In 1992, Congress amended the Communications Act to give local broadcast stations the right to choose between guaranteed carriage (“must carry”) or to insist that multichannel video programming distributors (“MVPDs”) obtain – and potentially pay for – a station’s consent to retransmit the station to subscribers in its local market (“retransmission consent”). The law allows broadcasters to make a new election between these two options every three years.
The broadcast industry’s demand for the right to withhold permission for their signals to be carried represented a turnabout from their traditional insistence that, as a matter of public policy, local stations should be accorded a regulatory guarantee of carriage (known as “must carry”). Broadcasters historically sought to ensure that local stations would be available to all of the viewers in the communities the stations were licensed to serve. And, because cable carriage extends the geographic reach of over-the-air television stations and provides for consistently good quality reception not available with a rooftop antenna or rabbit ears, mandated carriage helped to foster growth in the number of broadcast stations available to the public.
But, after nearly 30 years of relying on must carry to build audiences, the broadcasters convinced Congress that retransmission consent was necessary to save “free” television and to ensure a diverse array of broadcast stations. In fact, retransmission consent is elected only by the most popular television stations and does not provide any benefit to smaller, independent stations.
From the outset, the cable industry expressed concerns that giving broadcasters the right to block the retransmission of their signals by MVPDs would create undue leverage for the broadcasters, and ultimately harm consumers by leading to the disruption of service, and to increases in the cost of service. In addition, the motion picture industry voiced concern that granting broadcasters a retransmission consent right was inconsistent with the cable compulsory copyright license, which was adopted in 1976 in order to guarantee that cable subscribers would have uninterrupted access to broadcast programming.
The congressional response to these concerns was twofold:
Although cable operators generally resisted broadcaster demands for cash compensation on the grounds that the programming was available “off-air” for free and that paying for local signals that had long been carried by the operator would increase consumer costs with no accompanying increase in consumer value, some operators and broadcasters entered into retransmission consent agreements that provided for the carriage of one or more new channels of non-broadcast programming created by the broadcaster.
As broadcasters began transmitting over-the-air HDTV signals, carriage of those signals (at a time when relatively few consumers were HDTV equipped) sometimes became part of the consideration for retransmission consent for carriage of a station’s analog signal.
In other cases, operators would agree to purchase advertising time or to provide other forms of marketing support to the broadcaster.
Recently, stations affiliated with the “Big Four” networks (ABC, CBS, NBC and FOX), and those stations actually owned by these networks (commonly referred to as owned and operated stations or “O&Os”), have insisted on exorbitant cash payments for carriage of their local signals. Facing the prospect of losing the broadcast signal in its entirety, MVPDs have little choice but to capitulate, even if it means higher rates for subscribers.
When the retransmission consent regime was adopted in 1992, cable operators were the only entities offering multichannel video service to subscribers in most locations. Much has changed since that time, and today consumers typically can receive multichannel video service not only from a cable operator, but also from two different DBS companies and, increasingly, from a well-funded telco-video provider. As a result of this increase in competition at the retail level, each broadcaster in a local market can play one MVPD against the other, threatening to withhold consent for its signal if its demands are not met. The broadcaster in these scenarios often encourages competing MVPDs to advertise the service disruption of its competitor and encourages consumers to switch their MVPD provider to avoid any service interuption. Unlike many competitive marketplaces, the unique nature of some Big Four programming and the fact that consumers typically receive all of their video programming from a single MVPD, rather than simultaneously obtaining different products from different vendors, leads to rapidly escalating costs to the consumer in the form of higher fees for retransmission consent rights.
In addition, broadcasters now can own more stations nationally due to relaxation in media ownership rules, and station owners have increasingly entered into local marketing arrangements that allow a single broadcaster to leverage the retransmission consent rights of multiple stations in the same community. These trends, which have been facilitated by government rules and policies, give broadcasters enormous leverage which they then use to force MVPDs to meet their demands.
On the other hand, MVPDs have no other options when it comes to negotiating with the local station. Regulatory obstacles, including network non-duplication and syndicated exclusivity rules, impede MVPDs from negotiating with network affiliates in neighboring markets as a way of reducing the local station’s leverage.
Furthermore, in recent years, when negotiations have reached an impasse, the FCC has not stepped in to prevent signals from being dropped – through interim carriage or other measures – even when a complaint has been filed. Either the FCC does not believe it has the authority to act, or it is reluctant to exercise that authority. In either event, MVPDs are left with no recourse when faced with the irreconcilable dilemma of choosing between paying exorbitant fees for broadcast signals or risk losing those signals altogether.
Given the changed circumstances in the market since 1992, it would be appropriate to initiate a comprehensive review of the retransmission consent regime to determine whether changes are necessary to protect consumers from the threat of service disruptions and increasing video service prices driven by programming costs.