A Failure to Negotiate

Few consumers realize the odd and strained relationship the FCC has created between cable companies and television stations.  When cable companies first sprang up in the 1950’s, the FCC paid little attention.  At first, cable was just local television, but with better reception.  At that time, the FCC determined it didn’t have regulatory jurisdiction over cable.  But, when cable companies began to offer more services—thus beginning to pose a threat of competition to local programming—the FCC sprang into action. Congress saw local television as a vital public service, and they enacted regulations that ensured cable companies were forced to carry these channels, free of charge.

 

These regulations are known as must-carry rules. Enacted by Congress in 1992, must-carry states that all local television stations that are covered under the rule (think local affiliates of CBS, NBC, Fox, and ABC) are able to demand that cable operators carry their signal, without any compensation.

 

In addition to this rule, there’s also retransmission consent.  Retransmission regulations were enacted in 1994 and gave the option for television networks to opt out of must-carry, and instead opt to negotiate a payment from the cable companies in return for the cable companies carrying the television network.

 

These regulations have caused major complications that give the local television stations a near monopoly on the bargaining process.  If a television station has content that isn’t valuable, the cable companies are forced to carry it under must-carry rules.  If the television station does have content that is valuable, the station can opt-out of the must-carry rules and enter into retransmission agreements.  Cable companies are then forced to negotiate with the network and work out a payment to be made from the cable company to the television network.  These agreements give a great deal of power to the television stations, and very little power to the cable companies.  Why?  Cable companies are also held to a network non-duplication rule.  This rule states that cable companies cannot negotiate with other local affiliates of the same broadcast network. This leaves very little bargaining power for the cable companies, allowing television stations to hold their content hostage until the cable companies agree to meet their price.

 

Who loses in these price wars?  Consumers.  When cable operators and networks can’t come to an agreement, often the result is a blackout for the consumers in that market.  This forces customers to miss out on popular programming, including big sporting events.  Another result of these bureaucratic regulations is that they restrict free-market negotiations, produce higher costs for cable providers and higher prices for the consumers.  Simply put, the more money that television networks demand from cable companies, the more that cost that is passed on to consumers.

 

These policies and regulations are onerous and outdated and they completely ignore the evolving technologies and market forces at work in today’s competitive marketplace.  In early March, the FCC released a Notice of Proposed Rulemaking that opens up the possibility of changes to the outdated rules.  One of the things the FCC has proposed is doing away with the network non-duplication rule, which is a main hindrance in giving cable companies a fair position when negotiating with networks.  This would be an appropriate step, but an even better proposal would be to do away with retransmission fees altogether.  Doing so would nix the outdated rule structure and open up the market to ensure lower costs and better quality for consumers.

 

Zack Christenson is a Chicago-based digital strategist who writes on tech policy.

 

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