Broadcasting Retransmission Battle Heats Up

Broadcasting Retransmission Battle Heats Up
November 4, 2010

New York City-area fans eager to view Major League Baseball’s October playoff games between the Philadelphia Phillies and New York Giants—not to mention the Fox hit television series House and Glee—were caught in yet another standoff between network content providers and the cable companies retransmitting the shows into viewers’ homes.

All told, three million New York-area viewers missed Fox programming during the 14-day blackout, which was finally resolved October 30. Details of the deal were not disclosed.

A press statement from the cable provider said, “Cablevision has agreed to pay Fox an unfair price for multiple channels of its programming including many in which our customers have little or no interest. Cablevision conceded because it does not think its customers should any longer be denied the Fox programs they wish to see."

The Cablevision statement specifically takes the Federal Communications Commission (FCC) to task for not intervening in the matter, and the cable industry advocacy group the American Television Alliance (ATVA) blames FCC regulations drafted in the 1960s and ’90s for laying the groundwork for the issue in the first place.

Marketplace Has Changed
The 1992 Cable Act granted Congressional approval for broadcasters to either provide their content for free (also known as the “must-carry” designation) or charge cable operators a retransmission fee. ATVA argues the act was written when cable companies had little competition from rival cable companies, the Internet, and satellite dish providers. ATVA argues the law needs revisiting to address these marketplace changes.

According to public statements made by Chairman Julius Genachowski and Commissioner Michael Copps, however, the FCC doesn’t possess authority to intervene in retransmission fee negotiations. Genachowski sent both parties letters indicating his desire the two conduct negotiations in “good faith.”

Should the FCC press for broadcast retransmission consent negotiation authority in the future, it would face “tough” legal challenges, according to an industry note by Concept Capital investment analyst Paul Gallant.

However, Sen. John Kerry (D-MA) announced in October he would introduce legislation before the end of the year to make negotiations between broadcasters and multichannel video programming distributors (MVPDs) such as Cablevision more transparent to the public. The draft bill would grant FCC regulators authority to evaluate negotiation offers from both parties and recommend arbitration. Should a blackout still occur, both companies would be required to release to the public the pertinent details of their respective offers.

Brinksmanship Over Contracts
The brinkmanship between broadcasters and MVPDs flared up earlier this year when New York City viewers missed the first several minutes of the Academy Awards because of a retransmission battle between Cablevision and an ABC affiliate.

At issue is money. MVPDs paid approximately $738 million in retransmission fees to broadcasters in 2009. That amount is projected to increase to as much as $1.6 billion by 2015. MVPDs say they have no choice but to increase the fees they charge their customers.

The conflict between MVPDs and broadcasters isn’t new, but the timing of the battle has changed.

“What’s going on here is that the broadcasters are negotiating new contracts. Whenever they do this, they try to time the negotiation of the contracts to some special event—e.g., the Oscars,” said Stephen R. Effros, president of Effros Communications and former head of the Cable Telecommunications Association.

“Congress has given local broadcasters the ability to provide free TV. But if you have to pay for it, free TV is no longer free. The broadcasters can withhold the retransmission rights if the cable company refuses to pay.”

Escalating Prices
Broadcasters have their own cost-containment problems. Production companies continue to increase their fees, particularly for programs with established audience appeal. That’s why some programs get cancelled even though they’re still popular—they cost the broadcaster so much they can’t bring an acceptable return on the advertising sold for them.

There’s no programming escalating faster in price than sports, as the National Football League, Major League Baseball, and other such organizations demand increasing fees for broadcast rights.

For their part, broadcasters often become entrenched in bidding wars to acquire rights for programming that won’t make money but which they see as important for network standing, Effros noted, adding broadcasters try to compensate by demanding higher fees from cable and satellite companies for the retransmission rights.

Consumer Annoyance
The cable and satellite companies bear the brunt of consumer anger about increases in MVPD service prices, whatever the reaons behind them.

According to the 2010 J. D. Power and Associates Residential Television Service Satisfaction study, consumer satisfaction with the cost of television service averaged 541 out of 1,000 in 2010, down 14 points from 555 in 2009.

Future battles between MVPDs and broadcasters might well push down satisfaction ratings further.

The only clear winners in the most recent skirmish are the watering holes where baseball fans flocked to watch the Giants clinch their first World Series on DirecTV.

The big apparent loser is Cablevision, which paid higher fees to resolve the issue while losing an estimated 8,000 paying customers.

Bruce Edward Walker
(bwalker@heartland.org) is managing editor of Infotech & Telecom News. Phil Britt (spenterprises@wowway.com) writes from South Holland, Illinois.
 
Internet Resources:

“Petition for FCC Rulemaking,” the American Television Alliance: http://www.heartland.org/infotech-news.org/article/28661/American_Television_Alliance_Petition_for_FCC_Rulemaking.html.

“Kerry Sends Draft Consumer Protection Legislation to FCC,” Sen. John Kerry Press Release and Letter to FCC Chairman Julius Genachowski: http://kerry.senate.gov/press/release/?id=84bcc1bf-c9dc-4893-9488-aedf56d8b953.

“2010 Residential Television Service Satisfaction Study,” J. D. Power and Associates: http://www.jdpower.com/Telecom/ratings/television-service-ratings/.