broadest review possible, because we think that will be best for consumers,” he said.

Interviews with more than a half-dozen broadcast and cable industry sources highlight the challenges Congress will face in reaching a consensus on a Cable Act rewrite. For example, Polka supports language in the DeMint bill to sunset retransmission consent, but opposes language that would repeal the copyright compulsory license. Small cable operators think it’s more efficient to clear copyrights under the license than to negotiate with hundreds of content owners, he said.

Preston Padden, a former broadcast executive with ABC and Fox and now an adjunct professor at the University of Colorado School of Law, argues that repeal of the cable and satellite compulsory licenses should be a precursor to congressional action on retrans.

Under such a repeal, “we wouldn’t need retransmission consent,” he reasoned. He insists that TV stations would command higher compensation because cable and satellite systems would pay for broadcast content — and not signals. Padden notes that cable networks already negotiate this way and raise “a heck of a lot more money” than TV stations. Broadcasters, however, worry about replacing a safe bet — the current system — with a new one that could have unforeseen complications.

Risks await both sides. Another disruption to marquee programming along the lines of previous blackouts timed to coincide with the World Series and Oscars could put broadcasters on the defensive and trigger a public backlash and tougher congressional scrutiny.

For cable, the caveat is: “Be careful what you ask for,” Silva warned. “If you’re asking lawmakers to shine a light on these issues, the door is opened for adversaries to demand new cable regulations,” he said.