Technology & Freedom

TV watching dollars at stake in complex policy battle

TV watching dollars at stake in complex policy battle

Broadcast television stations have a complicated relationship with cable and satellite television providers. A broadcast TV station is beaming its content into space, where it can be freely received and viewed by anyone with a suitable antenna. But the good old days of “rabbit ears,” wired into television consoles that could be used as furniture, are long behind us. Most people get their TV feed from cable or satellite companies now… and they’ve got the rabbit ears.

Local broadcast stations have always felt they deserved compensation when the pay-TV industry “re-transmits” their content—essentially repackaging work they grabbed out of the sky for free, and selling it for a profit. In the early ’90s, Congress created a legal framework around the concept of “retransmission consent.” In essence, this means broadcasters must consent to the retransmission of their content by cable, satellite, and telecom providers.

Naturally, broadcasters expect to be paid for granting their consent. The production of television programming is a costly process, involving expensive equipment and labor.

A massive regulatory apparatus grew around retransmission consent, while technology marched onward. Video programming is now routinely watched on computers, and even tiny smart phones. The pay-TV industry believes the current rules are slanted in favor of broadcasters.

Pay-TV providers are required to purchase certain broadcast programming in their area. Negotiations with broadcasters are regulated in a way that negotiations with cable TV stations, such as the History Channel or Discovery Channel, are not. Negotiations have occasionally broken down, leading to rare instances of content blackouts by certain pay-TV providers.

Broadcasters counter that emergency information and public-affairs programming are vital community services, and most viewers simply don’t have the equipment to easily receive those signals over the air any longer—consumers are largely dependent on their cable, satellite, or telecom provider. Also, without the revenue from retransmission fees, it would become impossible for local broadcast stations to continue providing the expensive round-the-clock news and weather services viewers rely upon.

Local broadcasters find it difficult to compete with big cable networks for national advertising dollars, making them more dependent on retransmission fees. Those fees have increased nearly 700 percent over the past five years, from $215 million in 2006 to $1.5 billion in 2011. Pay-TV providers say consumer rates for cable and satellite services have been driven up accordingly. However, the fees paid to basic cable networks are, collectively, much higher, and they’ve increased dramatically as well—from $16 billion to more than $26.5 billion in the same period.

Pay-TV provider competition rises

One key issue in this dispute is the rise of substantial competition among pay-TV providers. In 1992, when the current regulatory regime was conceived, many cable TV companies had an effective monopoly in their service areas. Now there is vibrant competition between cable, satellite and telecom providers. This gives local broadcasters more leverage when they threaten to black out a particular provider.

At the end of 2011, Sen. Jim DeMint (R-S.C.) and Rep. Steve Scalise (R-LA) introduced the Next Generation Television Marketplace Act, which would remove the “must-carry” mandates, repeal ownership limitations imposed on local media operators, and most significantly remove the “retransmission consent” regulations. Instead, a de-regulated environment in which pay-TV providers pay for the use of copyrighted material would prevail.

“What we now have is a complex web of outdated regulations that must be addressed comprehensively and cannot be dealt with individually, in isolation from one another,” explained DeMint. Scalise added, “The government should not be in the business of picking winners and losers, and the Next Generation Television Marketplace Act ensures that by removing the heavy hand of government, the market is free to operate in a way that continues to benefit consumers and encourage innovation.”

The National Association of Broadcasters counters that existing regulations have created a competitive environment for negotiations, rather than distorting it: “These negotiations are fair and market-driven, and there is no need to change the process that Congress established and has worked well for nearly two decades. Eliminating broadcasters’ ability to negotiate for the value of broadcast signals would mean less choice for viewers and fewer dollars for stations to dedicate to local news, public affairs programming, coverage of emergency weather events and community activities.”

Dennis Wharton, NAB executive vice president, said the industry fears “compulsory copyright” provisions in the DeMint-Scalise bill would not be sufficient to allow broadcasters to secure an equitable fee for their content, and might not even survive the legislative process at all. If Congress ended up doing nothing more than eliminating retransmission consent protections, the days of pay-TV providers repackaging expensive broadcast content at little or no cost might return. “It’s the most anti-free-market idea to come along in a long time,” he said, describing an environment in which cable and satellite companies could “profit from the sale of content they don’t own, and didn’t pay for.”

Remove antique FCC regulations

Wharton did, however, speak favorably of the Next Generation Television Marketplace Act’s measures to remove antique FCC regulations against broadcast companies purchasing newspaper outlets, which date from a 1960s era in which only three TV networks existed. This could provide rescue for struggling newspapers.

Retransmission is a complex issue, and the battle lines are a little blurry. Notably, the American Conservative Union, which favors portions of DeMint and Scalise’s de-regulatory bill, is not comfortable with completely stripping away the concept of retransmission consent. ACU chairman Al Cardenas wrote in March, “The reality is that today we have a functioning market in which opposing parties are able to bring value to the negotiating table. By stripping away the right to compensation for the use of the signal the government would be tipping the scales heavily to the side of the pay-TV companies. It would distort the marketplace and allow an uncompensated use of broadcast signals and content and is certainly not ‘deregulation.’”

The debate rages on, largely unnoticed by television viewers, who tend to take a great deal of what they see for granted. But local TV stations are not just a desk, a couple of monitors, and a van with a big antennae on top; cable television providers consist of more than a little control room surrounded by satellite dishes; and the cost of packing our big-screen TVs with thousands of hours of content is far greater than many of us realize.

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