Shut Down The FCC’s Retrans Rulemaking

I see that the cable and satellite folks were back at the FCC, beseeching officials for help in warding off broadcasters with their retrans demands.

Reps of the American Cable Association, Mediacom and Dish pressed their case for rules that would weaken broadcasters’ hand in retrans negotiations or to replace the negotiation with mandatory arbitration.

The pay TV reps went down a list of fixes and assured the FCC officials that the agency had sufficient legal authority to impose any or all.

They didn’t get to their fundamental arguments — why the FCC should be considering any regulation of the negotiations at all. But we’ve heard them all before: broadcasters are charging too much and putting downward pressure on MVPD TV margins and upward pressure on subscriber fees.

And because of the broadcasters’ greed, they contend, negotiations are breaking down, broadcast signals are going dark on cable and satellite and widows and orphans are missing out on the NFL.

I’m sympathetic toward the ACA members, small cable operators who are being squeezed simultaneously by broadcasters and by the big cable programmers such as Turner and Disney, but ultimately unpersuaded.

I’ll leave it to others to say whether the cable programmers’ demands are justified (see Robert Prather’s recent comments: Basic cable is “crap”). I know that broadcasters’ are.

The one incontrovertible fact is that broadcasters are being undervalued and underpaid for their signals — and they have always been undervalued and underpaid.

I make this point for the umpteenth time because the latest retrans numbers are out from SNL Kagan, a unit of S&P Global Intelligence.

Its research shows that retrans revenue will continue to grow by nearly a third, from $7.7 billion this year to $10.1 billion in 2019. Good money, yes, but still not enough based on the audience that the broadcasters draw.

Broadcasters account for perhaps a third cable’s TV audience, yet the $7.7 billion amounts to only 16.7% of the fees the MVPDs pay to the countless basic cable networks and regional sports networks. In 2019, despite that big jump in retrans fees, the broadcasters will still be getting only 18.7% of the pie.

Until the gap is closed, it’s broadcasters who will have the right to gripe, not cable. Until the gap is closed, there is no reason for the FCC to step in to “reform” retrans.

Knowing that it can’t win the value argument, cable’s principal tactic has been to bang away at the idea that the blackouts are harming the voting public.

Such blackouts don’t happen often, but when they do, the cable PR machine kicks in so you would think (as some policymakers apparently do) that this is a genuine national crisis.

At the S&P Global TV & Radio Summit a couple of weeks ago in New York, NAB President Gordon Smith said that this is the only argument cable has that has gotten any traction. Lawmakers who ordered the FCC to consider regulating retrans “hate it when there is any kind of blackout.”

Nonetheless, Smith didn’t seem overly concerned that the FCC would take action that might significantly impact broadcasters’ ability to meet S&P Global’s projections.

That’s a testament, I think, to the NAB’s incessantly reminding policymakers that the blackout problem is bogus. “Let’s be clear,” Smith dutifully reported, “99% of … [retrans disputes] are resolved without any kind of disruption.”

Broadcasters also benefit from an appreciable amount of goodwill on Capitol Hill for the local service they provide, Smith said. Lawmakers are reluctant to endorse anything that might harm them financially, he said.

Meanwhile, I think the FCC is on to the MVPD’s game of creating retrans confrontations and blackouts to get the attention of Washington policymakers. Dish, among the most confrontational, has just about exhausted any sympathy it may have once enjoyed. It doesn’t seem to be winning friends in its on-going dispute with Tribune Media.

Speaking at the S&P Global conference after Smith, ACA President Matt Polka said he remains hopeful the FCC would do something to provide relief to the MVPDs — an anti-bundling provision, a stand still requirement, a ban on online blocking, mandatory mediation, elimination of the network non-dupe and syndex rules, something.

But the clock is running out. As even Polka acknowledged, the FCC has a full plate and FCC Chairman Tom Wheeler is counting down his days in office. (Traditionally, the chairman has departed with the president who appointed him.)

The consensus among the Washington reps I spoke with this week is that if the FCC does anything, it won’t be much, nothing that will significantly impact SNL Kagan’s growth curve for retrans revenue. In other words, Smith’s cautious optimism is warranted.

I would urge the FCC to act quickly and remove of threat of material retrans regulation that have cast a shadow of uncertainty over publicly traded station groups.

Citing the SNL Kagan figures, the FCC should confirm the retrans status quo and make clear that it has no intention of interfering with the private marketplace at least until someone provides evidence that broadcasters are asking for more than their viewership entitles them to. Case closed.

P.S. Here are some more fun facts from our friends at SNL Kagan. In 2006, retrans accounted for 1% of station revenue. This year, the percentage will swell to 24%, and, in 2022, it will stand at 31%.

The average TV station’s retrans fee per sub per month will rise from $1.40 in 2016 to $2.21 by 2022. The average masks a wide range of fees that are being collected by individual station groups. It stretches from $1.59 (Nexstar) to $1.16 (Sinclair) to $0.60 (Tribune).

The CBS O&Os were most dependent on retrans, deriving 45% of its revenue from it in the first quarter. Univision (41.5%) and Nexstar (38.1%) were right behind CBS. Tribune, whose biggest stations are not Big Four affiliates, get just 18.4% of revenue from retrans.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.