The latest retrans reform plan advocating an a la carte system of payment by cable subs for broadcast channels would harm broadcasters and I'm not sure it benefits anybody other than some small cable operators. A better solution is for Congress to pass a law saying that if pay TV operators and broadcasters cannot agree on a retrans fee, the matter would be settled by so-called pendulum arbitration — just like in baseball.
JESSELL AT LARGE
Local Choice Sure Isn’t The Logical Choice
Why are Sens. Jay Rockefeller (D-W.Va.) and John Thune (R-S.D.) picking on broadcasters?
The bipartisan duo is behind the Local Choice proposal floated on Capitol Hill last week. Instead of negotiating retransmission consent fees from pay TV operators, broadcasters would hawk their signals directly to subscribers at prices they set. Consumers would choose which signals they want, while pay TV operators manage the transaction and collect the fees for the broadcasters. It would apply only to stations that want to get compensation for carriage. Stations would still be able to opt for must-carry — mandated distribution to all subscribers with no fees attached.
As nutty as it is, Local Choice cannot be totally ignored. Rockefeller is the chairman of the Senate Commerce Committee and Thune is the ranking minority member. That gives it some legs.
But, again, why are they picking on broadcasters? Why are they singling them out?
By my last count, there are 12,467 cable channels, including something called cloo and another something called H2.
If the senators wants to be fair and really empower consumers, they should do it by giving them the ability to choose from among all the channels. This idea has a name — a la carte marketing — and it’s been kicking around for years and, by the way, it’s been vigorously opposed by cable operators and programmers.
BRAND CONNECTIONS
The reason given for Local Choice is to curtail the blackouts that occur when retrans negotiations break down. But if the senators were regular readers of TVNewsCheck and other TV trades, they would know that retrans blackouts are relatively rare and that cable channels are also subject to blackouts when cable operator and programmer cannot agree on terms. The nastiest disputes are over regional sports networks, not broadcast channels.
Adoption of Local Choice would be bad news for broadcasters. Despite their popularity, the Big Four O&Os and affiliates would lose some percentage of their pay TV audience and the advertising and retrans revenue that come with it. I have no idea what that percentage would be, but even 10% or 15% would be terribly damaging. Broadcaster cannot afford to ever have anything less than 100% coverage. It’s their advertising edge.
The broadcasters would also have to waste valuable time and resources marketing themselves to subscribers. Worst of all, they would have to rely on pay TV operators to service their paying customers, making sure each one receives the signals they choose and only the signals they choose. Let’s just say cable has not exactly distinguished itself in the customer service department over the years.
Broadcasters would also have to rely on the pay TV operators to act as their auditors and collection agents. Another grim prospect.
While Local Choice harms broadcasters, I’m not sure it benefits anybody other than some small cable operators that are being crushed by the retrans burden.
In a column of TVNewsCheck we posted on Tuesday, communications attorney Jack Goodman, one of the founding fathers of retransmission consent, thoroughly dissects Local Choice, showing how it would hurt not only broadcasters, but also consumers and, for that matter, most cable operators.
Despite the proposal’s parentage, I’m not too concerned about it becoming law. Not only will broadcasters be working against it, but so will, I think, the big cable and satellite operators. They don’t want to deal with the logistics of it, and they certainly don’t want to encourage a la carte marketing by letting it take root here.
In an Q&A in The Hollywood Reporter last April, NCTA President Michael Powell once again made the case against a la carte, arguing that it would probably cost consumers more in the end and drive smaller niche channels like black-oriented TV One out of business. “I think the government would be mandating a model that actually might be harmful to consumers,” he said.
What does concern me is that Thune is now clearly on the side of those who believe that retransmission consent has to be “reformed.” Unlike Rockefeller, who is retiring at the end of this Congress, Thune will be back next year, and if the Republican National Committee has its way this fall, he likely will be chairman of the Senate Commerce Committee.
If Local Choice is not the fix, he’ll be looking for another and the pay TV lobby has a bunch of them from which to choose — all bad for broadcasters.
The old Washington axiom is that you can’t beat something with nothing. So, the broadcasters need something. That something, I suggest, is arbitration.
To prevent disruption of service and insure that broadcasters are fairly paid, the Congress would pass a law stipulating that if pay TV operators and broadcasters cannot agree on a retrans fee after a certain period of time, the matter would be settled by so-called pendulum arbitration. It would work just as it does in baseball. The pay TV operator makes the case for why the per-sub, per month fee should be X, while the broadcaster makes a case for why it should be Y. The arbitrator simply picks one.
To keep things on the up and up, the law must also stipulate that the fee — the arbitration judgment — has to be based on what cable operators are paying out for other cable channels and the performance of those channels in attracting viewers. With that criterion, broadcaster would be positioned for some hefty retrans increases.
Because they started asking for retrans fees only nine years ago, the fees they receive are far less than what they deserve based on what some cable channels, especially sports networks, are getting. ESPN is getting $5 or $6. Broadcast stations are getting way less than that, even though they are all hitting for a higher average with more RBI and home runs. You can look it up.
Broadcasters have one other option should things really start to go bad on the retrans front. That would be to join with the libertarian Republicans on the Hill and blow out the entire compulsory license-retransmission consent artifice. Broadcasters could then operate under the same conventional copyright regime that cable networks do and negotiate for comparable copyright compensation. But the changeover would take a lot of lawyering to implement and, as with all radical change, the ramifications are hard to fully calculate. I see it as a last resort.
Of course, the best thing broadcasters could do at this point is to turn Thune around, persuade him that all the “reforms” to retransmission consent are likely to do more harm than good to consumers by undermining the economics of broadcasting.
The broadcasters who demand compensation for carriage are the same ones that provide a valuable public service in the form of local news and disaster coverage. And like all broadcasters, they are committed to maintaining a over-the-air service that insures that every American — rich or poor or in between — may access that service along with high-quality entertainment for the one-time price of an antenna.
Instead of discriminating against such stations, Thune ought to be discriminating in favor of them.
Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.
Comments (33)
Don Thompson says:
August 15, 2014 at 4:34 pm
Harry Jessell: “The nastiest disputes are over regional sports networks, not broadcast channels.”
@TedatACA: I know the fellow who runs Buckeye CableSystem in Toledo and he has 212 reasons (one for each day of Sinclair’s NBC blackout) why you are wrong ……………… Please follow me on Twitter @TedatACA
John Bagwell says:
August 15, 2014 at 5:16 pm
So just because you can name 1 blackout in Toledo means that is happens more with broadcast channels than regional sports networks? It’s pretty sad, really.
Don Thompson says:
August 15, 2014 at 5:26 pm
@TedatACA: Last year, there were 127 blackouts around the country, up from 91 the year before that, and 51 two years prior. Over the last eight years, retransmission consent fees have risen at 119 times the rate of inflation ………………. Please follow me on Twitter @TedatACA
John Bagwell says:
August 15, 2014 at 5:53 pm
I hate to break the news to you, but Rockefeller-Thune would not stop the blackouts that are caused by the cable networks and regional sports networks. Wasn’t it just this year that the Weather Channel went black on Direct TV? Wait, according to your website, the Weather Channel is a member of the ACA. Why are your members causing blackouts Ted?
Wagner Pereira says:
August 15, 2014 at 8:09 pm
So re-transmission fees have risen 119 times the rate of inflation, according to your post above. As we all know, the cost of basic cable is roughly 20-25% of the total bill, depending on the system. 2 years ago, my FiOS TV bill was $150. 24 months later it is $198. That is an increase of 33% in my book. BUT, as only roughly 22% goes to basic cable, that mean the programming costs have gone from $33 to $43. HOWEVER, we all know that you are not paying ABC/FOX/CBS/NBC $2 each – in fact – most are still less than $1, but I digress. Basic Program cable costs are up $10….but my bill is up $48….who screwing who here and trying to shift the blame?
Wagner Pereira says:
August 15, 2014 at 8:11 pm
I’ll even give you another one Ted. 2 years ago Lifeline cable was $10.95 in a system in my market. Today it is slightly over $20 – in 48 months. A 100% increase. As Lifeline only has local OTA – and we know that cable has been paying less than $1 for ABC/CBS/NBC/FOX during the past 48 months, why did Lifeline Cable increase 100%? “You cannot blame it on retransmission costs!
Don Thompson says:
August 15, 2014 at 4:41 pm
Harry Jessell: “Adoption of Local Choice would be bad news for broadcasters.”
@TedatACA: False. The Rockefeller-Thune Local Choice proposal is the best thing to happen to broadcasting in decades. The local TV station with the Super Bowl would clean up. So it’s sad to TV stations flinch when offered the chance to do away with the hated pay-TV gatekeepers forever ……………. Please follow me on Twitter @TedatACA
Michelle Underwood says:
August 15, 2014 at 4:45 pm
Hey Ted; if choice is good for broadcast why not for cable channels too? Would love to not pay for Lifetime, HGTV, O, MSNBC, and about 100 others that I never watch.
Michelle Underwood says:
August 15, 2014 at 4:46 pm
And while we’re at it Ted, how about the Weather Channel blackout recently or the Dodgers Channel that still isn’t on most of the cable systems in LA?????
Don Thompson says:
August 15, 2014 at 5:04 pm
@TedatACA: I answered this before. The Rockefeller-Thune Local Choice proposal is real, organic, specific. So broadcast a la carte as least has a clear context for us to debate. It would be just speculation to respond to questions about cable programming a la carte in a vacuum. Toss out some ideas and I’ll chew them over ……………… Please follow me on Twitter @TedatACA
John Bagwell says:
August 15, 2014 at 5:07 pm
No, you did NOT answer this before. You just simply said that you are not going to answer it…like you just did right now.
Don Thompson says:
August 15, 2014 at 4:47 pm
Harry Jessell: “The broadcasters would also have to waste valuable time and resources marketing themselves to subscribers”
@TedatACA: Sure, broadcasters are really bad at that. How come to this day I still know ‘Winstons take good like (sic) a cigarette should’ and I can still hear ringing in my ears Pat Summerall’s voice telling to stay tuned for 60 Minutes, Everybody Loves Raymond and Murder She Wrote ………… Please follow me on Twitter @TedatACA
Don Thompson says:
August 15, 2014 at 4:48 pm
Pause for a commercial
@nabtweets: “Great column, Harry.”
Robert Crookham says:
August 16, 2014 at 11:44 am
This from the guy who tags most of his posts with, ” Please follow me on Twitter @TedatACA ” Sounds like the pot calling the kettle black.
Ellen Samrock says:
August 15, 2014 at 4:50 pm
All excellent points, Harry. But the question, ‘Why broadcast?’, I think highlights the point that broadcast television stations, networks and local independents, are still the most watched of all video channels among pay-TV subscribers. Viewers may be indifferent to TV Land but they sure want their local news. And this give broadcast television an edge and power that the cable nets don’t have. I’m sure this point has not escaped the notice of certain members of congress either (but, as usual, they’re taking an ass about face way of regulating it). But here’s the amusing unintended consequence that could occur should Local Choice become the rule of the land. Pay-TV customers might well start to reason, “Hey, if we can choose to keep or delete our local channels why can’t we do the same for all the other cable channels we are or aren’t watching?” In other words, expect the whole issue of a la carte programming to explode wide open among consumers and, ultimately, in Washington. Now that could really be a potential nightmare for all the pay-TV providers. So, ultimately, it would be in the interests of pay-TV to squash Local Choice.
Don Thompson says:
August 15, 2014 at 4:51 pm
Harry Jessell: “Worst of all, they would have to rely on pay TV operators to service their paying customers, making sure each one receives the signals they choose and only the signals they choose. Let’s just say cable has not exactly distinguished itself in the customer service department over the years.”
@TedatACA: I’ll be brief: Red herrings ………………. Please follow me on Twitter @TedatACA
Don Thompson says:
August 15, 2014 at 4:53 pm
Harry Jessell: “Broadcasters would also have to rely on the pay TV operators to act as their auditors and collection agents. Another grim prospect.”
@TedatACA: After the NAB cashcasters dump Nielsen, I take this comment seriously.
Don Thompson says:
August 15, 2014 at 4:56 pm
Harry Jessell: “Communications attorney Jack Goodman …..”
@TedatACA: You mean, “broadcast attorney Jack ‘Fear The Unknown’ Goodman.” Let’s face it, under the Rockefeller-Thune Local Choice proposal, there would be no more retransmission consent disputes. Retrans disputes have been very, very good to the communications bar. I’m not surprised a retrans lawyer is worried about retrans going away.
Don Thompson says:
August 15, 2014 at 5:00 pm
Imagine it’s August, 1992. Does the National Association of Broadcasters embrace the Rockefeller-Thune Local Choice proposal? Answer: Heck, yes. …………………… Please follow me on Twitter @TedatACA
Sandy Hinkle says:
August 15, 2014 at 5:14 pm
I’m so tired of hearing the whiny broadcasters cry, why me, why me, when you and your NAB network overlords are the ones to blame. Want to know why Local Choice is out there? Because of you, the broadcasters and the historic number of retrans blackouts that denied your “always on” “free over the air” signals to millions of consumers across the country. And I’m so tired of hearing the whiny broadcasters say, don’t hurt us, blame the cable operator and make all of the cable channels a la carte, as if we, the cable operators are the ones choosing the price of the channels and the size of the bundle. Wake up! It’s your NAB network overlords who own that cable programming and who tie and bundle it consumers and who make them pay for it whether they want it or not. We’d LOVE to see consumers have the ability to choose the channels, tiers and services they want, but it’s YOUR BROADCAST NAB BOARD OVERLORDS who DENY CHOICE! Frankly, I hope the ideas behind Local Choice catch on to free consumers from the ever-increasing size and cost of the bundle of cable channels owned by the NAB BOARD BROADCAST NETWORK OVERLORDS! YOU are responsible for retrans blackouts, which has put you in the position you are in today, and your NAB BOARD MEMBERS AND NETWORK OVERLORDS are the ones who are denying cable choice to consumers. Why don’t you go and ask THEM if they will allow choice for consumers, because our ACA members sure as hell don’t control what’s on cable, how it’s packaged and how it’s priced. I’m pretty sure I know how your overlords will respond. Matt Polka, ACA
John Bagwell says:
August 15, 2014 at 5:46 pm
Matt…then who is responsible for the blackouts that don’t involve broadcast channels? Is it the NETWORK OVERLORDS then too? Blackouts happen on broadcast channels AND on cable networks. This is simply just a FACT. So the whole “blackouts only involve broadcast channels” agenda you are trying to push does not work here.
Sandy Hinkle says:
August 17, 2014 at 9:28 pm
We didn’t write the bill, but we’re happy that Congress is correctly looking at fixing a broken broadcast retransmission consent model. We hope they do more on cable and sports programming in the days ahead and will be right there to support them when they do. And your NAB Board Broadcast Network Overlords are the ones who are jacking up rates to consumers, forcing more bundled programming on them, and causing blackouts there too, and that has to stop.
Don Thompson says:
August 15, 2014 at 7:13 pm
@TedatACA says: Broadcasting’s biggest problem isn’t Rockefeller-Thune Local Choice proposal (which is a windfall for local TV stations). The real and growing problem is Air Marshal Moonves at CBS: “CBS Sending Big Message To Affiliates” By John Sewarda/Benzinga ………. CBS is sending a message to its affiliates: Pay up or get out. CBS Chief Executive Leslie Moonves signaled that the company was seeking higher fees in a conference call with analysts last week. “We decide what we think is fair,” said Moonves. “The station groups are all doing very well, primarily because of network programming both in primetime and in sports.”
Sandy Hinkle says:
August 16, 2014 at 9:29 am
Researcher: The reason why Local Choice exists is because the Commerce Cmte under the ’92 Act has jurisdiction to regulate retransmission consent. No Cmte as yet has moved into regulating the cable channels owned by NAB’s Network Board Members, but I believe that’s coming because of the egregious bundling, tying and price gouging behavior of the content owners and cable networks. STELA is a broadcast carriage and copyright act, which makes Local Choice an appropriate bill for consideration. But as Congress moves into a full Communications Act rewrite where everything is on the table — including choice to consumers, online video blackouts by the big broadcast and cable networks, competition, etc. — then the big networks better watch out. When their system of forcing programming and content and cost onto consumers collapses, they will have no one to blame but themselves. MMP, ACA
Sandy Hinkle says:
August 16, 2014 at 9:31 am
And Researcher, if you’ve followed our advocacy then you would know that we are not singling out broadcasters while avoiding cable programmers. We think BOTH markets are broken and in need of repair by Congress, the FCC, and consumers. MMP, ACA Follow me @MATTatACA
John Bagwell says:
August 16, 2014 at 11:08 am
Then why isn’t espn and TNT part of this bill too? The reason why we do not like this bill is because it does single out broadcasters and you are supporting it.
Sandy Hinkle says:
August 16, 2014 at 9:38 am
By the way, this is “deja vu all over again.” Harry here is advocating for arbitration as a solution. You mean the same form of arbitration ACA has put on the record to ask for at the FCC, which the cashcasters roundly poo-poohed and said they would never do? The same arbitration that many of our ACA members invited broadcasters to engage in that those same broadcasters rejected? The docket is still open at the FCC, Harry. So, will the broadcasters, NAB, TVFreedom as well at TVNewsCheck now come out to PUBLICLY SUPPORT ACA’s calls for an end to blackouts, interim carriage and arbitration? I’m not holding my breath. But it just goes to show that cashcasters are now scrambling because they are cornered as a result of their own behavior of ignoring consumers, causing historic numbers of retrans blackouts, and disingenuous claims of broadcast TV being “free over the air” and “always on.” Cashcasters have only themselves to blame for what’s happening and for what WILL happen when retransmission consent is ultimately NO MORE. Follow me @MATTatACA
kendra campbell says:
August 16, 2014 at 10:19 am
More commercials – sure. More promos – ok. More retrans $ – yes please.
Pigs eventually get slaughtered.
Robert Crookham says:
August 16, 2014 at 11:42 am
There are a couple of factors at work here:
1) Given the nightmares and uncertainties of collecting subscriber fees from viewers via the competition, a lot of broadcasters would choose the certainty of must-carry. The freeloaders in the cable business know this, and I think that’s what they secretly hope for–that they can go back to their old business model of stealing our product and reselling it for their profit.
2) A lot of cable operators–particularly the smaller ones represented by ACA–know that they would actually have to invest something in their infrastructure and IT to match the capabilities of the satellite operators.
3) Cable operators, both small and large, would love nothing better than to squeeze the OTA broadcasters out of business. More and more people have the option of watching broadcasters directly off-air, while picking and choosing their premium content via Netflix, Amazon and the like. That scares the h*** out of the cable guys. And it should. That’s why cable operators are pushing broadband at the expense of TV–so they can continue to make bucks off of Internet access, without having to spend money to get their TV infrastructure out of the Stone Age.
I can easily see a future where OTA broadcasters, together with city-wide, high-speed wifi satisfy the needs of TV consumers, leaving the cable operators and their horrid customer service (Harry was being nice) to die off like the dinosaurs.
It’s amusing to see the cable guys defend the status quo against a la carte. It’s more like socialism, really. If I want ESPN or CNN, I am also required to subsidize niche channels in which I have no interest, or the Disney networks, which removed the classic Disney product and replaced it with the Miley Cyrus-type slop. Maybe my total bill would go up a few dollars, but I’d know that the money is going to the benefit of the channels I want. That’s called, “Free Enterprise”. If the niche channels want to survive, they need to get out of auto-pilot and produce programming that people want to pay for. That’s how a free market works.
Don Thompson says:
August 17, 2014 at 8:46 pm
http://bit.ly/1p3TtSz
Cable Companies Balk At Rising Costs For Sports Programming
By Michael Sanserino/Pittsburgh Post-Gazette
The standoffs jeopardize the cash windfall for teams and leagues, threatening to burst a bubble of inflated TV deals because consumers don’t want to pay. “Sports programming could be the straw that breaks the camel’s back,” said Matt Polka, chief executive of the American Cable Association, a Green Tree-based national trade association that represents 850 small cable companies nationwide.
“That’s why we’ve seen so many customers today – they’re not buying cable. They’re buying broadband. They’re not interested in what’s on TV. They consume what they want, when they want it and do not want to be told what to take.
“That, combined with rising prices and lack of choice, is really going to be a come-to-the-altar moment for these sports programmers and sports leagues.”
…………………………………… Please follow me on Twitter @TedatACA
Jill Hatzioannou says:
August 19, 2014 at 10:24 am
It seems to me that a cable operator is making an economic and business decision on every single content provider decision they make. Is the cost of providing this content to my subscribers less than the cost of not providing it? Will I lose subscribers if I don’t choose to pay for the ESPN networks? For the AMC networks? For this local broadcaster’s content? When the cost of having the content exceeds the cost of not having it the cable operator will decide not to carry it. Its the same for the broadcaster. He has to decide at what point the cost of not having the viewers your cable system provides is higher than the revenue he can generate at a given retrans fee. In the Toledo 212 day example offered above by Ted Hearn the end result is the cable operator and the nbc station owner eventually agreed on that point was for each of them. At this point, it still seems clear that the content available on the local broadcast channels is the most viewed content on any of the cable systems. I don’t believe that any cable operator is paying a higher amount than what they have calculated the value to be. They are certainly paying more than they would like, but that’s not the same thing. I am paying my cable provider more than I would like, just like I pay the supermarket more than I would like. However, until it becomes more than it’s worth to me I will continue to pay.
Chris Dias says:
August 19, 2014 at 4:41 pm
Cable operators do make that decision re: is it worth the money and the rate increases that have to be passed along to their customers. Noting that Network OTA broadcast is free but not if your on cable or satellite. Why is that? Cable & Satellite provide an increase in your viewership/ad revenue without costing you a dime yet you want to make more money by essentially charging the Cable/Satellite customer for your service.
OTA broadcasters couldn’t get channel space on Cable systems many years ago so the FCC caved in and allowed them to elect either Must-Carry or Retransmission. The majority elected Must-Carry just to get a channel on a system and Cable Operators were obliged to to do so. Broadcasters increased their viewership/Ad revenue and were able to build their empires on that cash flow. Now the Broadcasters not only want/need to be on that system, they want revenues coming from the Cable Operator to distribute those otherwise Free OTA services.
Well, if you want revenue from a Cable Operator then act like a Pay TV Service. Scramble your feeds, make your TV station a subscription service and collect the revenue’s. Provide a descrambling device and maintain your customers level of service. It’s really that simple, Now you can go to the FCC and your advertisers with real-honest-to-god data on viewership stats and monetize the worth of your service to the Cable Operator and the Advertiser.
If you want the same perks as a Pay TV Service, then operate like one. Make your service unavailble without a subscription and then charge both cable and satellite providers a bulk rate to retransmit your service.
Better yet, advertise the rates you charge to Cable & Satellite Operators for retransmission so cable & Satellite customers can see that on their bill and decide whether they think it’s worth the added fees. Pretty simple stuff, why hasn’t it been done?
Jill Hatzioannou says:
August 20, 2014 at 12:33 pm
I would dispute the contention that the majority selected must-carry just to get a channel. The broadcast network affiliates and major independents already were being carried by the cable system operators. It was the second tier independents, not-for-profits like religious broadcasters, etc that needed must carry in order to expand their reach. Those are the broadcasters who are still opting for must-carry today. Over time the network affiliated broadcasters started to realize that cable operators were making a good deal of money reselling their content, content the cable providers were getting for free, and decided that wasn’t a fair deal after all. I understand the concern on the part of cable operators who got used to getting a valuable product for nothing that they could then resell, but comparing the cable operator to the home owner who gets a free OTA signal is really not valid. The homeowner/consumer is not allowed to resell that content without violating several laws. Perhaps a better analogy would be if I subscribed to a cable system and then resold the signals to my neighbors. I suspect the cable operator would object to my reselling content they had paid for. In regards to the last comment about identifying fees, I already know what I am paying for local channels and I know that I can’t get any other television services without getting them. I am also hard pressed to think of any other product or service that I buy either directly or from a distribution channel where the seller identifies the cost. I actually think that the cable operators might be hurt by something like that more than helped. If the operator is paying even 2 bucks per subscriber for each of the five local broadcasters they are paying retrans fees and the cost of my Basic Service is $40 that may create more problems than it solves.