The Fight Over Retransmission Consent

There has been a quiet legislative battle brewing in Congress all year concerning the renewing of STELAR (Satellite Television Extension and Localism Act Reauthorization). This is a bill that comes up for renewal every five years. The original bill in 1988 was intended to make sure that rural customers got access to major network television. We lived in a different world in 1988 and it was a technical challenge for satellite providers to get access to local network affiliates (ABC, CBS, FOX, NBC, and PBS) across the country and to broadcast those signals into the appropriate local markets. The original STELA legislation allowed the satellite companies to import network channels from other markets. Without the law, in 1988 numerous rural markets would have lost the ability to watch the major networks.

Of course, Congress loves to tack riders into legislation and the STELA legislation became the primary vehicle for updating the retransmission rules for all broadcasters and cable companies. The fight over the renewal of the legislation has been fierce this year since retransmission consent is the biggest issue of contention between broadcasters and cable TV providers.

Retransmission fees have exploded over the last decade. The average local network station now typically charges cable companies a fee of $3 – $4 per viewer for the right to retransmit their content on cable networks. Not too many years ago this was done for free.

It’s not hard to understand the motivation for the broadcast industry. Advertising revenues are in freefall due to cord-cutting and due to the proliferation of web advertising using Google and Facebook. Retransmission fees are a way for broadcasters to fill the coffers and replace that lost revenue. Interestingly, though, most of the retransmission revenue ends up at the big corporations that own the network channels. I’ve talked to local network station owners who say that their corporate parents suck away most of the retransmission revenues in the form of fees to continue with the network franchise. At the end of the day, most of the retransmission revenues end up with the parent companies of ABC (Disney), CBS (CBS Corporation), FOX (FOX Corporation), and NBC (Comcast).

There is no question that retransmission fees are hurting the public because they have been one of the primary drivers (along with sports programming) for ongoing substantial rate increases.  The average cable subscriber is now paying between $12 and $15 per month for the right to view network channels on their cable system. These are the fees that many cable companies have been hiding in something like a ‘broadcast fee’ to allow them to still advertise a low price for basic cable.

Like with many of the most contentious issues, the fight is largely about money. With the current number of cable customers around 85 million, retransmission fees are generating $12 to $14 billion per year. However, if you read the comments of the two sides of the issues you would think the argument was fully about protecting the consumer. Many of the arguments being made are about stopping blackouts – which occur when broadcasters and cable companies can’t agree on the fees and conditions for buying programming. If the issue was really about the consumer then Congress would be talking about capping retransmission fees or at least limiting the annual increase of the fees.

To some degree, the issue transcends cord-cutting. Anybody buying an online service that includes the major networks is also paying some version of these same fees. That’s one of the primary reasons why the prices of the only TV-equivalent services have been rising. Online services have more flexibility because they are not required to carry any specific programming. However, once a service decides to carry the four major networks, they are somewhat at the mercy of the broadcasters. As an example, I currently subscribe to Playstation Vue which carriers the same local network affiliates that I would also get from Charter. One has to imagine that the fees charged to Playstation Vue are similar to what is being charged to the local cable company.

The way to know this is a huge issue is because the industry has created organizations focused on this one issue. For example, most of the cable companies other than Comcast (who is on the opposite side for this issue) have created the American Television Alliance to lobby against certain provisions of the bill. If you look at their website it looks like it’s a consumer-friendly site, but the members are largely the big cable companies. This is a bogus lobbying organization created solely to lobby on this legislation.

The legislation was introduced in July as the Modern Television Act of 2019. The five-year clock on the last legislation expires soon, but in 2014 the legislation was passed many months after the expiration date. It doesn’t look likely for the latest legislation to pass on time.

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