Providing Local Content to Rural America

This fall we can look forward to a big battle in Congress over the rules regulating cable TV. The rules that govern the rights of satellite TV providers to carry local network affiliates (ABC, CBS, NBC, and FOX) will be expiring. If Congress takes no action it’s possible that local networks could disappear from satellite cable lineups.

In 2014 Congress passed the STELAR Act (Satellite Television Extension and Localism Act Reauthorization). This legislation allowed satellite providers to deliver distant network stations into rural markets rather than having to negotiate with individual stations in every market. This has acted to hold down satellite TV costs since it makes local stations agreeable to negotiate fees with the satellite providers at reasonable fees.

This is a big contrast to the way that landline cable networks have to pay for local programming. In the 1992 Cable Act, Congress enacted the idea of retransmission consent. These rules were intended to protect local network affiliates since many cable companies at the time were electing to not add local stations channels to their line-ups. The 1992 Act made it mandatory for cable companies to carry local networks, and for the most part, they did so for free.

However, over the last decade, as local stations were losing advertising revenues, they have stepped up charges to cable companies to carry their signal. The fees for access to local network affiliates in most markets has skyrocketed and contributes $10 – $12 per month towards the cost of cable TV bills in most markets (in a few a lot more).

There is a lot of pressure on Congress to look at the whole retransmission issue while they are considering the STELAR renewal for satellite companies. Congress hasn’t made any significant regulatory changes for the cable industry since the 1992 Act and the industry has changed drastically in the last few years.

Just looking back to 2014 when the STELAR act was passed, online content providers like Netflix represented only 2% of the industry. Today there is a slew of online content providers and there are now more households buying online content than subscribing to traditional cable packages. With cord-cutting, the numbers are shifting drastically, with the latest figures trending towards traditional cable losing as much as 5% of total market share this year.

We are also seeing escalating battles over carriage of content. There were 213 blackouts in the industry as of the end of July, contrasted with 165 blackouts for last year. Last month a battle between AT&T and CBS caused those channels to go dark. There has been a running battle between Dish Networks and Univision this year. It’s becoming obvious that the cable companies are no longer willing to automatically accept huge rate increases from local network affiliates.

It’s a classic battle of huge companies. Cable companies are pushing to break the required nature of retransmission consent rules that require them to carry local stations – that rule gives cable companies almost no negotiating power. Meanwhile, the big networks like ABC and CBS have been benefitting from the retransmission revenues. While these fees are theoretically paid to local stations, the parent networks sweep most of this money into their own coffers. The network owners are pushing hard to keep the retransmission consent rules intact.

Most local stations now charge between $2 and $3 monthly to cable companies for every customer that receives their signal. It’s an interesting dynamic because a majority of people could instead get this content for free through the use of rabbit ears. Additionally, most of the national content from the big networks is available online – it’s not hard to find ways to watch the shows from CBS or NBC. The big monthly retransmission fees only add local programming like news and local sports to cable subscribers.

The cord-cutting phenomenon tells us that many households are willing to walk away from local programming if it saves them money. I was in a meeting last with ten people, and not one of them watches local news and local programming. The big question facing Congress is how relevant local content is to most households. There are many people who still love local news and local sports, but that universe keeps shrinking as households are deluged with content alternatives. Expect to hear lots of rhetoric this fall as both sides rachet up arguments for Congress.

 

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