When silence isn't golden: analogizing the FCC's discontinuance regulations to prevent retransmission consent blackouts.

• Author: Noteware, Rachel

Table of Contents I. INTRODUCTION II. BACKGROUND A. Policy Basis and Evolution of Retransmission Consent Negotiations 1. The Problem with Retransmission Consent: Imbalanced Negotiations 2. The Case Made by Broadcasters for Increased Retransmission Consent Fees 3. The Case Made by MVPDs that Increased Fees and Blackouts Hurt Consumers B. Regulating Retransmission Consent Negotiations: the Good Faith Standard 1. FCC Efforts at Strengthening Good Faith Standards a. MVPD Response to the FCC's Proposed Strengthened Good Faith Standards b. Broadcasters 'Response to FCC's Proposed Strengthened Good Faith Standards 2. Legislative Proposals to Strengthen the FCC's Enforcement Powers in Retransmission Consent Negotiations C. Discontinuance Rules: An Alternative Framework to Discourage Blackouts III. ANALYSIS A. Proposed FCC and Congressional Reforms May Not Be Realistic or Robust Enough to Prevent Blackouts B. The FCC Can and Should Intervene to Prevent Future Blackouts IV. CONCLUSION I. INTRODUCTION

Most cable customers would find it unfathomable that they could fail to receive local weather warnings due to an impasse in negotiations between local broadcasters and cable providers. Yet as more retransmission consent negotiations between broadcasters and cable companies fail to result in an agreement, blackouts of local networks for cable customers will become more frequent, resulting in the loss of local programming for a large cross-section of the community who no longer rely on over-the-air TV signals.

Blackouts have reached an all-time high in recent years, having affected viewers in 91 markets in 2012, almost twice the number of blackouts in 2011. (1) In 2013, there were 19 (2) publicized instances of broadcast negotiation impasses that resulted in blackouts of 94 stations. (3) And while broadcasters are quick to point out that most of the 15,000 retransmission disputes from 2009-2012 were resolved without a blackout, (4) the increase in lengthy blackouts suggests that the possibility of being without critical local programming is not an impossibility. In fact, as broadcasters and cable companies consolidate, deeper pockets on both sides will allow parties to dig in their heels to withstand longer blackouts in the future. (5) The 32 days during which CBS was blacked out on Time Warner Cable in August 2013 affected more than three million cable customers and had the potential to prevent local weather warnings from reaching cable subscribers in Dallas, Los Angeles, New York City, and five other markets. (6) During the blackout, wildfires raged in Colorado just a few hours from Denver, one of the affected markets. (7)

Blackouts were not always the looming threat in negotiations between broadcasters and cable providers that they are now. Congress created the retransmission consent regime for a television market in which broadcasters and cable providers had equal leverage. (8) Cable operators were regional monopolies, with typically only one or two cable companies controlling access to multichannel video programming in each region. (9) Broadcast stations had exclusive regional access to network programming, including high-value sports and entertainment content. (10) This original balance of power no longer exists. Today, four or more multichannel video programming distributors (MVPDs) serve many markets, but broadcasters continue to enjoy exclusive access to network programming. (11) Also, the 1992 Cable Act includes no provision for network-owned stations that also own powerful cable channels. (12) These network-owned and operated stations can use their market power from cable holdings as well as network programming to influence retransmission consent fees. (13)

While the market has changed in recent years, the governmental interest in ensuring public access to local broadcast content from diverse sources remains the same. This compelling interest demonstrates the need for greater oversight of good faith in retransmission consent negotiations. Congress charged the Federal Communications Commission (FCC) with overseeing retransmission consent negotiations, (14) and increasingly-frequent blackouts from failed negotiations suggest a need to reexamine the enforcement approach. The policy framework for a stronger enforcement approach can be found in other FCC rules regarding service disruptions that are based on a similar policy rationale.

This note explores how the FCC's policies regarding stations that violate minimum operating schedules by discontinuing service can apply to broadcasters who willingly discontinue broadcasts to MVPD customers during blackouts. Part II discusses, first, the original purposes of retransmission consent and its evolution over time; and second, FCC and legislative efforts to reform retransmission consent negotiations and prevent blackouts. Part III turns to the FCC's rules and policies surrounding discontinuance of service and how enforcement mechanisms in this arena may be wielded against voluntary disruptions of service in retransmission consent negotiation breakdowns. Ultimately, the note concludes that the FCC should uphold the public interest policies that underlie retransmission consent regulations by adopting the intervention framework for discontinuances in the context of voluntary blackouts.

2. BACKGROUND

   Retransmission consent is a statutory creation of Congress that requires cable systems to obtain the consent of broadcast stations prior to retransmission of the signal. This requirement, which had applied to broadcasters who sought to use the programming of other stations since 1934, was made applicable to cable systems in 1992 because the absence of this requirement was thought to be distorting the video marketplace and threatening the future of over-the-air television broadcasting. (15) Congress found that cable operators benefitted from the local broadcast signals that they were able to carry without broadcaster consent or copyright liability, and legislators adopted retransmission consent to remedy the unfairness to broadcasters. (16) As the video programming market has developed and competition among MVPDs has grown, the disparity between the bargaining positions of MVPDs and broadcasters has increased. While broadcasters have a fair argument that their content is the most demanded and valuable, MVPDs suggest that consumers are harmed by rising costs and blackouts.

   1. Policy Basis and Evolution of Retransmission Consent Negotiations

      Since 1934, broadcast stations that use the programming of other broadcast stations have been required to obtain the prior consent of the originating station. (17) In response to the perceived threat that cable monopolies posed to the governmental interests in preserving free over-the-air local broadcasting and promoting dissemination of information from a multiplicity of sources (18), Congress applied "must-carry" and retransmission consent rules to cable systems as a part of the 1992 Cable Act. (19) Must-carry rules allow broadcasters with less popular programming (that cable providers might decline to carry) to elect mandatory, non- compensated carriage on each cable system operating within its service area. (20) Alternatively, under retransmission consent, broadcasters with popular programming can elect to negotiate a rate of compensation with local cable systems for the right to retransmit the broadcaster's signal. (21) This signal right is recognized as a quasi- property right distinct from copyright licenses, as the local broadcaster is usually not the copyright holder for network programming. (22) Rather, the separate licensing for retransmission consent was designed to promote the availability of broadcast signals. (23)

      Congress adopted must-carry and retransmission consent rules to foster localism and diversity. At the time of the Cable Act's adoption, the number of over-the-air broadcast consumers was on the decline, but Congress did not draft the legislation solely to protect a minimum of broadcast service for those who could not afford cable. (24) In Turner Broadcasting Systems, Inc. v. FCC, the Supreme Court upheld the constitutionality of must-carry rules, noting that the "greatest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public." (25) Congress declared one of the goals of the Cable Act to be ensuring the continuation of the local origination of broadcast programming--otherwise known as "localism"--for over-the-air and cable viewers. (26)

      1. Imbalanced Negotiations: The Problem with Retransmission Consent

         In the early years of the Cable Act, retransmission consent battles were few, as most stations elected for must-carry status. (27) Stations that negotiated for retransmission consent often chose in-kind compensation, such as agreements to carry a broadcaster's affiliated cable network in exchange for signal carriage. (28) The regulations governing retransmission mitigated the leverage of local cable monopolies to give broadcasters sufficient clout to negotiate and preserve access to local broadcast stations. (29)

         As competition developed among MVPDs, their bargaining power decreased and retransmission consent allowed broadcasters to demand higher rates of compensation. Due to the proliferation of video programming distribution options, cable companies' market shares have fallen steadily from 95 percent in 1994 to roughly 55 percent today. (30) If a cable provider refuses to pay the retransmission fee demanded, broadcasters can withhold their signal and steer consumers towards another MVPD who is willing to compensate them at that level. (31) Broadcasters have many more options in dealing with MVPDs today. The FCC noted that over 98 percent of homes in the U.S. have access to at least three video distribution options, and many homes have access to four or more. (32) Broadcasters can also choose to distribute programming online through their own websites...