Confronted with rapidly increasing retransmission consent costs, the cable and DBS industries have actively sought legislative and regulatory reform for several years without success. The FCC today took two significant steps in response to those reform efforts.
First, the FCC formally adopted a Report and Order changing the existing rules governing retransmission consent negotiations. In particular, the Order amends the rules to prohibit separately owned top-four television stations (ABC, CBS, FOX, and NBC) in the same market from jointly negotiating retransmission consent agreements.
The FCC emphasized that the new prohibition on joint negotiations by top-four stations is justified by economic analyses, which indicate that this type of coordinated negotiation gives such stations the ability to demand higher retransmission consent fees than if the stations conducted negotiations independently. The FCC’s record reportedly shows that where a single entity controls retransmission consent negotiations for more than one top-four station in a market, the average retransmission consent fees are approximately 20–40% higher than the fees obtained by other top four stations in these market. The amended rules prohibit not only formal agreements, but also less formal methods of coordination.
The Order does not ban joint negotiations by commonly owned top-four stations in a market. Nor does the Order extend the ban on joint negotiations to non-top four stations. The FCC indicated that the existing record lacks evidence warranting a similar prohibition for non-top four stations, but that it would consider extending the prohibition if sufficient evidence were presented in the future.
Second, the FCC adopted a Further Notice of Proposed Rulemaking regarding the potential elimination or modification of its long-standing network non-duplication and syndicated exclusivity rules. Broadcasters currently use the rules to compel cable operators to “black-out” duplicating network and syndicated programming offered on “distant” broadcast signals, thereby ensuring programming exclusivity within the local television market. Cable operators argue that this exclusivity artificially inflates retransmission consent costs.
At this time, it is unclear whether the FCC ultimately will eliminate these exclusivity rules and whether broadcast networks still would be able to enforce market exclusivity through affiliate contracts. This new Rulemaking, in conjunction with the Order adopted today, however, suggests that the current Commission is concerned about rapidly increasing retransmission consent costs and is taking a more active role to discipline those increases than it has historically.