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Legal Experts Debate Retrans Rules At ACA Summit 2012

No issue divides American Cable Association members and the broadcast industry quite like retransmission consent, and the reasons for that division were fully ventilated March 14 at ACA's 19th annual Washington, D.C., Summit.

The backdrop was a panel discussion by legal experts from the cable and broadcast industries moderated by SportsBusiness Journal media reporter John Ourand, who fed questions for 75 minutes in an effort to bring out all the arguments both in favor of reform and in support of the status quo established by the 1992 Cable Act and regulations implemented by the Federal Communications Commission.

Explaining cable's position on the panel were Barbara Esbin, Washington, D.C., Office Managing Partner for Cinnamon Mueller, and Cristina Pauze, Vice President of Regulatory Affairs for Time Warner Cable.   Broadcasters' perspective was presented by Antionette Cook Bush, a partner at Skadden, Arps, Slate, Meagher & Flom, and Scott Flick, a partner at Pillsbury Winthrop Shaw Pittman.

Under current law, TV stations may demand cash from ACA members and other pay-TV providers, and it also allows TV stations to withhold their signals if they refuse to accept the compensation offered. Capitalizing on changes in the marketplace and outdated regulations that have failed to change with the times, broadcasters are able to demand and receive higher and higher fees for their signals, driving up the price of monthly cable bills to the frustration of millions of cable customers.

Cable attorney Esbin, who represents ACA before the FCC and other federal agencies, argued that the current system had to be modernized, noting that FCC network non-duplication rules effectively bar cable operators from carrying TV stations from another market, a restraint on supply that serves to drive up the cost of retransmission consent.

"There's a definite governmental lift for the broadcasters having exclusivity in the market," Esbin said. She stressed that consumers' ability to absorb ever-increasing cable rates fueled by retransmission consent is "not infinitely elastic" and that "there just has to be an end to these price increases." She noted that Wall Street analyst Craig Moffett of Bernstein Research maintains that pay-TV is becoming increasingly unaffordable for the bottom 40% of households on the income scale.

Broadcast attorney Flick responded, "There are few products that have a ceiling." He predicted that the market would stabilize in terms of rate hikes in the future.

Flick also suggested that it would be counterproductive for TV stations to force cable companies from the market by demanding excessive amount of cash for retransmission consent.

"The broadcaster has a lot of interest in reaching the deal with you," he said. "The broadcaster wants competitors alive. It would be idiotic for broadcasters to ‘fee' you out of existence because as soon as that happens, their ability to get money from folks you compete with just dropped."

In her comments, broadcast attorney Cook said the idea that the marketplace isn't working was belied by the evidence, claiming that most retransmission consent deals were concluded in 2012 without interruption of service. She said that although cable operators once had a monopoly, they compete today with satellite TV providers and online companies like Netflix and Hulu for access to broadcast content, meaning that competition is driving up the value of broadcast programs.

"I think the system is working, negotiations and agreements are being done, and I think the industry is really going through a change that's being brought about by the impact of the Internet and the impact of competition," Cook said. She added that TV stations are hungry for retrans fees because they need to secure the rights to popular sports programming in order to compete with ESPN.

SNL Kagan projects that broadcasters' take from retransmission consent will hit nearly $4.9 billion in 2017, up from $1.6 billion in 2011.

In March 2011, the FCC launched a notice of proposed rulemaking to examine some of its retransmission consent rules. The agency also has aspects of retransmission consent under a regulatory microscope in connection with its quadrennial review of media ownership rules mandated by Congress. In the latter, ACA has urged the FCC to make attributable for ownership purposes instances where two separately owned stations in the same market coordinate their negotiations for retransmission consent, which ACA said lessens competition as evidenced by coordinating broadcasters' ability to extract retransmission consent fees higher than if they negotiated separately.

"We think the cable industry has put in a very good case for reform now," cable attorney Pauze said. "We're a little more hopeful on action in the media ownership context, where the issue of coordination of separately owned, same-market broadcasters is also under examination."

Esbin and Pauze disagreed with the analysis that the FCC lacks authority to address cable industry concerns with the current retransmission consent system. They noted that national broadcast networks are pressuring affiliates to share the retrans revenue, undermining the goal of using retransmission consent revenue to invest more money in local news and public interest programming. And both said they were encouraged that some Capitol Hill lawmakers want to review not only retransmission consent but also many media ownership laws and regulations.

Although critics of retransmission consent are looking to Congress and the FCC to modernize the system, they also recognize that change can take several years, that lobbying pressure must be sustained throughout, and that defenders of the status quo won't back down without a fight.

"It's a constant message that needs to come through," Esbin said. "It's not one and done."

Pauze added, "We're fond of saying in our office that reforming retransmission consent is a marathon. It's not a sprint."

In her comments, Pauze saluted the independent cable community for its leadership on retransmission consent reform.

"Kudos to ACA, which has been the party that has been on this issue from the beginning for many, many years until some of the rest of us distributors caught up in terms of facing this problem and going to Washington with a message about these problems," Pauze said.

Bush told the ACA Members in the audience not to get their hopes up for change anytime soon.

"I don't think Congress is feeling pressure nor is the FCC feeling pressure that there really needs to be reform given that most of the negotiations have been completed," she said.

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