July 20, 2012
Latham & Watkins partner Matt Brill participated in a June 25, 2012, American Television Alliance (ATVA) discussion about the 1992 Cable Act, retransmission consent and how changes in the marketplace and technology are affecting negotiations today.
How have changes in the video programming industry undercut the effectiveness of the retransmission consent regime?
Brill: The biggest change during the past 20 years is the development of competition among video distributors. When Congress created the retransmission consent regime, it was largely a monopoly environment. Pay television consisted of cable, which had more than a 95 percent share of pay television households. There were no satellite or telephone company providers. And there wasn’t the Internet — so we didn’t have video services like YouTube, Hulu and Nexflix delivering video content to end users. With the development of all these platforms, broadcasters are no longer dependent on a cable operator in a local marketplace to reach customers.
What is the impact of the increased retransmission fees on cable television consumers?
Brill: As a result of all that competition, broadcasters are making far greater demands for retransmission consent compensation. The compensation was close to zero shortly after the 1992 Cable Act was enacted. Today it is more than a billion dollars annually and it is projected to climb to over 3 billion dollars in the next few years. All of those costs are passed through to consumers in the form of higher cable and satellite rates.
What abuses of the system are you seeing in today’s marketplace?
Brill: There has been a significant increase in blackouts. As broadcasters make these demands for higher fees, cable operators and satellite providers are increasingly resistant to paying huge increases in fees from one contract to the next. And those disputes have led to signals being dropped.
FOX was off the air during the World Series in NY and ABC was off the air during the Academy Awards. Broadcasters have tried to exploit these popular events as a means of extracting more and more compensation, and that has led to increased threats and more blackouts.
How has the bargaining power of cable operators diminished since the passing of the 1992 Cable Act?
Brill: It’s a function of two things — one is that the increase in competition means that broadcasters can play each distributor against the others. When you see a dispute today with a cable operator — the broadcaster will often encourage customers to go buy service from DIRECTV or DISH Network. That dynamic gives broadcasters significant leverage during negotiations.
The other major reason why broadcasters now exert greater control is that the legal rules were designed for a monopoly environment, and they are skewed heavily in broadcasters’ favor. Broadcasters have a number of rights under the FCC’s rules and the Communications Act — they can insist on carriage or elect retransmission consent. And they have territorial exclusivity, among other protections. Those monopoly-era protections for broadcasters give them enormous leverage, because pay TV distributors are severely constrained in their ability to deal with blackout threats.
What types of reforms are on the horizon?
Brill: Congress and the FCC are looking at potential reforms, and there are a lot of different ideas out there. Some argue for deregulation and getting rid of the special protections that the broadcasters have — while others argue for mediation or alternative dispute resolution and interim carriage from the FCC.
While parties may differ somewhat on their views about the ideal solution, there is a fairly broad consensus around the fact that the existing system is broken and needs to be fixed.