Looking back at retransmission

Mar 4, 2002  •  Post A Comment

In 1992, broadcasters celebrated a major legislative victory: the retransmission consent regulations. Now from the distance of 10 years, many are wondering what all the cheering was about.
Under the regulations, included in a major rewrite of the cable TV law, broadcast stations thought they had just tapped the mother lode-the legal right to charge cable operators for their signals.
But a decade later, it appears the major parties to benefit from the regulations were the Big 4 TV networks.
For most broadcast stations, the rules have been a total bust. Cable system owners have fought the regulations from the start. Some cable programmers are also convinced that the regulations should be junked.
“Over-the-air broadcasting is being paralyzed by not having a second revenue stream,” said Alan Frank, CEO of Post-Newsweek Stations. “There’s going to have to be a way found to correct this imbalance.”
Added Henry Schleiff, Court TV chairman and CEO, “There is no question that it [retransmission consent] needs to be revisited.”
For broadcasters, the original pitch for the rules was simple. Their argument was that cable was building a huge business retransmitting broadcast signals for free, then using subscriber fees to create new channels that competed with the broadcasters for viewers and advertising. The new cable channels were steadily eroding broadcasting’s share-and even the ability to compete for some programming. So broadcasters said they needed a piece of cable’s revenue stream to level the competitive playing field.
A majority of lawmakers endorsed the broadcast industry’s cause, and legislation was approved that gave broadcasters the right to choose whether to demand carriage on local systems or negotiate for retransmission consent rights payments.
The majority of stations reportedly opted to negotiate retransmission rights after the law first went into effect. But industry officials said they were unaware of any broadcaster getting a significant payment.
The failure of the broadcast industry was all the more remarkable because Larry Tisch, then chief of CBS, was leading the industry charge for payment.
But that was before John Malone, the leader of Tele-Communications Inc., then the nation’s largest cable multiple system owner, announced that he wouldn’t pay. The rest of the cable TV industry soon rallied around the TCI chief, setting the scene for what threatened to become a major industry standoff.
Big networks benefit
But before broadcast signals disappeared from cable screens nationwide, News Corp. chief Rupert Murdoch broke the impasse with a face-saving deal in which he swapped retransmission rights for Fox stations to TCI in exchange for the cable MSO’s support of a new Fox cable channel, FX, along with a fee of 25 cents per subscriber.
ABC soon followed suit, trading retransmission rights for a new cable network of its own, ESPN2. NBC got America’s Talking, which later morphed into MSNBC, along with renewals for CNBC.
CBS got nothing in that first round, and the die was cast-the precedent was set against direct payment.
In subsequent negotiations, ABC, according to sources, used retransmission consent negotiations to launch Toon Disney and SoapNet, another pair of new basic cable networks, and to jack up carriage fees for Lifetime Television, an existing network that ABC parent The Walt Disney Co. co-owns with Hearst Corp. Even CBS reportedly used retransmission consent deals to improve cable distribution for its TNN and CMT: Country Music Television.
Some station groups hopped on the bandwagon to an extent, using the negotiations to launch local cable weather channels and other offerings in their markets.
In addition, group broadcaster and newspaper owner E.W. Scripps Co.’s Scripps Networks used retransmission consent to help leverage its Home & Garden Television and Food Network.
But by and large, broadcast station representatives said retransmission consent turned into a tool for the broadcast networks to beef up their presence in the cable industry, a tool that has hurt the interests of broadcasting by moving to cable funds from the networks that could have been used to improve broadcast programming.
“They [the networks] did create assets for the ’90s that appreciated, but not for the affiliates,” said Post-Newsweek’s Mr. Frank.
Financial disconnect
Still, at least some network officials said they’d prefer to be getting more out of the relationship.
“All broadcasters, including Fox as an owner of 30-odd stations, feel that broadcasters should extract economic value from carriage,” said Andrew Setos, president of engineering for Fox Group.
Jeff Smulyan, chairman and CEO of Emmis Communications, said the networks are also discovering that owning a cable channel or two in a digital world isn’t a key to Fort Knox.
“In a hundred-channel universe, very little gets watched very much,” Mr. Smulyan said. “The reality is it’s very difficult for anybody to have a lot of leverage now.”
At least some cable programmers are also concerned that the rules give the broadcast networks an unfair advantage in negotiating fees and other carriage terms for broadcast-owned networks.
Court TV’s Mr. Schleiff said the rule made it difficult for his network to grow because it gave broadcast network-owned cable networks an advantage in the marketplace.
Mr. Schleiff also said the fact that the broadcast networks may soon win deregulatory relief to buy more TV stations could give them even more clout with retransmission consent negotiations.
“I don’t know what the great demand for some certain networks has been other than they have been a reflection of the broadcast networks’ ability to demand them as part of the retransmission consent negotiation for distribution,” Mr. Schleiff said. “We have to go in, unfortunately, on the merits.”
From the perspective of some cable operators, meanwhile, the provisions have also given broadcasters an unfair edge in cable programming.
“What they did is use it [retransmission consent] to create billions of dollars of equity on the backs of operators,” said one cable TV industry source, who asked not to be identified.
This source also said the networks use the provisions to jack up rates for their networks-costs that ultimately are passed along to subscribers in the form of higher rates.
Marc Smith, a spokesman for the National Cable & Telecommunications Association, said the rules were “an unfortunate byproduct of the 1992 cable act, which allowed TV stations to demand compensation for cable carriage of broadcast signals that use the public airwaves and are otherwise distributed for free over the air. Since full-power TV broadcasters already are guaranteed cable must-carry and channel positioning rights, this is a heads-I-win/tails-you-lose proposition that favors the broadcast industry.”
What to do now?
But while the provisions appear to be under attack from all sides, there’s no consensus as to what to do about them.
At least behind the scenes, key cable operators make clear they would prefer to ax the regulations altogether.
David Smith, president and CEO of Sinclair Broadcast Group, is promoting the concept of winning an antitrust exemption that would allow broadcasters to negotiate as a group with local cable operators. He has also been advocating legislation that would simply establish carriage fees.
Greg Schmidt, LIN Television general counsel and VP for new development, said forcing cable operators to offer basic services on an a la carte basis might better address the problem.
Industry insiders said the prospects for any near-term fix are dim at best, because reopening the issue would set off a huge fight in the industry.
“We have a lot of issues before the [House Commerce] Committee this year, but that’s not one on our radar screen,” said Ken Johnson, a spokesman for Rep. Billy Tauzin, R-La.