March 24, 2010
Why We Should Care About Retrans Part III: Regulation

This is the third installment in a series on TV retransmission fees. The introduction and first installment ran last week. In brief Disney, WABC's parent company demanded a per-subscriber retransmission fee from New York area cable provider, Cablevision. Cablevision thought the fee was too much. A messy public battle ensued and WABC disappeared from Cablevision at midnight on Sunday, March 7, night before the Oscars. If you want to learn more about retrans in general, check out this great article from Broadcasting & Cable.

Battles over retransmission consent are happening because federal regulations give broadcast TV stations the right to negotiate with cable providers for carriage. Must-carry and retrans are among those sticky legal issues--like copyright-- that were meant to protect individual, but have come in the digital age to be used as a tool against consumers.

There's some explanation required here. I'll try to make it as brief as possible and get to the good stuff.

Brief history of Must-Carry and Retransmission Regulations

  • "Must-Carry" regulations were first created in the 1970s to help smaller broadcasters survive against as cable TV came on the scene. These regulations made it mandatory for cable operators to dedicate channels for most major over-the-air stations in their designated market area (DMA).
  • The Consumer Protection and Competition Act of 1992 addressed must carry laws, allowing cable operators to drop redundant signals in their DMA. For example, cable providers wouldn't be required to carry two NBC affiliate stations in the same DMA.
  • In 1994, The FCC added the concept of "retransmission consent" to the mix. This meant that broadcasters had to agree to be carried by cable providers. This gave broadcasters the power to negotiate with cable providers.
  • Must-carry regulations have been challenged several times at the Supreme Court level, but they've been upheld.
  • The transition to digital television distribution hasn't had much of a consumer-facing effect on must-carry or retrans regulation.

Must-carry laws and retrans consent are two federal regulations that were originally created to protect small television broadcasters. While these laws still protect small broadcasters, they've also given more power to national networks and large holding companies.
This is because broadcast networks are owned by different entities in different markets across the country. Some stations are considered owned and operated (O&O) by national networks. This means that the stations are um... owned and operated by the national networks. Currently, O&Os are allowed to reach only 39% of the country. The remainder of the US is served by network affiliates, stations owned by independent parties who negotiate with national networks for programming.

The market isn't the same as it was when these regulations were passed. These regulations were created to level the playing field for stations and cable providers, but the balance of power has shifted toward networks for several reasons.

  • O&Os entered the mix and got way more out of retrans than local affiliates have. O&Os (like WABC) and broadcasting conglomerates like Sinclair, which owns 57 local network affiliates in 35 DMAs, have frequently used retrans negotiations to get cable providers to carry other stations they own. NBC used retrans to get carriage of MSNBC and CNBC. Fox, ABC, and CBS have also used retrans disputes to get carriage for their various cable holdings. While this bargaining power helps national networks and companies like Sinclair, local affiliates have no cable holdings to leverage against must carry laws.
  • O&Os aren't afraid to use their power.
    O&Os are not just using retrans to get carriage for their cable holdings. O&Os are now negotiating for retrans payments as we've seen with ABC, Fox, and CBS over the past few months. Networks know they have the upper hand because they can yank signal from cable providers. They're using that advantage to get per-subscriber fees from cable operators.
  • Cable monopolies aren't the only game in town any more.
    When must-carry laws were established, there was only one cable provider in most major markets. A local affiliate could go under if that one cable provider refused carriage. Similarly, retransmission consent was a way to protect stations from monopolistic cable providers. In many markets today, cable providers don't have monopoly power. As we saw in the case of WABC, cable subscribers are free to go with another cable provider, a satellite TV system, or a telecom TV subscription if a cable operator doesn't carry the stations.

Regulations that once protected small affiliates from monopolistic cable operators now give a sizable advantage to large national networks. As a result, cable operators have appealed to the FCC to change the situation. On March 9, only two days after WABC disappeared from Cablevision, the American Cable Association --an industry group for cable operators-- petitioned the FCC asking for some simple fixes to the Retrans laws. They really don't want much: they want the FCC to take an active role in arbitrating retrans disputes and for stations to keep the signal active as long as the broadcaster continues negotiating in "good faith." Most of the nation's cable operators signed this petition, but Comcast was notably absent. Comcast recently acquired NBC Universal and is expected to reap the benefits of retrans fees before long.

Even Massachusetts senator John Kerry has weighed in on the debate in his position as chairman of the Senate Communications Subcommittee. In a letter to FCC chairman Julius Genachowski, Kerry writes, "The result of these flawed incentives is consumer uncertainty, higher prices, and broadcasters using special events as leverage in negotiations."

Broadcasters weighed in with their own letter to the congress claiming that retrans regulations protect local broadcasters. The ball is now in the FCC's court.

Congress and the FCC need to step in before things get any worse. It would be one thing if this battle were happening in an unregulated market. But as it is, regulations made to level the playing field have instead created a minefield. As consumers, we can't trust broadcasters or cable operators to have our best interests at heart. That's why we have elected officials and regulatory agencies.

Must carry and retrans have been around for decades. These battles are happening now because both the broadcasting and cable industries are uncertain about their business models as distribution goes digital. They're trying to remain profitable any way they can. But that's fodder for another installment. As always, let me know what you think in the comments or tweet @shelila.


On March 24, 2010 at 3:38 PM, R Seles said:

I can't help but think the cable/broadcast business models might be made obsolete before they can change it. Look at the Record industry's distribution pipeline and the Postal Service. The technology leap frogged their businesses. What's going to happen when Apple and Google enter the space? Those guys are game changers!