Carriage Disputes and the FCC’s Role

Is it fair to expect that FCC involvement or threat of involvement in carriage disputes would lessen the frequency of blackouts in local markets?  Would it be to the advantage of the consumer if they do?

Over the past several years, must-carry fees compensating broadcasters for their station feeds have skyrocketed.  With declining pay-TV subscriptions, MVPD operators have pushed back on both the requested rate hikes and the continued bundling of sub-channels in with top-tier channels.  Broadcasters have counter-punched by withholding channels and blocking online access to shows during disputes.  Nearly 150 broadcaster blackouts so far in 2015 have caused consumer harm.  By “using” the consumer in negotiations, is that fair?  But, by regulators preventing or limiting the use of a private party’s leverage in negotiating an agreement, is that fair?  

When is some competition enough?

Beginning with the 1992 Cable Act, the FCC allowed local franchise authorities to regulate local cable rates only if there was not a finding of effective competition.*  At the time, cable operators had a 95% share of the MVPD market.

Pointing to the now ubiquitous availability of satellite TV and evidence that 99.7% of U.S. homes have access to at least 3 MVPDS (and 35% with access to 4 MVPDs), the FCC, in June, adopted a rebuttable presumption that cable operators, both large and small, are subject to Competing Provider Effective Competition.  The rule, approved by a 3-to-2 margin, shifts to local governments the burden of demonstrating that effective competition does not exist in their communities in order for them to regulate local cable rates. 

Concerned about less oversight at the local level and the possibility that cable operators who had negotiated retransmission consent agreements may choose not to carry broadcasters on the basic service tier, the National Association of Broadcasters (NAB) and two other groups petitioned a federal court for a review of the new FCC rule.  Since its filing about a month ago, no action has been taken by the court.  Today, however, the American Cable Association (ACA) and National Cable & Telecommunications Association (NCTA) requested the court if they could intervene in support of the FCC's decision.

*4 categories of effective competition: 1) low penetration, 2) competitive provider, 3) municipal provider, and 4) LEC provider.

Choices Matter! So, why don’t we have them when it comes to cable boxes?

On our behalf, consumer advocacy groups have argued for a la carte pricing options to replace cable programming bundles.  Paying for networks we didn’t watch bothered many of us for a very long time.  Yet, the industry effectively argued back that it would take just a handful of networks purchased on an individual basis to get to a sum in excess of our existing bundled prices.  A stalemate persisted until technology changed and new entrants (e.g. Netflix) disrupted the status quo.  We now see the beginnings of unbundled programming and more choices for how, when, and what we view.

There continues to be no choice, however, when it comes to the set-top box that is needed to convert encrypted signals from the cable operator to each cable-enabled TV set in the home.  In a recent study, Congressmen Mackey (D-MA) and Blumenthal (D-CT) found that the average cable household spent $231 per year renting cable boxes (approx.. 2 boxes/household * $9.50/month *  12 months).  You sign up for Comcast’s Xfinity service, you get Comcast’s cable boxes.  You sign up for Verizon’s Fios service, you get Verizon’s cable boxes.  You get the picture…no choices.    It represents a nearly $20 billion revenue stream for the cable firms, so, at the moment, they have no incentive to change the business model.  If we are lucky, technology changes and new entrants in this segment of the video programming market will make renting cable boxes “into perpetuity” a thing of the past.

Below #1 (Comcast), it’s all about consolidation in the U.S broadband market

For you and me, nothing much will change when regulators approve the proposed merger of TWC with Charter/Bright House Networks and Altice’s acquisition of Cablevision and Suddenlink.  These competitors don’t compete with each other for our business.  We had few broadband provider choices before industry consolidation.  We will continue to have few choices after.

    

What might happen though is that the operational scale and negotiating heft of the merged firms will improve and they could potentially offer better/expanded service.  Time will tell what they do with their size.