The retransmission consent regime: A primer

Monday’s highly anticipated CRTC decision on value-for signal is turning attention to the United States’ “retransmission consent” system. The CRTC has recommended a Canadian version of the system, guarding approval from the Federal Court of Appeal. By this time next year, Canada could have a system similar to that of the United States, where backroom deals determine the value of broadcasters’ assets. The American system offers ideas as to what a retransmission consent regime could mean for Canada could be if the Federal Court gives the go-ahead, and Canadian private broadcasters can open negotiations on the value for their signals with cable and satellite providers. The United States’ retransmission consent regime is its own version of a value-for-signal system, which in 2009 resulted in an estimated $789 million US in compensation from cable operators to private over-the-air broadcasters. American research firm SNL Kagan has projected that those transfer payments could grow to about $1.6 billion US in 2012 and nearly $2-billion by 2013, according to numbers acquired by Variety Magazine. In rare cases, American broadcasters have resorted to blackouts to negotiate fees for their signals with cable operators. On March 7, 2010, Walt Disney Co.’s ABC pulled its coverage of the Academy Awards from three million Cablevision Systems Corp. customers in New York. The blackout only lasted for the first 13 minutes of the program, but it was long enough to reach an agreement in principle. According to a report at the time by Anthony DiClemente, an analyst with Barclays Capital in New York, Disney wanted Cablevision to pay $1 per customer for the right to carry its local WABC channel. The Federal Communications Commission (FCC) has since decided to study the cable-broadcaster negotiation framework to improve how retransmission deals are negotiated. Before 1992, cable operators did not need the permission of the networks to distribute their signals. As in Canada, private, over-the-air networks had to offer the distributors free access to their programming. That year, however, the United States Congress passed the Cable Television Consumer Protection and Competition Act, which set up the retransmission consent system. In 1994, the FCC established rules governing the system. For the first 10 years that the system was in place, it was rare for broadcasters to make monetary demands on cable and satellite providers for the right to carry their signals. As CRTC chair Konrad von Finckenstein said on CTV Monday, the US experience “has been that most of the compensation is not monetary, but ‘in kind’ between the cable companies and the broadcaster.” Instead of demanding that the distributors pay fees, contractual negotiations involved broadcasters asking for anything from higher-profile placement on the dial or carrying a broadcasters’ specialty channel at a reduced rate. Under the American retransmission consent system, broadcasters have the option to operate with a “must-carry” status, in which they cannot make any demands of the distributors on condition of guaranteed carriage. But taking their chances at the negotiating table means the broadcasters drop that guarantee. About five years ago, broadcasters were running into financial difficulties due to dwindling advertising revenues, and started asking for cash for carriage. The competitive nature of the American video marketplace, through a variety of cable and satellite providers, gave the broadcasters the opportunity to play one provider off the other to gain extra leverage in negotiations. One American cable industry insider said the broadcasters have inherent advantages through the retransmission consent regime: The broadcasters are privy to free public spectrum, can choose between mandatory carriage and retransmission consent, and have the option to shop around—while the distributors do not. As cable companies like Rogers Communications argue in Canada, seeking fees from the distributors could result in higher cable bills. In recent years, distributors in the United States have raised their prices to compensate for funds transferred to the broadcasters. Late last year, some of the largest US cable providers, including Time Warner Cable and Verizon, wrote a petition to the FCC arguing that the commission’s regulations surrounding retransmission consent are “outdated and causing consumer harm.” Canada does not have as competitive an environment, so it’s not clear that a Canadian version of the retransmission consent regime would give Canadian broadcasters as much leverage as their American cousins. As Paul Sparkes, executive vice president of corporate affairs at CTVGlobemedia, told critics Monday, a retransmission consent regime shouldn’t result in higher cable bills in Canada. “Our position from the outset has been that consumers are already paying for cable and that they shouldn’t have to pay any more,” Sparkes said. Broadcasters like CTV and Global have said the distributors have an obligation to share profits when 2009 revenues for conventional private broadcasters were down 7.9 per cent from the previous year. During the same period, revenues for the broadcasting distributors grew by $1.1 billion over the previous year, reaching $11.9 billion in 2009. jmigneault@thewirereport.ca

The retransmission consent regime: A primer

Broadcast | March 23, 2010

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