A New Look at Retransmission Consent: Take a Cue from Broadcasters!

By Paul Maxwell Report Archives
Cover image for  article: A New Look at Retransmission Consent: Take a Cue from Broadcasters!

I got this idea from local broadcasters.  Well, sort of.  It actually comes from the recent aggressive aggregators of local stations.  Not, mind you, that they were suggesting it and they certainly wouldn't agree with it but near as I can tell they’re making the same long- term mistake that long-tail cable network operators have been making for years.  It is something often called “greed” and justified with a sprightly, “Well, we’ve gotten away with it, haven’t we?”  Well, not really.  The local broadcaster mistake with ever-escalating retransmission consent requests is believing the following:  “Let’s keep raising the rates.  What could go wrong?”  There are a couple of answers to that question.

One goes back to the implementation of the 1992 Cable Act … which President George Herbert Walker Bush vetoed.  He was overridden by Congress (for the only time, btw) so the Act was duly enshrined with “retransmission consent” as the law of the land.  As many of you already know, that meant a broadcaster could opt for “must carry” or ask for compensation.  Big stations quickly wanted compensation. (Who could blame them? They were producing a popular product, one which I, at a Media Finance meeting panel years ago, argued might be due “some” compensation. I didn't, of course, mean the ridiculous sums they're demanding these days.)

On the other side of the ledger, small stations with small audiences went the other way and said to cable systems, “You ‘must carry’ us.”  Of course, not so many people watched anyway.

But back to the big guys.  Two media masterminds -- Dr. John Malone and Rupert Murdoch -- got together with a “solution” to the piles of cash eyed by the retrans-empowered broadcasters.  “Let there be additional networks!” they decreed.  Those additional networks could charge cable operators a fee, thus reducing the impact of retransmission consent payments by offering new content.

Cool, huh?  That’s how viewers got FX and ESPN 2, 3, 4 and I don’t know how many other channels.  But there was a flaw in that thinking.  Only a small number of those new channels gained large audiences, meaning that cable's bandwidth got bogged down with stuff that only a few folks watched, yet the programmers kept demanding more compensation.  After a while, the broadcasters still demanded their “mandated” retrans fees.  The cable operators (understandably) got upset and thus many of the “new” networks are now facing a future without carriage.

But soon -- hallelujah for the wired ones! -- cable got broadband.  (In fact, cable essentially launched broadband for consumers, but my wife says I should stop mentioning that every chance I get.)  History soon repeated itself.  Every time cable made more spectrum available, it got used.  First to the trough were Microsoft, Google and Facebook with a variety of services offered free (for them) over cable's broadband.  And then, following a long-developing plan that involved a lot of envelopes, Netflix invaded the cable infrastructure.

Thus “over-the-top” became a fearsome rallying cry.  Not, of course, for cable, but for programmers who keep turning out more programming than the nation has eyeballs.

At any rate, the idea of individually subscribing to video –– whether linear or on demand –– began to take over the boob box world.  (Well, not anymore, but I like to write it.)  In short, programming is now being weaned from legacy cable packages to something altogether different.  Kind of an individual bunch of buffet choices after gutting the “cable” part of the broadband “cord.”

Which raises a question:  Just how important are those over-the-air stations to cable, a.k.a. the broadband providers, these days?  I mean, cable has to bill individual subscribers in order to pay the broadcasters' retrans fees while their over-the-air signals are free for viewers with antennas.

Are those fees worth it anymore?  I kind of doubt that the next generation of cable broadband providers will think so.  Why should they send barrels of cash to broadcasters when the broadcast product is free to many, many consumers via antennas?  And, under the Malone/Murdoch act, why carry all those small networks with even smaller audiences in order to "reduce" the impact of the broadcasters' fees while letting them eat up huge swaths of spectrum?  Why not tell the broadcasters to create streaming services locally if they still want to rake in the ad dollars?

It's a sign of the times, folks.  Either that or revert to cable’s origination story and have the broadcasters compensate operators for carrying the broadcast content. The way I see it, it's an idea whose time has come.  After all, the broadcasters did agree to “reverse compensation” for their program suppliers.  Nobody ever said that could only work one way.

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