Cable companies are at war again. It’s the consumers that suffer.
Every few months, business reporters tasked with covering the world of telecommunications find their time occupied with news of a carriage dispute between a television broadcaster and a large cable or satellite company. Often these spats impact large metropolitan areas, such as last year’s month-long bickerfest between CBS Corporation and Time Warner Cable (soon to be owned by Comcast) that briefly caused the removal of eight local CBS stations in cities like New York, Los Angeles and Dallas.
The disputes are almost always caused by broadcasters demanding more money from pay TV companies in exchange for “retransmission rights,” the privilege of carrying one or more channels owned by the broadcaster. Disputes are almost always settled when the pay TV company agrees to bend to the will of the broadcasters, and consumers expect that the costs will eventually trickle down to them in the form of higher cable/satellite bills (terms of these agreements are almost never disclosed).
Though disputes are becoming more frequent, there’s a small window of time when everything seems right in the world of broadcast television. But that’s only because you’re not hearing about the ones happening in middle America — for smaller cable operators, they’re an ongoing headache.
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That’s what Rocco Commisso, Chairman and Chief Executive Officer of Mediacom Communications, stated in a March 2015 letter to then-FCC chairman Julius Genachowski. At the time of his letter, Commisso said retransmission disputes had caused programming blackouts in 20 television markets.
“[Retransmission] disputes involving large pay television providers and major markets such as New York, Boston and Miami may be the ones that get attention from the national media,” Commisso wrote, “but millions of customers who live in smaller communities are being aversely (sic) impacted by [the disputes] on a daily basis.”
One of the reasons for such disputes: companies that own competing television stations in smaller markets often banded together to negotiate retransmission rights. This practice, known as a “joint retransmission negotiation,” drove up the rate Mediacom and other pay TV companies were forced to pay to retransmit broadcast channels.
In his letter, Commisso urged the FCC to regulate how broadcasters in smaller markets come together to negotiate retransmission fees. Two years later, Commisso’s call has been answered.
On Thursday, FCC Chairman Tom Wheeler proposed a new rule that would effectively end the practice of stations creating retransmission alliances when dealing with pay TV companies on the issue of retransmission rights.
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There was a time when cable companies were forced to carry local TV stations, a rule known as “must-carry.” That changed in 1992 when Congress passed the Cable Television Protection and Competition Act, giving broadcasters the option to wave “must-carry” and instead demand cable companies pay them for Re-transmission rights.
Two decades ago, lawmakers and regulators likely did not anticipate that competing broadcasters would form an alliance to gang up on cable companies over re-transmission fees. “Congress intended for retransmission consent agreements to be hammered out through one-on-one negotiations,” Wheeler wrote, adding that since 2005, cable companies have been asked to pay between $28 million and $2.4 billion for the right to retransmit local television stations.
Under Wheeler’s proposal, the four highest-rated television stations in a single market would not be allowed to collectively negotiate re transmission rights with cable companies. “This action will return re-transmission consent to one-on-one negotiations as intended by Congress, rather than many against one — with potential consequences for the consumer as one who ultimately pays the price,” Wheeler wrote.
The National Association of Broadcasters, an advocacy group for local TV stations, said in a statement that it was “disappointed” by Wheeler’s proposition, saying the move would kill jobs and stifle investment.
“Coincidentally, two industries would benefit from today’s proposal: Big Cable companies who want less competition for advertising in local markets, and wireless companies who support punitive FCC actions that drive more TV stations into spectrum auctions.”
A coincidence because Wheeler, prior to joining the FCC, worked as a lobbyist for the cable TV industry. At least one cable company, Charter Communications, has already thrown their support behind Wheeler’s proposal.
“Chairman Wheeler’s proposal is a sensible way to ensure consumers are not held hostage by unfair collusion by broadcasters,” a Charter spokesperson said in a statement released on Tuesday. “We applaud this action and wholeheartedly support the efforts of the FCC to address this issue in a way that will directly and positively impact consumers.”
But Wheeler’s proposal wouldn’t halt the type of disputes that make national headlines. The “Big Four” networks (ABC, NBC, CBS, FOX) own most of the local TV stations in large metropolitan markets like New York, Los Angeles and Chicago, and they often engage in the kind of one-on-one negotiations that Wheeler seems to favor.
Instead of “joint retransmission agreements,” which are strategically and financially unnecessary for them, the Big Four leverage their robust portfolio of top-tier cable channels by threatening to yank those channels as well as local stations if cable companies don’t agree to pay higher fees. When Time Warner Cable rejected CBS’s demand for more money last August, CBS responded by removing eight local TV stations from Time Warner’s system along with CBS Sports Network, Showtime and The Movie Channel.
Time Warner Cable ended the feud a month later in part due to customer demand for Showtime and CBS’s broadcast rights to NFL programming. For the cable company, it was hardly a victory.
“We are doing everything possible to control programming costs,” Time Warner Cable said after the fight with CBS ended. “The honest answer is that when we have to pay a lot more, it will have a long-term impact on customers’ bills.”