Broadcasters’ Basic Tier, Bundling, and Sidecar Claims Perfectly Illustrate “Free Market” Dishonesty

TV broadcasters frequently claim they support the “free market” and that retransmission consent is the “free market” at work. But nothing could be further from the truth. Broadcasters are lobbying to keep negotiations heavily in their favor. When they lobby to keep “basic tier” mandates, protect bundling, and prevent any rules that would prohibit “sidecar” ownership arrangements, their hypocrisy is exposed. They don’t want a free market; their business depends on decades-old government regulations in their favor.

Here’s how they contradict their own “free market” claims:

Basic Tier Mandates

The government requires cable operators to carry local broadcast TV stations on the “basic tier,” meaning the most basic cable package must carry these stations. In recent weeks, the House of Representatives has floated a proposal to eliminate this requirement as part of the reauthorization of the Satellite Television Extension and Localism Act (STELA).

Here’s how the TV broadcasters responded:

Only in Washington would the word ‘reform’ be associated with a proposal that would restrict consumer access to vital local TV channels and result in more price gouging by pay-TV providers.

Broadcasters make this argument while they claim that broadcast TV is “always on” and “free.” If a broadcasters’ signal is always available to consumers over-the-air, then eliminating the basic tier requirement would not “restrict consumer access.” That would be true if cable was the only way consumers could get these stations.

Broadcasters know 90% of Americans watch their programming through pay-TV providers, so the basic tier enables them to get as many viewers as possible. (Direct-broadcast services like DISH or DirecTV are not required to show local TV stations on the basic tier, proving that broadcasting won’t end without this requirement.)

Broadcasters continue to raise retransmission consent fees – they’re projected to collect over $25 billion in the next five years. Why should the government mandate that cable TV customers pay for “free” broadcast TV networks?

Bundling/Tying

Broadcasters frequently complain that their networks are more popular than cable channels but receive lower fees from pay TV providers. However, broadcasters often own several cable networks and leverage them in retransmission consent negotiations.

When the 1992 Cable Act was passed, the Big Four (via their respective parent companies) owned 4 cable networks. Today, they own at least 104 – a 2500% increase. Broadcast networks now have a slew of cable networks they can “tie” to carriage of the broadcast networks cable companies must carry.

For instance, during the retransmission consent dispute between CBS and Time Warner Cable, CBS tied carriage of its local broadcast stations to Showtime and The Movie Channel. Viewers interested in Showtime or their local CBS station were all blacked out.

This is absurd. Broadcasters use the leverage from the government for serving the “public interest” to drive up fees for both local affiliates and cable networks. It once again illustrates that their “free market” claims are fiction.

Joint Sales Agreements (JSAs) and “Sidecar” Arrangements

“Sidecar” business arrangements allow broadcasters to own more than one television station in a local market. They typically consist of joint sales agreements (JSAs) and/or share services agreements (SSAs,) and allow broadcasters to skirt federal laws designed to promote competition, diversity and localism.

Here’s how the American Cable Association told RBR.com these arrangements work:

1)      Large broadcaster acquires a Big Four station in a designated market area (DMA).

2)      Nominally separate, but closely affiliated company of the large broadcaster (e.g., company controlled by family member, close business associate) – a “sidecar” company – acquires another Big Four station in that same DMA.

3)      The large broadcaster and sidecar enter into a JSA or SSA that, among other provisions, permits the large broadcaster to negotiate retransmission consent fees on behalf of the sidecar’s Big Four station.

4)      The large broadcaster can now extract greater retransmission consent fees from local cable operators because it can threaten to blackout two or more Big Four stations – its own and the sidecar’s station.

In February, the Department of Justice told the FCC that “such arrangements often confer influence or control of one broadcast competitor over another.” It added that “failure to account for the effects of such arrangements can create opportunities to circumvent FCC ownership limits and the goals those limits are intended to advance.”

”Sidecars” often result in lost jobs, reduced diversity of voices, and less commitment to localism. A 2012 Pew Research Center report found that since 2005, local news coverage of government and politics is down 50%. A 2011 FCC report found that 21% of commercial TV stations don’t air any local news at all and 33% air 30 minute or less of local news.

These arrangements punish consumers by allowing broadcaster collusion to drive up retransmission consent fees, and by effectively eliminating the localism retransmission consent fees were supposed to encourage.

Broadcasters argue that they should be allowed to continue to collude because otherwise, many local TV stations would shutter their doors.

In her March 12 testimony before House Communications and Technology Subcommittee, NAB Board Member Marci Burdick, who also is Senior VP of Schurz Communications, stated:

“We’re governed basically under ownership regs that were enacted in 1970…The world has changed. In 1970, most broadcast networks were being paid by their networks to distribute the product. And in small and medium markets, that was basically their profit. That has gone away. And so the world has changed, with people competing with us for advertising dollars, which supports 90% of our costs – 90% of our revenue in local broadcasting comes from advertising – as that pie is sliced even thinner, the rules have not kept up. And so, in fact, broadcasters like Schurz have entered into some of these agreements…”

In other words, TV broadcasters are losing advertising dollars, so the government should allow them to collude in negotiations and operations. In her written testimony, Burdick admits that “to ignore the market pressures facing broadcasting would doom us to the fate of newspapers.”

It’s fine for broadcasters to ask for special treatment. It’s disingenuous and deceitful to proclaim that retransmission consent negotiations – particularly when “sidecars” are involved – take place in the “free market.”