Retrans Problems Worsen at Some MVPDs, But Broadcasters Say Costs Relatively Small

That there was a panel on retrans with no FCC order on the subject two years after ACA, Time Warner Cable and others sought changes to the rules doesn’t indicate much about when the commission will act, speakers said. “We're still in the early stages of understanding this marketplace,” with legislators and policymakers “still trying to understand the harms that happen in this market,” said ACA Vice President Ross Lieberman: “It’s going to reach a crisis, but I don’t think it’s reached it yet” and “Washington is often a lagging indicator of what’s going on in the marketplace.” Speakers on another panel last month said they don’t see the FCC finishing work on a retrans order anytime soon (CD Jan 27 p3).

"As far as the FCC goes, it’s hard to read anything into action or inaction,” said Vice President Joe Di Scipio of Fox TV Stations, speaking only for himself. “Our comments are fairly clear” in filings in docket 10-71, he said: “We think their ability to act is fairly circumscribed” and an early 2011 rulemaking notice said as much. The commission has “a lot of authority” under Section 325 of the Communications Act, and much has changed since the 1992 Cable Act allowed TV stations to charge pay-TV companies for carriage, said Time Warner Cable Vice President Cristina Pauze. “We're hopeful that there will be a review, but it’s a very complicated thing” because distant signal rules and compulsory copyright licenses are “built upon each other” on retrans, she said. “And it’s not very easy to separate the issues and pull them apart."

In the interim, multichannel video programming distributors face rising costs from mounting retrans fees, with some take-it-or-leave-it deals and retrans rising faster than any other programming cost including cable networks, cable executives said. “Whenever you have a big deal struck, that price becomes the floor for the next deal you're involved in, and there’s no way to really say no, other than to have a blackout,” Pauze said. “There is this underlying governmental structure that is outdated.” Di Scipio has successfully inked about 200 retrans deals at Fox, with the only dispute between that network and Cablevision in late 2010, he said. The company had 150 successful retrans deals at the end of 2011, so “I don’t know how you can argue the market doesn’t work,” Di Scipio said. The increase in content on multicast streams has made them an increasing focus of retrans negotiations in recent years, but besides price, the “hot-button issues” in deal talks haven’t changed much, he said.

ACA most wants to see an end to negotiations where two or more TV stations that are separately owned in the same market jointly negotiate retrans deals, Lieberman said. “When coordinated negotiations occur, it increases retransmission consent” payments by 20 percent to 100 percent among some ACA members, he said. “This is a legitimate problem that we believe the FCC should address” whether in the context of retrans or media ownership, so the “practice will stop,” he said. But some cable operators jointly negotiate carriage even though they're separately owned, including Time Warner Cable and Bright House Networks, said NAB Senior Vice President Erin Dozier. And Bright House is among the cable operators with dominant market share in some areas, she said. Among the issues teed up by the rulemaking notice, the one Time Warner Cable most hopes not to see become a rule is a requirement that Fox and some other broadcasters seek for MVPDs to tell subscribers of pending impasses, Pauze said. “The stations use it as notice against us -- all it does is put consumers in a jam,” since they don’t know for certain if a blackout will occur, she said.

Figures from publicly-traded MVPDs show “programming costs are on the decline relative to other key indicators” like selling, general and administrative expenses and total operating expenses, Dozier said. Monthly revenue per MVPD subscriber is rising “five times as fast as the programming expenses that are supposedly bankrupting these companies,” she said: “It just doesn’t bear out when you look at the data,” with retrans equal to about six-tenths of a percent of MVPDs’ annual revenue. It’s unfair to say retrans costs have skyrocketed in the past half-dozen or so years, because TV stations only began charging most MVPDs for carriage during that time, Di Scipio said. “You're starting at zero, or a couple of cents a subscriber, that’s not the right point,” he said of monthly fees starting around 2005. Industry researcher SNL Kagan figures all broadcast content accounts for several percent of a cable bill, which “seems pretty small to me,” he said.

"If you open up the books of any of my members,” retrans prices are double or triple versus several years ago, Lieberman said of ACA companies. “In the last couple of months, and for the rest of this year, we are going to see increases in costs” for packages like basic cable as a result, he said. “We've seen the number of blackouts increasing year over year,” with about a dozen in 2012, so “things are not getting better, they are getting worse” and some MVPDs are paying about $1 monthly per subscriber, Lieberman said. SNL Kagan estimates retrans payments have increased about sevenfold since 2007 to about $1.4 billion last year, Pauze said. Forty TV markets had a blackout last year, with Time Warner Cable in a continuing retrans impasse in Corpus Christi, Texas, she noted: Blackouts “are going to continue to happen.” The Cable Act was meant to stop “broadcasters from subsidizing their chief competitors” -- cable -- by giving them signals for free, and the addition of Verizon and other newer MVPD entrants doesn’t mean stations will say “'nah, I just don’t need them'” to distribute the programming, Dozier said. Verizon “is not some small, startup company,” though “it is entering a new business line,” she said. “What needs to happen is a look at the marketplace on both sides: The rise of regional clusters” of systems among cable operators, among other issues.