Battle lines forming over retransmission consent process
Battle lines over the FCC’s retransmission consent process are forming in Washington once again as the deadline in the next high-profile broadcaster vs. cable operator showdown approaches.
The Sept. 2 contract expiration of Disney’s carriage agreement with Time Warner Cable has accelerated lobbying efforts on the part of cable, satellite and telco operators to push for an overhaul of the FCC’s retrans rule that stipulates negotiations between broadcasters and subscription TV providers on carriage agreements for local station signals.
Disney’s deal with Time Warner Cable includes retrans rights for ABC O&Os in New York; Los Angeles; Toledo, Ohio; and Raleigh-Durham, N.C. The situation is an echo of the contentious negotiations between Time Warner Cable and Fox over retrans rights that went down to the wire on New Year’s day. Disney also had a scuffle in March with Cablevision over retrans rights for WABC-TV New York that led to the station going dark for nearly a day, up through the first few minutes of the March 7 Oscarcast on ABC.
The Disney-Time Warner Cable talks are complicated by the fact that the overarching agreement includes carriage agreements for the Mouse’s fleet of cablers, including ESPN, Disney Channel and their numerous offshoots.
As was the case with Fox, Disney is looking for significant coin in exchange for retrans rights for the four ABC O&Os. Broadcasters in the past two years have stepped up their demands for fees in the neighborhood of 50¢-$1 per subscriber in retrans talks with cable and satellite operators. In the past, larger broadcast owners like Disney were willing to horse-trade retrans rights for O&Os for carriage of new cable channels or promotional consideration. But with the ad market hammered by the recession, station owners large and small began pushing hard for sub fees commensurate with the coin commanded by prominent basic cablers like TNT or USA Network.
Broadcasters’ biggest point of leverage in retrans talks is the ability to pull their signals from a cable, satellite or telco operator’s lineup if an agreement can’t be reached — which means subscribers suddenly lose access to a widely viewed channel. A clutch of subscription TV operators filed a petition with the FCC in March on the heels of the Disney-Cablevision battle calling for an overhaul that would significantly limit broadcasters’ ability to yank their signals while negotiations were ongoing.
The group that filed the petition has since organized into a more formal coalition dubbed American Television Alliance and has stepped up its outreach to Congress and the FCC. Its 31 members include Time Warner Cable, Charter Communications, the American Cable Assn. (which reps smaller operators), satcasters DirecTV and Dish Network and telcos AT&T and Verizon.
Conspicuously absent is the nation’s largest cable operator, Comcast Corp. Comcast at present is in the crosshairs of the retrans fight as it is awaiting federal approval of its merger with NBC Universal, which will give control of 26 NBC and Telemundo O&Os to its empire and put the company on both sides of the debate.
The FCC is in the midst of reviewing the slew of public comments that were filed in response to the March petition and has yet to set a course for further action on the retrans issue.
The plan proposed by American Television Alliance calls on the FCC to act as a kind of mediator to determine whether good-faith negotiations are in fact taking place if a broadcaster threatens to yank a signal. FCC chairman Julius Genachowski has indicated that he is reluctant to put the FCC in a position of refereeing private business disputes.
Meanwhile, there has been activity on Capitol Hill among some legislators looking to prod the FCC to take action on retrans with a notice of rulemaking. Rep. Steve Israel (D-N.Y.) and Rep. Peter King (R-N.Y.) circulated a letter to congressional colleagues last Friday asking them to nudge the FCC. The congressional reps have cast the retrans fights as a consumer issue, calling the retrans regulations adopted in 1992 “outdated.”
Cable and satellite operators argue that the retrans rules were put in place to protect local stations in an era when cable had an iron-clad monopoly on the subscription TV market — and broadcast ownership was much more diverse. Now, the largest broadcast groups can play cable operators off of their satellite and telco competitors in threatening to pull their signals. The operators also maintain that higher programming prices lead to higher rates for consumers.
“The real losers under the existing retransmission consent system are television viewers, who either lose access to broadcast programming or must bear the increased cost of such programming in the form of higher cable and satellite rates,” the Israel-King letter says.
The Israel-King letter brought a swift response on Monday from the broadcast lobby, which noted pointedly that “the fees paid to broadcasters by cable companies under the retransmission consent system are not charity.” The letter emphasized that broadcasters need new sources of revenue to maintain their local newsgathering operations and to help pay for pricey primetime programming. It was signed by execs from Disney, CBS, News Corp., NBC U, Univision and the National Assn. of Broadcasters.
Broadcasters also hammer the point that despite the plethora of channels on cable and satellite lineups, Big Four network affiliates remain among the most-watched channels by far, and thus, are worthy of compensation from operators who profit handsomely from reselling their signals.
“The notion that Time Warner (Cable) and its big pay-TV allies are part of a group designed ‘to protect consumers’ is about as credible as BP executives joining Greenpeace,” NAB exec veep Dennis Wharton quipped last week in response to the launch of the American Television Alliance.
No matter what becomes of the lobbying flurry, it’s highly unlikely that retrans rules will be changed in time to affect the Disney-Time Warner Cable negotiations. While the sides have been exchanging proposals for weeks, there’s little doubt that the dealmaking will go down to the wire — just as Fox and Time Warner only came to a deal after a marathon 36-hour negotiating session.
It’s understood that in addition to retrans coin for its O&Os, Disney is seeking fee hikes for its cablers. ESPN is already at the top of the cable programming heap in commanding carriage fees of around $4 per sub — which is at least $2 more than other basic channels. Disney Channel and its sibling channels are looking for solid gains as a result of their strong performance in recent years with a slew of original hit skeins.
Time Warner Cable has already taken the step of warning its viewers with on-air crawl messages that Disney-owned channels are at risk as a result of the contract negotiations. To make its case to viewers, Time Warner also revived the RollOverOrGetTough.com website that it launched in the thick of the Fox battle in December. The site spells out how higher programming costs for broadcast stations and other channels leave them little choice but to raise rates.
Disney responded on Friday with its own website, IHaveChoices.com. It aims to refute Time Warner’s economic analysis in detail, questioning the rationale for wholesale programming cost hikes as a driver of retail rates when programming costs account for about one-third of the largest operators’ expenditures. And in a FAQ titled “What’s Going on with Time Warner?,” it suggests that subscribers consider other options for subscription TV service such as DirecTV or AT&T’s U-Verse service.
Reps for Disney and Time Warner Cable declined to comment.