The FCC’s Retrans Coin Is Up In The Air

In my interview with him this week, CBS CEO Les Moonves more or less dismisses the possibility that the FCC will rewrite its retransmission consent rules this fall to make it tougher for CBS and other broadcasters to continue winning significant increases in fees with every contract renewal. Cable is doing just fine, he said, even though it is now paying out billions to broadcasters.

Moonves could hardly have told me otherwise.

At an Investor Day conference in New York, he had just promised investors and analysts that by 2020 CBS would take in $2.5 billion a year from retrans and reverse comp, essentially a hefty share of affiliates’ retrans revenue. That’s $1.7 billion more than CBS got in 2015 and $500 million than it had previously been promising by 2020.  

“Every retrans deal is better than the one before and every reverse comp deal is too,” he said.

Retrans/reverse comp is the biggest of CBS’s ”four pillars” of growth over the next five years. If it crumbles, the whole edifice gets wobbly.

Currently, the FCC is taking a hands-off approach to retrans, requiring only that the parties negotiate in good faith, which doesn’t mean much right now.

At the prodding of cable and satellite interests, Congress last year ordered the FCC to look at its retrans rules and see if something needs fixing. The FCC dutifully complied last September, launching a rulemaking that should be ripe for action this summer or fall.

I can’t tell you where the FCC will end up on this issue, but I can tell you that the cable and satellite operators are working hard to win some relief. And they have a different view than Moonves of how things are going at the FCC.

Their efforts may be best personified by Bob Gessner, owner of a single small cable system serving some 50,000 subscribers in Massillon, Ohio.

He sees how much the escalating retrans fees he pays to carry the Cleveland TV stations are contributing to his overall programming costs, pushing up subscribers fees and causing some erosion of the subscriber roll.

As chairman of the American Cable Association of small operators, he has been active in making cable’s case for relief in the form of new rules that would diminish broadcasters’ leverage in retrans negotiations.

And, contrary to Moonves, he is confident that the FCC will act to provide that relief.

From his visits to the FCC, Gessner told me that FCC Chairman Tom Wheeler “is seriously planning to move forward with changes to existing good-faith rules that will provide some more teeth, and provide some more benefit to consumers

“That’s really what it comes down to,” Gessner said. “The FCC has the ability to add more points to the good-faith rules, to try to avoid more of the historic number of broadcast blackouts that we’ve seen over the past few years. And that’s his interest as well as ours, to see fewer blackouts, and consumers taken out of the middle of these negotiations.”

The retrans reformers use the blackouts that occur when negotiations hit a impasse as their basic public interest arguments. Broadcaster counter that blackouts are a canard because they are so few and far between.

Gessner wants the FCC to declare that broadcasters are acting in bad father if they:

• Bundle retrans with rights to regional cable sports networks. This one seems aimed at Fox since it’s the only broadcaster with regional sports nets.

• Refuse to substantiate bargaining claims. “If you’re going to make claims that you’re the top-rated station, or that everybody else is paying a rate, prove it,” Gessner said.

• Blackout online programming that duplicates what’s on the station.  In its titanic retrans battle with Time Warner Cable in the summer of 2013, CBS blocked access to its programming to ratchet up the pressure on the cable operator. I don’t know how determinative that tactic was, but CBS eventually won the day.

• Blackout, or even threaten to blackout, a signal just prior to a marquee programming event like the Super Bowl or Oscars.

• Invoke “after-acquired” provisions. Such provisions enable large station groups with blanket retrans deals to demand the same — invariably higher — payments for every station they acquire. “You have to agree to pay rates, terms and conditions, about a station you know nothing about,” Gessner said.

In a petition to deny the merger of Nexstar and Media General, the ACA put another scheme for curtailing rising retrans fee on the table — baseball-style arbitration. If the parties can’t come to a number, they go to a arbitrator. Each side presents a number it is willing to accept and the arbitrator would pick.

It would take the FCC to mandate arbitration, Gessner said. Broadcasters would never willingly agree to it, even if the arbitrator is required to base his decision on ratings.

Gessner said that he has been through this in negotiating with the regional sports nets.

“In a year, when the team does really well, they’ll come to me and say, we got a winning team. We’re worth more. In a year when the team is doing poorly, they will come to me and say, we need to rebuild the team, so you should pay us more.

“It’s always, you should pay us more. Nobody’s ever willing to say, my content stinks in the last few years, so you should pay me less. They’ll never agree to that.”

I should note that another anti-retrans idea is still rattling around the FCC — the elimination of the syndex and network non-duplication rules, which would make it easier for cable and satellite operators to import a distant broadcast affiliate if they can’t make a deal with the local affiliate.

On his own motion, Wheeler tried to move on that last year, but was frustrated by Commissioner Mignon Clyburn, who uncharacteristically denied him his necessary third vote. It could re-emerge in the swapping of votes that goes on all the time at the FCC.

Like many political prognosticators you see on the cable networks, I suspect that Moonves and Gessner are not actually telling me what they believe will happen at the FCC so much as they are saying what they want to happen.

My point is nobody today know what will happen, maybe not even Wheeler himself. In any case, Moonves and Gessner can’t both be right.

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