Regulation killed the video star: toward a freer market in broadcast television.

• Author: Radia, Ryan

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. The Birth of Cable Television B. Statutory Copyright License for Broadcast Signal Retransmission C. Cable Act of 1992: Congress Establishes Retransmission Consent D. Similar Rules Govern Satellite Carriers III. MVPDS AND BROADCASTERS GO HEAD-TO-HEAD IN WASHINGTON A. Mandatory Carriage Requirement B. Network Non-Duplication and Syndication Exclusivity Rules C. How Broadcasters 'Earn" Their Retransmission Consent Rights IV. GOVERNING A PRO-COMPETITIVE, PRO-CONSUMER VIDEO MARKETPLACE A. The Case for a Level Playing Field in Video B. If Retransmission Consent Isn't Broken, Why Fix It? C. Simple Rules for Retransmission Consent: The Next Generation Television Marketplace Act V. CONCLUSION I. INTRODUCTION

On August 2, 2013, over three million American subscribers to Time Warner Cable lost access to CBS due to a business dispute between CBS Corporation and Time Warner Cable (TWC). (1) This disruption, also referred to as a "blackout," persisted until the companies reached a deal on September 2, 2013--just three days before the National Football League kicked off its 2013 season. (2) During the month-long blackout, TWC subscribers in eight major markets, including New York City and Los Angeles, could not receive their local CBS affiliate's signal through their cable provider. (3) Frustrated by the standoff, thousands of TWC subscribers flocked to Verizon's competing television service, FiOS. (4) TWC lost 306,000 net subscribers during the third quarter of 2013, marking a record quarterly loss for the company. (5)

This blackout is just one of several recent high-profile disputes in which a cable or satellite provider failed to reach an agreement with a broadcaster about how much to pay to redistribute its signal. (6) From 2006 to 2014, these payments from television providers to broadcasters, known as "retransmission fees," increased from $215 million (7) to $4.9 billion (8)--or over twenty percent of broadcast television stations' aggregate revenue. (9) Since 2001, retransmission disputes have caused over 100 blackouts, including seventy-three between 2010 and 2013.10 Given that the typical American adult spends thirty-eight hours each week watching live and time-shifted television, (11) viewers consider the loss of a popular channel quite disruptive. (12)

Americans' frustration with blackouts has drawn considerable attention in Washington, D.C. In recent years, congressional committees have held numerous hearings on television blackouts and surrounding issues. (13) Several members of Congress have introduced bills aimed at alleviating or preventing blackouts. (14) The Federal Communications Commission (FCC), the nation's primary telecommunications regulator, is also following the issue. (15) In August 2013, for instance, then-FCC Acting Chairwoman Mignon Clybum publicly expressed her disappointment with the TWC-CBS retransmission dispute. (16)

Lawmakers and regulators are focused on the statutory and regulatory provisions that govern how pay-television providers (17) retransmit broadcast television signals to their subscribers. (18) In Washington, the battle lines are drawn: on one side are broadcast networks and their affiliate stations; on the other side are multichannel video programming distributors (MVPDs)--an umbrella term that encompasses distributors of video programming through cable, fiber-optic lines, and direct broadcast satellite (DBS) companies. (19)

Most broadcasters affiliated with a major network are largely content with the existing rules, (20) under which a commercial broadcaster may, if it so elects, demand payment from an MVPD in consideration for permission to retransmit the station's signal. (21) If, after negotiating in good faith, (22) a broadcaster and an MVPD cannot agree on retransmission terms, the MVPD must cease retransmitting that station's signal--lest it incur a potentially severe FCC fine. (23) Under this system, blackouts happen on occasion, but network-affiliated broadcasters have largely succeeded in negotiating retransmission agreements with MVPDs--although retransmission fees have risen steadily in recent years. (24)

Many MVPDs, however, argue that the existing regime is skewed in favor of broadcasters, who supposedly overcharge pay-television providers--and, indirectly, their subscribers--for broadcast programming. (25) MVPDs claim that the increasing frequency of television blackouts and mounting retransmission fees are the side effects of an outdated regulatory framework that does not reflect today's hyper-competitive market for video distribution. (26) Moreover, MVPDs contend that broadcasters are insulated from competitive forces by unfair FCC rules. (27) These allegedly unfair rules include the protection of the exclusivity of syndicated programming (28) and the ban on MVPDs "duplicating" a network affiliate's signal--that is, offering their subscribers the signal of a network-affiliated broadcaster based in a distant community. (29) Many MVPDs also criticize the FCC's rule (30) that governs broadcasters' and MVPDs' statutory duty (31) to negotiate retransmission consent agreements with one another in "good faith." (32)

As broadcasters and MVPDs wrangle over video regulation, Americans are increasingly turning to non-traditional video platforms, fueled by speedy broadband networks and powerful mobile devices. (33) According to some observers, overhauling the laws and regulations that underlie television broadcasting is the legislative equivalent of rearranging the gramophones on the Titanic. (34) Despite the rise of online video services such as Netflix and Hulu, however, conventional television--including broadcast and cable networks--remains Americans' primary video source, accounting for over ninety percent of U.S. adult consumers' daily video viewing in 2014. (35) As cable networks such as AMC, USA, TBS, and FX have matured, the supremacy of broadcast television has faltered. (36) Nevertheless, most top-rated shows continue to air on broadcast networks, which collectively account for almost one-third of all prime time (37) television hours viewed. (38) Thus, lawmakers' renewed interest in broadcasting is justified, for the industry's future--and the broader video marketplace--depends in large part on the regime that governs the relationships between broadcasters and pay-television providers. (39)

Should lawmakers and regulators listen to MVPDs and act to fix today's supposedly broken retransmission regime? Or should officials instead follow broadcasters' advice and leave existing rules alone, allowing the video marketplace to continue on its current path? This Note evaluates these competing policy prescriptions and their implications for video consumers, concluding that neither MVPDs nor broadcasters have offered a compelling case for their preferred approach to governing the retransmission of broadcast television. Instead, this Note argues that Congress should amend the Communications Act to strip the FCC of the authority to regulate negotiations between MVPDs and broadcasters. In lieu of FCC oversight, this Note proposed that Congress amend the Copyright Act to confer on broadcast programming the same intellectual property rights that inhere in nearly all other types of original creative expression.

Part II of this Note chronicles the history of broadcaster-MVPD interactions, and describes how federal law has influenced this relationship. Part III critically evaluates both sets of incumbent firms' arguments about how to best regulate the video marketplace. Finally, Part IV harnesses the economic principles underlying modern competition and consumer protection law to identify several welfare-enhancing reforms to the regime that governs how MVPDs retransmit broadcast television signals.

In particular, this Note examines the deregulatory approach embodied in the Next Generation Television Marketplace Act (NGTMA), a bill introduced in Congress in 2011 and again in 2013, (40) NGTMA would overhaul the rules governing broadcast television, eliminating many of the ways in which broadcasters--and their transactions with other economic actors--are treated differently from most other creators and distributors of video programming. (41) Notably, NGTMA would repeal a controversial provision of the Communications Act (42) that requires an MVPD to secure permission--usually through a bilateral contract (43)--from a broadcaster whose television signal the MVPD wishes to retransmit to its subscribers. (44) At the same time, NGTMA would eliminate a longstanding exception to the Copyright Act that allows MVPDs to publicly perform broadcast television by paying a government-set fee--regardless of whether the copyright holders of these works consented. (45)

If so revised, U.S. copyright law would for the first time recognize full intellectual property rights in audiovisual programs aired on broadcast television. (46) Whereas broadcaster-MVPD negotiations are currently subject to various provisions in the Communications Act--as administered by the FCC--this bargaining would instead occur under the familiar Copyright Act were NGTMA enacted. Swapping out the legal regime that governs broadcaster-MVPD negotiations may seem insignificant or unnecessary. However, this Note concludes that video reform resembling NGTMA's approach would benefit consumers by fostering the successful market- oriented approach to television regulation that public policy has gravitated toward in recent years. (47)

2. Background

   1. The Birth of Cable Television

      From the 1930s through the 1950s, watching television meant tuning in to a radio signal broadcasted over the air on the electromagnetic spectrum. (48) In each major U.S. metropolitan area, or "television market," (49) a handful of stations typically broadcasted video programming over frequencies licensed to them by the FCC. (50) Many of these broadcasters were owned and operated by a national...