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Congress Should Lead FCC by Example, Adopt Clean STELA Reauthorization

After yesterday’s FCC meeting, it appears that Chairman Wheeler has a finely tuned microscope trained on broadcasters and a proportionately large blind spot for the cable television industry.

Yesterday’s FCC meeting was unabashedly pro-cable and anti-broadcaster. The agency decided to prohibit television broadcasters from engaging in the same industry behavior as cable, satellite, and telco television distributors and programmers. The resulting disparity in regulatory treatment highlights the inherent dangers in addressing regulatory reform piecemeal rather than comprehensively as contemplated by the #CommActUpdate. Congress should lead the FCC by example and adopt a “clean” approach to STELA reauthorization that avoids the agency’s regulatory mistakes.

The FCC meeting offered a study in the way policymakers pick winners and losers in the marketplace without acknowledging unfair regulatory treatment. It’s a three-step process.

  • First, the policymaker obfuscates similarities among issues by referring to substantively similar economic activity across multiple industry segments using different terminology.
  • Second, it artificially narrows the issues by limiting any regulatory inquiry to the disfavored industry segment only.
  • Third, it adopts disparate regulations applicable to the disfavored industry segment only while claiming the unfair regulatory treatment benefits consumers.

The broadcast items adopted by the FCC yesterday hit all three points.

“Broadcast JSAs”

The FCC adopted an order prohibiting two broadcast television stations from agreeing to jointly sell more than 15% of their advertising time using the three-step process described above.

  • First, the FCC referred to these agreements as “JSA’s” or “joint sales agreements”.
  • Second, the FCC prohibited these agreements only among broadcast television stations even though the largest cable, satellite, and telco video distributors sell their advertising time through a single entity.
  • Third, FCC Chairman Tom Wheeler said all the agency was “doing [yesterday was] leveling the negotiating table” for negotiations involving the largely unrelated issue of “retransmission consent”, even though the largest cable, satellite, and telco video distributors all sell their advertising through a single entity.

If the FCC had acknowledged that cable, satellite, and telcos jointly sell their advertising, and had the FCC included them in its inquiry as well, Chairman Wheeler could not have kept a straight face while asserting that all the agency was doing was leveling the playing field. Hence the power of obfuscatory terminology and artificially narrowed issues.

“Broadcast Exclusivity Agreements”

The FCC also issued a further notice yesterday seeking comment on broadcast “non-duplication exclusivity agreements” and “syndicated exclusivity agreements.” These agreements, which are collectively referred to as “broadcast exclusivity agreements”, are a form of territorial exclusivity: They provide a local television station with the exclusive right to transmit broadcast network or syndicated programming in the station’s local market only.

Unlike cable, satellite, and telco television distributors, broadcast television stations are prohibited by law from entering into exclusive programming agreements with other television distributors in the same market: The Satellite Television Extension and Localism Act (STELA) prohibits television stations from entering into exclusive retransmission consent agreements — i.e., a television station must make its programming available to all other television distributors in the same market. Cable, satellite, and telco distributors are legally permitted to enter into exclusive programming agreements on a nationwide basis — e.g., DIRECTV’s NFL Sunday Ticket.

If the FCC is concerned by the limited form of territorial exclusivity permitted for broadcasters, it should be even more concerned about the broader exclusivity agreements that have always been permitted for cable, satellite, and telco television distributors. But the FCC nevertheless used the three-step process for picking winners and losers to limit its consideration of exclusive programming agreements to broadcasters only.

  • First, the FCC uses unique terminology to refer to “broadcast” exclusivity agreements (i.e., “non-duplication” and “syndicated exclusivity”), which obfuscates the fact that these agreements are a limited form of exclusive programming agreements.
  • Second, the FCC is seeking comment on exclusive programming agreements between broadcast television stations and programmers only even though satellite and other video programming distributors have entered into exclusive programming agreements.
  • Third, it appears the pretext for limiting the scope of the FCC’s inquiry to broadcasters will again be “leveling the playing field” between broadcasters and other television distributors — to benefit consumers, of course.

“Joint Retransmission Consent Negotiations”

Finally, the FCC prohibited a television broadcast station ranked among the top four stations (as measured by audience share) from negotiating “retransmission consent” jointly with another top four station in the same market if the stations are not commonly owned. The FCC reasoned that “the threat of losing programming of two more top four stations at the same time gives the stations undue bargaining leverage in negotiations with [cable, satellite, and telco television distributors].”

As an economic matter, “retransmission consent” is essentially a substitute for the free market copyright negotiations that could occur absent the “compulsory copyright license” in the 1976 Copyright Act and an earlier Supreme Court decision interpreting the term “public performance”. In the absence of retransmission consent, compensation for the use of programming provided by broadcast television stations and programming networks would be limited to the artificially low amounts provided by the compulsory copyright license.

To the extent retransmission consent is merely another form of program licensing, it is indistinguishable from negotiations between cable, satellite and telco distributors and cable programming networks — which typically involve the sale of bundled channels. If bundling two television channels together “gives the stations undue bargaining leverage” in retransmission consent negotiations, why doesn’t a cable network’s bundling of multiple channels together for sale to a cable, satellite, or telco provider give the cable network “undue bargaining leverage” in its licensing negotiations? The FCC avoided this difficultly using the old one, two, three approach.

  • First, the FCC used the unique term “retransmission consent” to refer to the sale of programming rights by broadcasters.
  • Second, the FCC instituted a proceeding seeking comment only on “retransmission consent” rather than all programming negotiations.
  • Third, the FCC found that lowering retransmission consent costs could lower the prices consumers pay to cable, satellite, and telco television distributors — to remind us that it’s all about consumers, not competitors.

If it were really about lowering prices for consumers, the FCC would also have considered whether prohibiting channel bundling by cable programming networks would lower consumer prices too. For reasons left unexplained, cable programmers are permitted to bundle as many channels as possible in their licensing negotiations.

“Clean STELA”

After yesterday’s FCC meeting, it appears that Chairman Wheeler has a finely tuned microscope trained on broadcasters and a proportionately large blind spot for the cable television industry. To be sure, the disparate results of yesterday’s FCC meeting could be unintentional. But, even so, they highlight the inherent dangers in any piecemeal approach to industry regulation. That’s why Congress should adopt a “clean” approach to STELA reauthorization and reject the demands of special interests for additional piecemeal legislative changes. Consumers would be better served by a more comprehensive effort to update video regulations.

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