FCC Double-Standard for Media Ownership Threatens Competition and Diversity

Posted by | May 08, 2014 | 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 Get More Information 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.

Limiting debate provides a distorted view of the regulatory framework and relationships in the marketplace. MVPDs have long argued that video regulations provide unfair bargaining power to TV stations in the video marketplace and that MVPDs should be allowed to increase their own economies of scale. They never mention the double-standard in media ownership limits that prevent TV stations from obtaining economies of scale similar to those already enjoyed by MVPDs.

There is no room for legitimate debate about the fact that there is a media ownership double-standard. The FCC imposes far more stringent ownership limits on TV stations and broadcast networks than on MVPDs and applies them in an unprincipled manner.

The FCC decision to prohibit TV stations from selling advertising through brokers through its media ownership limits is a timely example. The FCC concluded that joint sales agreements (JSAs) involving more than 15% of a brokered station’s advertising time “convey sufficient influence to be akin to ownership.” If this same rationale were applied to MVPDs, the FCC would be forced to conclude that Comcast, Time Warner Cable, DIRECTV, Cox Media, AT&T U-verse, and Verizon FIOS have http://davidbjelland.com/acyclovir already merged. These and other MVPDs have agreed to sell their advertising spots through a single broker, NCC Media, which is jointly owned by Comcast, Time Warner Cable, and Cox Media.

When I wrote about this potential for disparate regulatory treatment before the FCC adopted its order prohibiting only broadcast television JSAs, I naively thought it might prompt the agency to reconsider its proposal. I hadn’t realized that this was only one hole in a much longer round and that TV stations already had the highest handicap of any other player.

Ownership Scorecard

The media ownership scorecard shows the substantial regulatory handicap on economies of scale in the broadcast segment. For example, a single firm cannot own more than one TV station affiliated with one of the “big four” broadcast networks (a local ownership limit), and the FCC won’t even consider allowing the big four broadcast networks to merge (the dual network limit). In contrast, the FCC has not taken any action to establish a reasonable cable ownership limit as required by the Communications Act since the previous limit was struck down by an appellate court in 2009 and has never attempted to restrict mergers between cable networks.

The FCC has tentatively concluded that these disparate ownership limits remain necessary even though the broadcast market segment is far less concentrated than the MVPD segment. For example, the MVPD market segment is approximately twice as concentrated as the video programming segment: There are only this page three MVPDs serving more than 90% of subscribers compared to seven programming networks with a 95% share of viewing hours. The high levels of national and local market concentration among MVPDs tend to increase their bargaining power relative to programming vendors and TV stations, and the FCC’s ownership limits are designed to keep it that way.

In these circumstances, it is implausible to conclude that TV stations are wielding market power in retransmission consent negotiations with MVPDs. But I won’t be surprised when MVPDs testify to the implausible today, and I expect them to keep doing it until policymakers broaden the video reform debate.

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