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FCC Declines to Change Rules Governing Retrans Negotiations, Meaning More Blackouts for Pay-TV Customers

The battle over retransmission fees rages constantly between pay-TV companies and programmers. For decades now, broadcast networks and giant station groups like TEGNA and Sinclair Broadcasting and Tribune have been able to exact these fees from pay-TV providers for the privilege of carrying their programming, a safeguard put in place by Congress to make sure it was still profitable for broadcasters to exist (and, ostensibly, to protect their copyrights).

Pay TV providers—in particular, smaller, local cable companies—have long opposed these fees and the rancorous negotiations they engender, encouraging the FCC to change the rules that govern how those negotiations work. The FCC was expected to make those changes this year.

On July 14, the edict came down from FCC chairman Tom Wheeler: “Based on the staff’s careful review of the record, it is clear that more rules in this area are not what we need at this point. … So, today I announce that we will not proceed at this time to adopt additional rules governing good faith negotiations for retransmission consent.”

The lack of an official rule change means business as usual; but what’s good for the broadcaster isn’t as swell for the provider, and in the end, it’s the consumer who ends up losing.

As the advertising base of the traditional TV business model has started to show signs of wear, broadcasters have started seeking higher and higher “retrans” fees with each successive negotiation to make up for any potential shortfalls. CBS Corp. CEO Leslie Moonves has in recent years steered CBS’ revenue towards a heavier dependence on retrans, as opposed to advertising — the company took in $2.7 billion in affiliate and subscription fees in 2015, a 15% increase from 2014 that offset a 3% decline in advertising and a 2% decline in revenue from content licensing and distribution. Other networks are following in CBS’ footsteps.

And so over just the last 10 years, the total amount of retrans fees pay TV companies pay to broadcasters has increased nearly 40-fold, from $200 million to an estimated $7.7 billion in 2016, according to research firm SNL Kagan. By 2019, SNL Kagan expects that number to top $10 billion.

Naturally, providers end up passing on these increased costs to their customers. Per Time Warner Cable, the cost of broadcast channels in its lineup has increased 85 percent since 2013, thanks in part to a lengthy haggle with CBS that led to a monthlong blackout for TWC customers in New York, Los Angeles, and Dallas.

The oceans of cash at stake explain why the number of channel blackouts has been on an upswing that more closely resembles a hockey stick.

Blackouts, which happen when a programmer pulls its feed from a provider’s lineup after the expiration of a carriage deal, were formerly seen as the nuclear option. It was a tactic that resulted in a deluge of negative press and hordes of angry customers who didn’t care who was at fault—the network or the cable company—they simply wanted their TV. By one count, there were more than 190 blackouts in 2015. (Hard figures on station blackouts are hard to come by, as some are localized, or between smaller entities, or only last a few hours, and so go unreported.)

Satellite provider Dish Network has gotten itself a reputation for being a bit of a daredevil when it comes to retrans and carriage negotiations, resulting in several high-profile blackouts, including 2012’s three-month spat with AMC Networks, 2014’s Fox News brouhaha, and a currently ongoing battle with Tribune Broadcasting Co.

Dish has had to play the situation this way; it’s far more dependent on its TV customers than its pay TV competition, since it doesn’t have a true internet service offering. And it’s suffered more losses than its competitors as a result: In the first three months of 2016, a quarter in which most pay TV companies saw some growth, it lost 23,000 TV customers.

Consumers have seen their cable bills rise prodigiously over the last several years, generally to the tune of 8% or more, as more and more programmers have sought to offset rising production costs and slight advertising decreases. As a result, more customers look to cut or shave their TV bundles, requiring their providers to make up for that shortfall somehow — or else risk Wall Street’s wrath — and the whole cycle turns vicious.

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