TV

Will Congress Enter the Fray Over Pay TV Blackouts?


ESPN anchors Stuart Scott, Trent Dilfer and Steve Young, from left, on Sept. 17, 2012, in Atlanta

Photograph by Pouya Dianat/AP Images

ESPN anchors Stuart Scott, Trent Dilfer and Steve Young, from left, on Sept. 17, 2012, in Atlanta

The month-long blackout of CBS (CBS) programming on Time Warner Cable (TWC) in several major cities irritated millions of television viewers. Pay television players such as TWC, Dish Network (DISH) and Cox Communications are now lobbying for Congress to step in and stop these blackouts.

They’re hoping to gain leverage in negotiations over how much they’ll have to pay for the right to carry programs from content companies, including CBS, ESPN (DIS), Viacom (VIA), and 21st Century Fox (FOXA). These “retransmission fees” are expected to top $3 billion this year. Networks insist they’re essential to their revenue growth; cable companies complain they’re too high and that the cable companies have little power to stop them from getting higher. “The rules are woefully out of date, are the primary reason cable bills are rising, and too frequently leave our customers without the programming they love,” Time Warner Cable Chief Executive Glenn Britt said in a statement after the CBS dispute ended.

Broadcasters say Congress has no compelling reason to get involved in private commercial transactions. “We do not think it is an accident that nearly 90 percent of the disruptions in recent years were caused by Dish, Time Warner Cable, and DirecTV (DTV),” says Gerry Waldron, an attorney at Covington & Burling in Washington, who represents the National Association of Broadcasters and several individual broadcasters. “We think this is is a manufactured crisis. The vast majority of the time, the deals get done.”

Four proposals are floating about the House and Senate that could serve as a vehicle for such action if Congress does decide to wade in:

The Satellite Television Extension and Localism Act

This law, known as STELA, dates to 2004 and gives satellite companies a license to provide local TV stations, just as cable operators do. The current law is set to expire at the end of 2014, with most observers calling its reauthorization a near certainty. The debate is mainly over how “clean” the STELA reauthorization bill will be as it emerges from the legislative process, with the pay TV companies urging lawmakers to address the issue of retransmission disputes. Broadcasters are working for a “clean” bill, written narrowly to address the satellite companies’ immediate needs. “There’s nothing clean about the current retransmission system,” says Brian Frederick, a spokesman for the American Television Alliance, a coalition of pay-TV companies. Two House committees held hearings on the law this week. A final bill and vote are expected next year.

Video CHOICE (Consumers Have Options in Choosing Entertainment)

Representative Anna Eshoo, a Democrat who represents much of Silicon Valley, introduced this bill Sept. 9 aimed at ending blackouts. “Recurring TV blackouts, including the 91 U.S. markets impacted in 2012, have made it abundantly clear that the FCC needs explicit statutory authority to intervene when retransmission disputes break down,” Eshoo said in a press release. (The FCC gets involved now only if one party accuses the other of negotiating in bad faith.) The bill would unbundle broadcast stations from a cable package and prohibit a broadcaster from requiring a pay TV operator to take affiliated cable channels to obtain more popular channels. That issue is at the heart of why Cablevision (CVC) sued Viacom in February, following a contentious negotiation.

Eshoo’s bill would also require the FCC to study programming costs for sports networks in the top 20 regional sports markets. The rising fees for sports programming—led by ESPN—is considered one of the major influences behind rising cable bills and the power that content creators such as Disney hold in negotiations. Cable companies have praised Eshoo’s bill, while broadcasters are not fans. Don’t expect to see it get far in a Republican-led House.

Television Consumer Freedom Act of 2013

This bill, introduced in May by Senator John McCain (R-Ariz.), would end the long era of the cable television bundle, that phenomenon by which you pay for hundreds of channels and find yourself watching only about two dozen, or fewer. This summer, Connecticut Senator Richard Blumenthal signed on as a Democratic co-sponsor, but there’s been no similar sponsors on the House side. Blumenthal explained his support of the bill in an August interview with the Hollywood Reporter:

“What I hear from cable consumers overwhelmingly is, ‘give us freedom of choice. Don’t make us pay for something we don’t want and won’t watch. Why am I paying for—you name a channel you don’t like or five or ten or them—just so I can watch the one I do want.’ That’s overwhelmingly the sentiment of people who buy this product. So this bill just gives voice and force to that sentiment.”

But while millions of cable TV subscribers may hate the bundle, that system has been very lucrative for decades. And while pundits have predicted the rise of “à la carte” TV pricing at various times, over many years, that model has never gained traction or been devised in a way that all the important parties would sign on. Sure, the Internet may change the whole pay TV universe—but then again, the bundle’s death has been called, wrongly, so many times that it’s become a virtual zombie.

Next Generation Television Marketplace Act

This bill from Representative Steve Scalise, a Louisiana Republican, and former South Carolina Senator Jim DeMint, also a Republican, dates to December 2011 and would deregulate the entire television market, top to bottom. It would repeal compulsory copyright licenses, the legal mechanism by which content owners are required to let pay TV companies carry their programs, if they are paid a fee for the content. The bill, which would also dismantle the system of retransmission fees, is essentially an exercise in carrying free-market ideology to its logical conclusion. The problem? It would require a countless number of individual deal negotiations—any radio or television station that wanted to carry programming (i.e., all of them)—would need to strike deals with every programmer, yielding an inefficient system that would likely prove unworkable. Lawyers would love the bill, but don’t expect it ever to pass Congress.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • CBS
    (CBS Corp)
    • $61.35 USD
    • -0.45
    • -0.73%
  • TWC
    (Time Warner Cable Inc)
    • $148.88 USD
    • 0.33
    • 0.22%
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