2014 May

The Anticompetitive Effects of Broadcast Television Regulations

Posted by | Video | No Comments

Shortly after Tom Wheeler assumed the Chairmanship at the Federal Communications Commission (FCC), he summed up his regulatory philosophy as “competition, competition, competition.” Promoting competition has been the norm in communications policy since Congress adopted the Telecommunications Act of 1996 in order to “promote competition and reduce regulation.” The 1996 Act has largely succeeded in achieving competition in communications markets with one glaring exception: broadcast television. In stark contrast to the pro-competitive approach that is applied in other market segments, Congress and the FCC have consistently supported policies that artificially limit the ability of TV stations to compete or innovate in the communications marketplace. Read More

Network Non-Duplication and Syndicated Exclusivity Rules Are Fundamental to Local Television

Posted by | Video | No Comments

The Federal Communications Commission (FCC) recently sought additional comment on whether it should eliminate its network non-duplication and syndicated exclusivity rules (known as the “broadcasting exclusivity” rules). It should just as well have asked whether it should eliminate its rules governing broadcast television. Local TV stations could not survive without broadcast exclusivity rights that are enforceable both legally and practicably.

The FCC’s broadcast exclusivity rules “do not create rights but rather provide a means for the parties to exclusive contracts to enforce them through the Commission rather than the courts.” (Broadcast Exclusivity Order, FCC 88-180 at ¶ 120 (1988)) The rights themselves are created through private contracts between TV stations and video programming vendors in the same manner that MVPDs create exclusive rights to distribute cable network programming.

Local TV stations typically negotiate contracts for the exclusive distribution of national broadcast network or syndicated programming in their respective local markets in order to preserve their ability to obtain local advertising revenue. The FCC has long recognized that, “When the same program a [local] broadcaster is showing is available via cable transmission of a duplicative [distant] signal, the [local] broadcaster will attract a smaller audience, reducing the amount of advertising revenue it can garner.” (Program Access Order, FCC 12-123 at ¶ 62 (2012)) Enforceable broadcast exclusivity agreements are thus necessary for local TV stations to generate the advertising revenue that is necessary for them to survive the government’s mandatory broadcast television business model.

The FCC determined nearly fifty years ago that it is an anticompetitive practice for multichannel video programming distributors (MVPDs) to import distant broadcast signals into local markets that duplicate network and syndicated programming to which local stations have purchased exclusive rights. (See First Exclusivity Order, 38 FCC 683, 703-704 (1965)) Though the video marketplace has changed since 1965, the government’s mandatory broadcast business model is still required by law, and MVPD violations of broadcast exclusivity rights are still anticompetitive. Read More

A Primer on the Dangers of Imposing FCC Title II Regulations on the Internet

Posted by | Broadband Internet | One Comment

Any decision about FCC regulation of the broadband Internet must account for the sunset of the public switched telephone network (PSTN) and the evolution of the Internet since the FCC issued its Cable Modem Order in 2002. The PSTN sunset and the design features of next generation networks have significant implications for Title II reclassification.

Reclassification Would Require Revisiting the Communications Act’s Core Definitional Conundrum

Title II regulates communications “services”, not particular types of infrastructure. For example, the definition of “telecommunications service” applies “regardless of the facilities used.” See 47 USC § 153(53).

The definitions of “information” and “telecommunications” services adopted in the 1996 Act track the distinction between “basic” and “enhanced” services that was adopted by the FCC in the Computer II proceeding’s Final Decision. See Verizon v. FCC, 740 F.3d 623, 630 (DC Cir. 2014).

In a post-PSTN world, there will no longer be any “basic” service as it was understood in the Computer II era or “telecommunications” as that term is defined in the 1996 Act.

Title II reclassification would thus require the FCC to revisit the core definitional conundrum of the Communications Act. The likely result is that many services that are currently unregulated would be subject to Title II regulation, including services that were once considered part of the Internet’s “edge”. Read More

FCC Double-Standard for Media Ownership Threatens Competition and Diversity

Posted by | Satellite, Video | One Comment

Today the House Judiciary Committee is focused on issues related to competition in the video marketplace. Earlier today the Committee examined the competitive implications of the proposed merger of Comcast and Time Warner Cable, and this afternoon, it’s examining the compulsory copyright licenses applicable to the retransmission of broadcast television programming by cable and satellite operators (“multichannel video programming distributors” or “MVPDs”) and the related issue of retransmission consent. Though they are separate hearings, the issues in them are intertwined.

In addition to the antitrust laws, the Comcast/Time Warner merger has implications for statutory provisions and FCC regulations governing media ownership. The FCC originally adopted media ownership limits to promote competition and diversity in the mass media marketplace. These goals remain laudable, but the media ownership limits have become laughable. Today’s double-standard for media ownership limits has served the perversely inapposite purpose of increasing the power of MVPDs in the media marketplace. While the FCC has been busy imposing new ownership limits on TV stations, it has also been quietly repealing the few remaining ownership limits applicable to MVPDs. The predictable result of this regulatory disparity has been an increase in vertical and horizontal concentration among MVPDs and programming vendors.

Congressional and FCC proceedings examining compulsory copyright licenses, retransmission consent, and broadcast exclusivity agreements threaten to accelerate the trend toward increased consolidation in the video marketplace. These proceedings are an existential threat to local TV stations. If local TV stations die, CBS and other independent broadcast programmers would be denied a critical “anchor store” for distribution of their programming. Faced with this hardship in today’s competitive market, broadcasters would ultimately be forced to consider vertical integration with cable operators, whose platforms distribute video as MVPDs and all types of content as broadband Internet access services.

The potential unintended consequences of changing only a handful of provisions that govern the complex web of relationships among video distributors and programming vendors is why a piecemeal approach to video “reform” is so ill-advised. A piecemeal approach is more likely to harm competition and reduce programming diversity than promote them. If policymakers want to promote competition and diversity, they should consider video regulation reform in a comprehensive manner. Read More

Killing TV Stations Is the Intended Consequence of Video Regulation Reform

Posted by | Video | No Comments

Tomorrow is a big day in Congress for the cable and satellite (MVPDs) war on broadcast television stations. The House Judiciary Committee is holding a hearing on the compulsory licenses for broadcast television programming in the Copyright Act, and the House Energy and Commerce Committee is voting on a bill to reauthorize “STELA” (the compulsory copyright license for the retransmission of distant broadcast signals by satellite operators). The STELA license is set to expire at the end of the year unless Congress reauthorizes it, and MVPDs see the potential for Congressional action as an opportunity for broadcast television to meet its Waterloo. They desire a decisive end to the compulsory copyright licenses, the retransmission consent provision in the Communications Act, and the FCC’s broadcast exclusivity rules — which would also be the end of local television stations.

The MVPD industry’s ostensible motivations for going to war are retransmission consent fees and television “blackouts”, but the real motive is advertising revenue.

The compulsory copyright licenses prevent MVPDs from inserting their own ads into broadcast programming streams, and the retransmission consent provision and broadcast exclusivity agreements prevent them from negotiating directly with the broadcast networks for a portion of their available advertising time. If these provisions were eliminated, MVPDs could negotiate directly with broadcast networks for access to their television programming and appropriate TV station advertising revenue for themselves.

The real motivation is in the numbers. According to the FCC’s most recent media competition report, MVPDs paid a total of approximately $2.4 billion in retransmission consent fees in 2012. (See 15th Report, Table 19) In comparison, TV stations generated approximately $21.3 billion in advertising that year. Which is more believable: (1) That paying $2.4 billion in retransmission consent fees is “just not sustainable” for an MVPD industry that generated nearly $149 billion from video services in 2011 (See 15th Report, Table 9), or (2) That MVPDs want to appropriate $21.3 billion in additional advertising revenue by cutting out the “TV station middleman” and negotiating directly for television programming and advertising time with national broadcast networks? (Hint: The answer is behind door number 2.) Read More

FCC Incentive Auction Plan Won’t Benefit Rural America

Posted by | Regulatory State, Wireless | 3 Comments

The FCC is set to vote later this month on rules for the incentive auction of spectrum licenses in the broadcast television band. These licenses would ordinarily be won by the highest bidders, but not in this auction. The FCC plans to ensure that Sprint and T-Mobile win licenses in the incentive auction even if they aren’t willing to pay the highest price, because it believes that Sprint and T-Mobile will expand their networks to cover rural areas if it sells them licenses at a substantial discount.

This theory is fundamentally flawed. Sprint and T-Mobile won’t substantially expand their footprints into rural areas even if the FCC were to give them spectrum licenses for free. There simply isn’t enough additional revenue potential in rural areas to justify covering them with four or more networks no matter what spectrum is used or how much it costs. It is far more likely that Sprint and T-Mobile will focus their efforts on more profitable urban areas while continuing to rely on FCC roaming rights to use networks built by other carriers in rural areas. Read More

CBIT White Paper: The Mission to Kill Broadcast Television Stations

Posted by | Video | One Comment

Click HERE to download the complete white paper in PDF.

THE MISSION TO KILL BROADCAST TELEVISION STATIONS

Analyzing Pay-TV’s Bid to Control the Video Marketplace

EXECUTIVE SUMMARY

Cable and satellite TV distributors (MVPDs) have secretly declared a regulatory war on TV stations. MVPDs have marched into battles over the obscure regulatory territories of “retransmission consent”, “compulsory copyright licenses”, “broadcast exclusivity agreements”, and “basic tier” using a free market flag as their standard. But that flag is merely a cynical smoke screen for their real mission: To kill broadcast television stations altogether.

It is no coincidence that the “reforms” MVPDs seek are entirely one-sided. MVPDs want to repeal regulations that make free over-the-air television possible without repealing regulations that require TV stations to provide local programming to consumers for free. Eliminating only the regulations that benefit broadcasters while retaining their regulatory burdens is not a free market approach — it is a video marketplace firing squad aimed squarely at the heart of broadcast television.

Advertising revenue is the primary motive for this war. The compulsory copyright license prevents MVPDs from inserting their own ads into broadcast programming streams, and retransmission consent prevents them from negotiating directly with the broadcast networks for available advertising time. If these provisions were eliminated, MVPDs could negotiate directly with broadcast networks for access to their television programming and appropriate a substantial portion of TV station advertising revenue, which was approximately $19.6 billion in 2013.

Adopting the MVPD version of video regulation “reform” would not kill broadcast programming networks. They always have the option of becoming cable networks and selling their programming and advertising time directly to MVPDs or distributing their content themselves directly over the Internet.

The casualty of this so-called “reform” effort would be local TV stations, who are required by law to rely on advertising and retransmission consent fees derived largely from national broadcast network programming for their survival. Policymakers should recognize that killing local TV stations is the ultimate goal of current video “reform” efforts before they make piecemeal changes to the law. If policymakers intend to kill TV stations, they should not attribute the resulting execution to the “friendly fire” of unintended consequences. They should recognize the legitimate consumer and investment-backed expectations created by the current statutory framework and consider appropriate transition mechanisms after a comprehensive review. Read More