Retrans Reform Heats Up In Washington

A group of ABC affiliates converged on Capitol Hill late last November, pleading with lawmakers to jam a stick into the spokes of an accelerating campaign by the pay TV industry to gut broadcast retransmission consent rights.

The prayers of the broadcasters appeared to be quickly answered, with the announcement that a key federal lawmaker would block the pay TV industry’s effort to win a quick legislative fix.

But the concern now is that that pay TV industry is shifting lobbying muscle to the FCC, where there appears to be significant pockets of sympathy for the reform effort.

“We always have to remain vigilant,” said Michael Devlin, chairman of the ABC Affiliate Board and GM of Belo’s WFAA Dallas, who led the pre-Thanksgiving delegation. “We’re up against an extremely strong and well-funded entity, when you are talking about the pay TV distributors.”

Tired of broadcasters’ ever-increasing demands for retransmission consent payments, the pay TV distributors — cable and satellite operators — are determined to modify the law or FCC rules to handicap broadcasters in their retrans negotiations.

At least according to the pay TV industry, reforms of the 1992 law that cleared the way for broadcasters to charge for the right to retransmit TV signals are sorely needed because the size of the fees has been growing dramatically, and the cost increases are being passed along to subscribers.

Retrans fees, which raised $758 million for broadcasters during 2009,are expected to generate revenue of more than $3.3 billion this year — and then more than double to over $7.6 billion annually in 2019, according to SNL Kagan, an industry analyst.

In addition, disputes over new deals for the fees are resulting in an ever-increasing number of programming blackouts, pay TV industry execs say.

In one of the more-publicized blackouts thus far, more than three million Time Warner Cable subscribers lost access to CBS programming during a retrans negotiating impasse last August — a blackout that resulted in TWC losing 306,000, or 2.4%, of its residential video subscribers.

There were 110 broadcast service blackouts through mid-October in 2013, up from 91 in 2012, 51 in 2011 and 12 in 2010, the American Television Alliance — a lobbying group promoting retrans reform funded by the pay TV industry, says on its website.

“Without immediate action by Congress … it seems likely that millions of screens will go dark every year, and consumers will pay more and more for the cable and satellite services,” said R. Stanton Dodge, Dish Network EVP-general counsel, during a September 2013 hearing before a House judiciary subcommittee.

But broadcasters have been telling regulators that the fees — along with providing life support to local news and the other marquee programming that sustains the local television system — are a bargain for operators, considering the size of pay TV’s broadcast audience.

While broadcasters concede that the number of blackouts has been on the rise, NAB says that 90% of the blackouts since 2012 have involved three companies: TWC, DirecTV and Dish Network.

“It’s clear they’re trying to game the system and create disruptions so they don’t have to pay a fair market price for the most watched programming on television,” says NAB’s chief spokesman Dennis Wharton. “If they spent as much time negotiating fairly rather than trying to game the system, this would be a non-issue.”

The focus of retrans reform has now shifted to the FCC because House Communications and Technology Subcommittee Chairman Greg Walden (R-Ore.) has made it clear that he opposes the pay TV plan to attach reform provisions to renewal of the law that enables satellite operators to carry broadcast signals.

The Satellite Television Extension and Localism Act, or STELA, had been the obvious vehicle because it’s the only communications bill expected to be become law this year.

But the satellite legislation “is the wrong place to make changes in this legal regime,” said Walden, who has a key say over communications-related legislation on Capitol Hill, during a speech before the Hudson Institute think tank in December.

Rather, he said, any review of the retrans regulations should be included in a multi-year review of the Communications Act that he announced with House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) on Dec. 3, 2013. “A real update of the law should not be hastily slapped together for the benefit of a few players in the industry.”

Even before Walden’s revelation, the FCC was in the retrans limelight because the agency’s new chairman, Tom Wheeler, has indicated he wants to review the agency’s retrans options.

Retrans reform would give Wheeler, a former cable TV and wireless industry lobbyist who stepped into the FCC’s top post on Nov. 4, 2013, a way to demonstrate that he’s working for U.S. consumers now, not media industry tycoons, analysts say.

“There’s a new sheriff in town [at the FCC], and the broadcasters better be on their toes,” says Jeff Silva, a telecom industry analyst for Medley Global Advisors.

“He has certainly expressed an interest in doing something [to reform retrans consent],” adds David Kaut, an analyst for Stifel Nicolaus Co. “He’ll look for the best option and try to find a pro-competitive solution.”

Wheeler got on the industry’s retrans reform radar screen after he told lawmakers during his June 18, 2013, confirmation hearing before the Senate Commerce Committee that he shared the concerns of leading lawmakers about pay TV subscribers losing access to broadcast signals during retransmission consent blackouts.

“What does bother me . . . is when consumers are held hostage over corporate disputes, and if I’m fortunate enough to be confirmed, that will be something I will be looking at,” Wheeler said during his confirmation hearing.

During his first official press conference as FCC chairman on Nov. 14, Wheeler told reporters that he intended to do his “own analysis” of the FCC’s retransmission consent authority.

The FCC, under former FCC Chairman Julius Genachowksi, held that it was powerless to do much more than use its bully pulpit to encourage broadcasters and pay TV operators to resolve retransmission consent impasses without blacking out broadcast programming to consumers.

Also offering hope to reform advocates: In one of his first official actions as FCC chairman, Wheeler announced that he had hired Gigi Sohn as his special counsel for external affairs. Sohn is a long-time public interest group advocate and supporter of retrans reform.

Public Knowledge, the watchdog group that Sohn helped found and headed before joining Team Wheeler at the FCC, has argued that the FCC, without the need for additional congressional authority, can require interim carriage of broadcast signals to avoid blackouts during retransmission consent negotiating impasses.

In addition, Public Knowledge has argued that the FCC can require stalemated parties in retransmission consent negotiations to undergo binding arbitration.

Public Knowledge is a member of the American Television Alliance, a lobbying group dedicated to minimizing broadcasters’ retrans clout. It includes other advocacy groups, but also many pay TV operators. It is funded mostly by Time Warner Cable, DirecTV, Dish and other pay TV operators.

ATVA has been taking the lead on retrans reform because the cable industry’s largest lobbying group, the National Cable & Telecommunications Association, has largely been sitting out the battle. One of NCTA’s principal members is Comcast, owner of NBC and its station group. Comcast, which supports retrans, has previously been keeping NCTA on a tight leash over retrans lobbying — although the association announced in December that it will put more of its weight behind the reform campaign in the future. “In particular, we welcome an examination of a retransmission consent regime that is increasingly fractured and in need of some repair,” said Michael Powell, NCTA’s president-CEO, in a statement.

Much of what the ATVA wants from the FCC is spelled out in an Oct. 17, 2013, letter from Time Warner Cable to the agency. TWC said the FCC could prevent blackouts by prohibiting broadcasters from pulling signals during retrans disputes and by providing for binding arbitration.

TWC also asked the FCC to prohibit broadcasters from using joint sales or other sharing agreements to collaborate on retrans negotiations, and to prevent broadcasters from blocking a pay TV operator’s customers from accessing the broadcaster’s websites during a dispute. The websites often contain the same programming as the station, albeit on a delayed basis.

“The commission not only has broad statutory authority to adopt rules that more effectively protect the public interest, but a clear duty to do so,” TWC said.

The National Association of Broadcasters is hyper-aware of the threat to retrans posed by the cable interests. “We will continue to make the case — both to Congress and at the FCC — that any changes to retrans threatens the funding base that sustains local TV,” said the NAB’s Wharton.

But despite its vigilance, even some veteran broadcast lobbyists believe that the agency might crack down on broadcasters using shared services agreements to collaborate on retrans negotiations for multiple stations in a market.

The FCC’s Wheeler on Jan. 9 warned that SSAs, which broadcasters have been using routinely to control key aspects of multiple stations in the same market, will be coming under closer scrutiny at the FCC, and even the NCTA has previously endorsed the concept of preventing broadcasters from using sharing arrangements to collaborate on retrans deals.

If the FCC does crack down on broadcasters negotiating jointly, at least part of the credit will go to the American Cable Association, which has been sounding the alarm about joint negotiations for several years (see related story here), and has been challenging broadcast acquisitions that propose to set up sharing agreements to get around FCC rules that limit how many stations a single company can own in the same market.

Despite Walden’s warning that the satellite legislation was out of bounds for retrans reform, some analysts say reform proposals could be included in it if broadcasters open the door first by lobbying for a new law requiring online video distributions to abide by the same retrans rules as cable and satellite operators.

The broadcast industry is currently locked into a legal battle against Barry Diller’s online video distributor Aereo. Aereo’s technology provides consumers with online access to TV signals for monthly fee. Stations insist that Aereo is illegally ripping off their signals without paying retransmission fees. Some sources expect broadcasters to make a beeline for Capitol Hill if the courts rule in Aereo’s favor, and earlier this month, the Supreme Court agreed to review a key broadcast industry challenge to the legality of the service.

“If Aereo is declared legal, Congress is likely to look at retransmission consent, too,” says Paul Gallant, a telecom analyst for Guggenheim Securities.

As part of their PR campaign, pay TV industry executives have been telling federal regulators that they’re seeking only “targeted fixes” of the retransmission consent regs.

But NAB’s Wharton says the supposedly limited reforms being sought would, if approved, torpedo local broadcasting. “Standstill provisions, distant signal importation and mandated arbitration — these are assaults on the economics of local TV,” he says.

“Cable companies don’t like competition,” Wharton adds. “Their game is to end broadcasting as we know it. How? By eliminating a revenue stream that sustains local news, funds lifeline weather reporting and preserves marquee sports and entertainment programming on free TV for every American.”