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Congress Is Tuning In to Revise TV Industry Rules

Industries battling over opposing policy goals is not uncommon in Washington. But few rivalries run deeper than the feud between the broadcasters and pay-TV providers over retransmission consent.

Raise the subject of retransmission consent and words such as “greed” and “collusion” are tossed around quickly. It is the most divisive policy issue within the TV industry — it’s also the most likely to shape a future where consumers can access the same video content through a variety of platforms.

Retransmission consent refers to the rates that cable or satellite companies pay local broadcast stations to carry their signals to subscribers. Under the 1992 Cable Act, broadcasters could elect to either force cable providers to carry their signal free of charge or enter into retransmission consent negotiations.

For more than a decade now, the “big four” broadcast stations (ABC, CBS, NBC and Fox) have chosen the negotiating table, and talks have grown increasingly contentious.

The most recent example came last month, when millions of Time Warner Cable subscribers in New York, Los Angeles and other markets lost access to local CBS-owned and -operated stations for 32 days. CBS had sought higher fees, and Time Warner yanked CBS stations from its lineup while the two sides struggled to reach a deal. When an accord was finally struck, most felt CBS had come out the winner.

To some experts, this was evidence that the pendulum of power had swung back toward the broadcasters. Such a shift would have been difficult to predict in 1992, when lawmakers created retransmission consent as a means to protect broadcasters from the perceived threat of the growing cable market, according to Jodie Griffin, a senior staff attorney at Public Knowledge, an open Internet and consumer advocacy group. To others, it was further evidence that the retransmission consent regime is broken.

“I applaud both companies for reaching an agreement, but unfortunately this is not the first time such a dispute has occurred, and it certainly won’t be the last,” Rep. Anna G. Eshoo, D-Calif., said at a House Energy and Commerce Subcommittee on Communications and Technology hearing last week.

“Some will say that legislating in this area is akin to picking sides or interferes with a retransmission consent mechanism that is working just fine,” she added. “The reality is that the data paints a very different picture.”

Eshoo, the panel’s senior Democrat, circulated a draft bill ahead of the hearing that would give the Federal Communications Commission explicit authority to step in during retransmission disputes to ensure that cable subscribers don’t lose access to broadcast stations.

Predictably, the broadcasters balked; pulling their signals during negotiations has proved one of the most effective tactics in ensuring they come out on top. CBS was able to more than double the amount it receives in fees per subscriber from Time Warner Cable, by some reports, and ensure that its new sports network, a potential cash cow, will also be carried.

Eshoo’s bill drew favorable comments at the hearing, where Rep. Steve Scalise, R-La., praised her for attempting to address the issue, despite some personal reservations about the bill. Scalise introduced legislation in 2011 that would repeal the retransmission consent law, along with a host of other TV regulations.

Still, while there is growing dissatisfaction on Capitol Hill with the current state of the TV industry, there remains little agreement on what should be done.

The broadcasters contend things are fine, noting the vast majority of retransmission negotiations are completed with little fanfare and no blackouts. They point out that broadcast programming, especially NFL and college football, is by far the highest-rated programming on television, that big cable companies are wildly profitable and that subscribers can still receive broadcast signals over the air by using an antenna.

“Nothing is more free market than retransmission consent. It simply says that somebody who takes somebody else’s product and resells it for a profit has to negotiate carriage rights for that product,” said Dennis Wharton, executive vice president for communications at the National Association of Broadcasters.

Wharton said many broadcast stations cost less per subscriber than cable channels such as TNT, whose lineup includes many reruns of broadcast programming. The rising cost of cable programming, particularly sports programming, has also come under political fire as of late, including from Sen. John McCain, R-Ariz., who has drawn increased attention for his long-term campaign to allow consumers to purchase channels a la carte.

But cable providers, particularly small and medium-sized cable providers such as those represented by the American Cable Association, say that the current retransmission consent regime gives broadcasters too much leverage. Ross Lieberman, ACA vice president of government affairs, said consumer desire for broadcast programming like sports, combined with political and economic pressure, means most cable providers have no choice but to submit to broadcasters’ demands in negotiations.

“When you’re negotiating with a broadcaster, they have too much leverage,” Lieberman said. He accused the broadcasters of growing “increasingly greedy in their demands for retransmission consent, with not only smaller but larger operators.”

Those larger cable operators, according to Lieberman, have more leverage to try to hold out during negotiations and the subsequent blackouts. But he suggested that the broadcasters’ approach might have been counter-productive, as it has drawn political scrutiny on their behavior.

“There’s evidence that the broadcasters are coordinating their negotiations. That’s a kind word for colluding,” Lieberman said.

The most obvious obstacle to any overhaul of retransmission consent is the highly consolidated nature of the TV industry as a whole. The six major media companies that control 90 percent of the U.S. media market include the parent companies of the four broadcasters (Comcast/NBCUniversal, News Corp., The Walt Disney Co. and CBS Corp./Viacom) as well as Time Warner, which previously controlled Time Warner Cable. All five of those companies own several cable channels and Comcast is also one of the country’s largest cable and broadband providers.

Because companies such as Comcast have a stake in both sides of the issue, the National Cable and Telecommunications Association, which typically represents the views of the cable industry on the Hill, is largely silent on retransmission consent. Instead, the leading voice for change is the American Television Alliance, whose members include the two major satellite providers (DISH Network and DirecTV), as well as Time Warner Cable.

Eshoo’s bill seems unlikely to gain steam for a variety of reasons, not least of which is the lingering influence that the broadcasters enjoy in Congress and with the public. A more likely vehicle for change would be the upcoming reauthorization of the 2010 Satellite Television Extension and Localism Act, portions of which are set to expire at the end of the year. That law allows satellite providers to carry out-of-market broadcast signals when they are unable to receive the local signal.

Subcommittee Chairman Greg Walden, R-Ore., has said he plans to circulate a draft reauthorization “no later than the first quarter of next year.” The cable and satellite industries have urged lawmakers to use the STELA reauthorization as a vehicle to overhaul retransmission consent. For that to happen, stakeholders must first overcome the primary factor governing telecom policy at present: lawmakers’ resistance to legislating in a dynamic and rapidly evolving market.

“Given these technological changes and the multitude of options available to American consumers, our laws should reflect the operation of the free market in a competitive environment,” Walden said at last week’s hearing. “Instead, we have a satellite law that finds its origins in ensuring access to content for a fledgling industry, a cable law that was passed when cable controlled over 90 percent of the video market, and broadcast rules that ignore the rise of alternatives to over-the-air reception.”

Most members agree with Walden’s stance that the Cable Act, STELA and other related laws are badly outdated.

To Republicans, that’s a reason to deregulate the video marketplace. To Democrats, the correct approach is to adjust regulations to ensure lower cost and greater flexibility for consumers. Both side are worried that any move they make will become immediately antiquated. That divide is perhaps even tougher to bridge than the chasm between pay-TV providers and the broadcasters.

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