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US broadcasters put the squeeze on small-town cable TV


Small cable TV networks are having to increase their prices just to offer content that the owner will happily give away, and they want the FCC to do something about it.

The content in question is broadcast TV channels, which are free to receive if you've got a roof-top antenna and a decent line of sight, but are also normally bundled by cable operators as part of their basic service. But the cable companies have to pay for that content, and the amount they have to pay has been jumped considerably in the last few months.

In a submission to the FCC the American Cable Association (ACA) lays down some figures. In 2011 a cable subscriber in Marked Tree, Arkansas, was paying $2.16 in broadcast-TV retransmission fees (the fee the cable operator pays for the privilege of passing on the broadcast content), in 2012 that rise to $4.33 and by 2013 it will have doubled to $4.69 before hitting $5.03 in 2015 when it comes up for negotiation again.

Ritter Communications, which runs the cable service in Marked Tree, has to decide if it can pass on that cost to its customers, or drop the channels concerned, which will probably cost it some customers too, but it's allegations of collusion amongst the broadcasters which has so upset the ASA.

In theory there are four major networks which cable companies will pay to retransmit: ABC, CBS, NBC and Fox. The operator is supposed to negotiate with each broadcaster individually to set a price, thus encouraging competition between the four to keep those prices low. But in many areas the four channels are operated by the same affiliate, and are offering suspiciously similar deals, as apparently happened in Youngstown, Ohio:

"While the negotiations for each station were conducted in a way that would appear as if they were done separately, the terms of the deals presented to Armstrong [Utilities] in each case were identical, indicating that the stations were in fact coordinating their negotiations," says the filing from the ACA.

Knology, a cable operator with deployments in California, Florida and a dozen other locations, has even set up an information site to explain why the prices are going up, and providing a petition through which customers can make their feelings known to the FCC.

But it's not just group negotiations which are responsible for driving up the price, as expounded by Mediacom, whose own submission to the FCC (PDF, impassioned) argues that the big cable companies are using consultants to do their negotiations, consultants who did the same negotiations for other operators and thus have inside knowledge of what price is likely to be attained.

Mediacom would like permission to have one of those big cable companies negotiate on its behalf, and suggests the FCC modify the rules appropriately, a suggestion which is backed by the ACA.

The big four broadcasters are seeing traditional revenue drop off as both advertisers and viewers shift their attention to the internet and their dollars to the chocolate factory and its friends, so retransmission fees must seem like an easy way to bump up the bottom line. The ASA wants the FCC to intervene by allowing cable operators to negotiate together while the broadcasters are required to stand apart, but the regulator reckons that as long as deals are being done it shouldn’t get involved.

In the long term the broadcasters might come to regret squeezing extra money out of the cable operators. The internet can very nearly replace a cable connection these days and few of those who leave will come back, but getting decent figures for the next three years is more important right now, even if it means upsetting a few yokels. ®

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E. Stratford Smith, a retired Penn State communications professor who played a major role in the birth of cable television, died on Christmas at age 95. Smith, of State College, was perhaps best known for his role in the Fortnightly Corp. v. United Artists Television Supreme Court case. Decided in 1968, the case protected the fledgling cable television industry from having to pay potentially crippling fees to the major networks for bringing their broadcasts to households that otherwise wouldn’t have received them.

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What is Retransmission Consent? The U.S. Congress has authorized broadcast stations, such as those that air ABC, NBC, CBS, and FOX programming, to grant or deny permission (provide "consent") for a cable television operator to "retransmit" the signal to its customers. In order to acquire consent the owner of the television station will demand some form of compensation from the cable operator, which is typically re-negotiated every three years.  

Frequently, a broadcaster demands the smaller cable operators pay an exceptionally higher per-customer fee than other larger operators in the same market. Broadcasters charge smaller cable operators retransmission consent fees as much as twenty times more than what the largest distributors pay. There is no justification for the price discrimination faced by small cable operator because the retransmission is costless for the broadcast station owner. The burden to a broadcaster of having its signal carried on a large system or a small one is identical.

Cable operators who refuse to accept the higher charge (as it frequently would result in higher rates for customers) face retaliation from the broadcaster - a dropped signal and the refusal to allow a cable operator to deliver its programming to customers.

Making matters worse, federal rules and regulations hinder small cable operators serving small and rural markets to offer broadcast signals from neighboring television markets, even when the neighboring broadcast is willing to offer the same network programming at a more reasonable rate.

How Does Retransmission Consent Harm Consumers? When independent cable operators are dealt disproportionally higher per-subscriber fees to broadcast a signal, the result is increased costs for consumers and reduced competition by undercutting smaller companies' ability to compete on price. Notably, independent cable providers often have to redirect investment that should go towards increasing system capacity and improving infrastructure for broadband to instead line the pockets of big broadcasters and programmers, putting already underserved markets even further behind the Digital Divide.

What is ACA Doing About Retransmission Consent? Currently, the FCC is reviewing whether revisions to the wholesale cable programming and retransmission consent rules would provide consumers with more choice and value. ACA has presented the FCC with multiple filings to demonstrate how the current marketplace harms both independent cable operators as well as consumers. In addition, ACA is formally supporting a "quiet period" between broadcasters and cable operators during the coming round of retransmission consent negotiations. ACA is urging the FCC to prevent broadcasters from removing their signals from an operator's system to avoid public confusion surrounding the coming digital TV transition in February 2009.

ACA and its members regularly brief FCC Commissions and their staff, as well as Members of Congress, to encourage prompt resolution in favor of independent cable operators. Our fight will continue until ACA members receive the relief they need from wholesale tying and bundling abuses at the hands of broadcasters and programmers.

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