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ACA To FCC: Outlaw Broadcaster Price-Fixing In Retransmission Consent

In an effort to inject free-market competition into retransmission consent, the American Cable Association is urging the Federal Communications Commission to adopt rules that would ban separately owned broadcasters from bargaining as a collusive unit within the same market and outlaw broadcast networks and TV stations from interfering with cable operators' rights to carry distant network signals that customers have historically received and valued.

In response to the broadcasters' claims of no specific evidence to support actual coordination of the sort alleged by smaller cable operators, ACA confirmed and detailed 36 instances of coordinated negotiations -- including the names of the broadcasters involved and the markets where such coordination is occurring -- that ACA members have experienced in just the last three years.

"Broadcasters said the FCC would find no actual occurrences of coordinated negotiations in the record, and ACA responded by laying the facts on the table for the FCC to review," ACA President and CEO Matthew M. Polka said.  "The question of whether broadcasters are colluding is no longer in doubt.  We have the proof, and now the FCC does as well."

In May 27 comments filed with the FCC showing the urgent need for retransmission consent reform, ACA requested agency action this year in time for new rules to apply to thousands of retrans agreements set to expire Dec. 31, 2011.

"Everything ACA has proposed responds to systemic injurious practices by broadcasters that occur during retransmission consent negotiations, meriting a firm regulatory response to protect the public interest.  Behavior we're seeing from broadcasters, undeniably motivated by greed, is inconsistent with a competitive marketplace and long-established policy of Congress and the FCC," Polka added.

Responding to a retransmission consent market tarred by broadcasters' anti-consumer conduct, ACA pressed the FCC to stipulate that independently owned TV stations that engage in coordinated bargaining are per se violations of their legal obligation to bargain in good faith.

ACA also proposed extension of the per se rule to any TV station or broadcaster network (in other words, "a third party") that interferes with consumers' legal rights to view eligible distant TV signals from their cable operator.  ACA highlighted two examples of this problem:  First, TV stations withholding retransmission consent from cable operators unless they agree not to carry any out-of-market stations, even where such carriage is permissible under existing law; second, TV stations contractually relinquishing to their network the right to grant out-of-market station carriage rights to a cable operator that is otherwise permitted to provide such stations to its customers.

"Coordinated retransmission consent negotiations by same-market broadcasters not under common ownership are prevalent, a reliance on collusion to grab more cash from cable consumers," Polka said. "Likewise, the requirement that a broadcaster negotiate in good faith applies to all negotiations, both to in-market signals and out-of-market signals.  The FCC should stop any TV station that would attempt to exclude cable carriage of distant network signals where long-standing Congressional and FCC policy has permitted such carriage of these signals. The FCC should flatly prohibit third-party interference regarding the exercise of retransmission consent."

Importantly, ACA noted that the FCC's well-intentioned proposal to prohibit coordinated negotiations by  means only of a legally binding agreement between broadcasters is susceptible to evasion and that the FCC must address not just formal coordination but also less formal methods of coordinated action designed to exercise the same degree of market power over cable operators, especially small and midsize companies serving rural markets. ACA pointed out that two stations could have an informal, non-binding agreement not to conclude a retransmission consent agreement with an ACA member until both stations were satisfied with the size of their fees.

Consistent with an array of groups deeply troubled by current retransmission consent rules, ACA called on the FCC to recognize that existing rules unmistakably yield very little except higher basic cable rates and rank tribute to TV station owners that all too frequently rely on strategically timed signal blackouts to disrupt the normal course of pay-TV competition for their own unjust enrichment.

In its FCC comments, ACA submitted a comprehensive template for constructive change, supported by extensive survey data across dozens of TV station markets and economic analysis by former FCC Chief Economist William Rogerson on the scope of the competitive harm. In addition, ACA members committed to disclosure of their retransmission consent fees schedules if granted waivers by broadcasters to do so or compelled by an FCC production order to place this information in the record on a confidential basis.

With the harms inflicted on consumers served by small and mid-size cable operators foremost in mind, ACA amassed a thorough record based on member survey results and material in publicly available documents to assess the prevalence of broadcasters' anti-competitive actions. For example, with the assistance of its members that had to contend with coordinated negotiations since 2008, ACA identified 36 pairs of broadcasters that are coordinating their retransmission consent negotiations in an effort to extract higher retrans payments than they could by acting independently.

ACA pointed to record evidence before the FCC that when two Big Four affiliates are coordinating retransmission consent negotiations, they receive at least 22 percent more in carriage fees than Big Four affiliates that bargain on their own.

As part of ACA's FCC filing, ACA cited a previously submitted report by Rogerson, a professor of economics at Northwestern University, that determined that independent cable operators pay retransmission consent fees twice as high as the fees paid by the country's largest pay-TV providers and that about 50 percent of all programming cost increases are passed along to customers in the form of higher subscription rates. The remainder is absorbed by ACA members, which are left with far less capital to deploy broadband Internet in rural America or improve the performance of existing facilities in their high-cost and low-density locales.

ACA warned the FCC that retransmission consent reform would likely fail to protect consumers adequately unless it also addressed widespread price discrimination aimed at smaller cable operators. ACA said it agreed with parties that to protect consumers from TV station blackouts, the agency must exercise its legal authority to order interim signal carriage while reviewing a retransmission consent complaint.

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