The Overblown Case For Retrans Reform

by on December 20, 2013 · 0 comments

Retransmission consent came under attack again this month, and two long-awaited bills on the subject have finally been introduced—the Next Generation Television Marketplace Act (H.R. 3720) by Rep. Steve Scalise, and the Video CHOICE (Consumers Have Options in Choosing Entertainment) Act (H.R. 3719) by Rep. Anna G. Eshoo.

The American Cable Association’s Matthew M. Polka has reiterated his view that the process whereby cable and satellite TV providers negotiate with broadcasters for the right to retransmit broadcast signals is a “far cry from the free market,” and Alan Daley and Steve Pociask with the American Consumer Institute claim that retransmission consent jeopardizes the Broadcast Television Spectrum Incentive Auction.

As Jeff Eisenach pointed out at the Hudson Institute, “Congress created retransmission consent in 1992 to take the place of the property rights that it and the FCC abrogated.  Prior to 1992, broadcasters weren’t permitted to charge anyone for retransmitting their signals.”

After 1992, compensation for broadcasters was typically in-kind.  For example, Mark Robichaux writes in Cable Cowboy: John Malone and the Rise of the Modern Cable Business (2002) that in the ‘90s,

TCI, for one, refused to pay cash to any of the big networks, but it indicated it might be willing to make room on its systems for a new cable channel a broadcaster might like to start. One of TCI’s first deals was with the Fox network, owned by Rupert Murdoch’s News Corporation, Ltd. He was eager to forgo carriage fees for Fox’s TV stations in exchange for a slot on the cable dial, where he could start a new Fox cable network that would receive a separate fee from TCI cable systems.

As the years went by, channel space became far less scarce, and that’s why broadcasters and cable and satellite providers started negotiating cash compensation about ten years ago.  SNL Kagan projects that the fees will amount to $3.3 billion this year, and that they could increase to $7.15 billion in 2019.  There is nothing sinister about this.

Buyers and sellers are homing in on the true and sustainable fair market value of broadcast content using a new method of compensation.  Although the year-to-year increases look dramatic, rentansmission consent fees account for only about two cents out of every dollar of cable revenue and make up only about 3% of total video content expenses on average.  This isn’t a big deal.

Polka gets it wrong when he says that in a “truly free market, a cable operator would be allowed to negotiate a carriage deal with any TV station.”  He acknowledges in the next paragraph that the exclusivity rules merely “use government resources to enforce private contracts” that protect local affiliates of a particular network  such as ABC, CBS, NBC or FOX in one market from competition by affiliates in other markets.  Even without the exclusivity regulation, in other words, the private exclusivity contracts would still remain in effect.  We don’t need duplicative government enforcement mechanisms.  But in a free market economy the government does enforce valid private contracts as well as protect private property.  Exclusive dealing is common throughout the economy, and it can be enormously pro-competitive.

Although an unfortunate regulatory thicket has grown in and around how broadcasters monetize their product, one wonders if part of the angst surrounding this issue stems from a need for some people to overcome the fact that, although TV used to be “free,” times are changing.  The broadcast business model is evolving now that broadcasters compete for advertising dollars and cannot produce high-quality programming if they can’t sell it.

I respectfully disagree with my friends Alan and Steve, with whom I normally see eye-to-eye, if they are suggesting that limiting retransmission compensation would be a good thing because it would diminish the value of spectrum in the hands of broadcasters so they would be more likely to sell it for mobile wireless use.  That would be an example of central planning and letting the outdated, bureaucratic, cronyistic FCC pick winners and losers and block innovation.  Ideally, the solution is to let the broadcasters go into the mobile wireless business and vice versa.

There is plenty of room to reform FCC broadcast and media ownership rules, but unfortunately the focus of the current debate mostly seems to be about diminishing the fair market value of broadcast television.

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