Congress: Don’t be misled by cable complaints on retransmission negotiations

You may hear cable companies declaring that “broadcasters hold all the cards” in retransmission consent negotiations, claiming that broadcasters’ fair compensation for their programming is the cause of higher consumer cable pricing.  Cable companies like to complain about the fees they pay broadcasters for the right to resell the most popular television programming.  What they don’t tell you is the real cause of higher consumer pricing: the amount they spend on other cable channels they force consumers to buy.  

Over the past three years, I have negotiated retransmission agreements with close to 500 cable companies large and small throughout the country.  Every negotiation has been cordial and often informative.  When cable companies are “off the record” and not lobbying Congress, most will admit that the root cause of rising consumer costs is not popular broadcaster programming but the high cost of overpriced and rarely watched cable channels. 

{mosads}The reality is that the broadcast channels receive less than 10 percent of all the amounts paid by cable companies for programming, despite providing almost all of the top 100 shows viewed by cable subscribers.  The few broadcast stations in each market have close to 45 percent of the television viewing each day despite the hundreds of channels available. The combined broadcast and cable programming market is estimated to be over $30 billion a year.  Common business sense would dictate that the providers of the highest ratings and the most in demand shows (i.e., broadcasters) would get the biggest portion of that pie.  But we don’t.  Because of pre-1992 regulation, cable companies have come to expect that they should pay broadcasters less than their fair value.  They want to continue to make money on the backs of the broadcasters without paying broadcasters a fair share. 

Who does get the bulk of this pie? Over 90 percent of your cable bill is for cable channels that you rarely watch.  Cable companies pay huge amounts for these channels and pass those costs on to the unaware consumer, who pays a large mark-up to bolster cable profits.  Cable companies negotiate with Disney/ABC for over ten channels (and ABC-owned broadcast stations in certain markets), Viacom for over ten channels, NBCU for over ten channels and Discovery for close to ten channels, and so on. These cable programmers continue to add channels that have little to no new or in-demand programming but add costs to consumers.  If cable companies want to reduce their programming costs, they should manage their programming costs better, shed channels that no one watches, and shift their budgets to more popular channels. 

In the close to 500 deals that I have negotiated, only one of those negotiations led to a blackout, and that was with Buckeye Cable for our NBC station in Toledo.  Blackouts rarely occur, but when they occur it is because a cable company refuses to pay market rates.  But that doesn’t mean that consumers are denied access to broadcast content.  Our content is always available to every consumer in a market over the air for free.  We don’t believe that only those with disposable income should have access to local news, weather, and emergency alerts. It is not the broadcasters that are fighting against a la carte programming.  If cable doesn’t like this bundling approach, then they should offer all channels a la carte.  We are confident that broadcast stations would be chosen first and foremost. 

Cable companies also complain about the network non-duplication rules, which prohibit a cable company from bringing in another network affiliate signal from a distant market in the event retransmission negotiations fail.   But these rules exist to reinforce the programming exclusivity for network content bargained and paid for in affiliation contracts.  This is necessary to protect the investments made in network programming and local news, traffic and weather to serve the public interest, a goal of the FCC.  For cable to request government to eliminate these rules would allow cable to circumvent privately negotiated exclusive content arrangements, and jeopardize the localism that broadcasters bring to their viewers.  If broadcasters already have as much leverage as the cable companies are complaining about, then why are broadcasters not receiving more than 10 percent of the total programming fees and not receiving royalty rates like ESPN (close to $6 a month)?  The issue is a red herring.   Don’t let them mislead you.

Cable companies also complain to Congress and the FCC that two broadcasters negotiating retrans jointly in a market have too much leverage.  Cable companies argue that joint negotiations cause unreasonably high retrans fees, but on the flip side they say that the same stations are not as valuable as cable channels.  Are we too valuable or are not valuable at all?  Multi-billion dollar public companies that provide cable to over 85% of the cable subscribers in this country do not need Congress’s assistance in negotiating programing deals.  Adding to this confusion is that the major cable programmers already negotiate for bundled programming in every single market in the country, but they want to limit broadcasters to one station per market in less than 40% of the country.  Somehow a broadcaster negotiating for a ABC and Fox in Charleston, WV is more detrimental than NBCU negotiating for MSNBC, CNBC, USA Network, the Golf Channel and other channels in every market in the country.  Don’t be misled by this lack of logic.

Broadcasters continue to serve the public by offering over-the-air television to millions of Americans for free, while investing billions of dollars into local economies.  Consumer cable prices are being driven up by overpriced cable channels not broadcast stations. Cable companies simply want the ability to continue to make huge profits by reselling our product and not have to pay us fair value.  Congress, do not be misled by the cable companies.

Gibber is legal counsel at the Sinclair Broadcasting Group, Inc.