Exclusivity Eliminations Would Do Little To Alter Balance of Retrans Power, Pay TV Experts Say
FCC Chairman Tom Wheeler's goal of eliminating exclusivity rules (see 1508120051) in the name of better balance in retransmission consent negotiations may not be much of a boon to multichannel video programming distributors, MVPD attorneys and a cable executive said in interviews this week. “Exclusivity is not the driver” in retransmission negotiations, BakerHostetler cable attorney Gary Lutzker told us. “Far from it." The network nonduplication and syndicated program exclusivity rules "are kind of a double-edged sword," said Cinnamon Mueller cable attorney Scott Friedman. While they give broadcasters the right to enforce contractual exclusivity in a market's geographical footprint, conceptually the elimination of those rules could mean broadcasters could enforce by contract exclusivity over a broader area, Friedman said. "I don't think that is going to happen, but there is a bit of uncertainty there."
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Wheeler last week said he was circulating a draft order to eliminate what he called "outdated 'exclusivity rules'" that prevent subscribers from importing an out-of-market broadcast signal to replace a local one being blacked out. With that proposal, Wheeler said, the FCC "takes its thumb off the scales and leaves the scope of such exclusivity to be decided by the parties." The agency has given no details on what exclusivity changes are being considered.
The nondupe and syndex rules already have caveats and exceptions, including that exclusivity extends only to a geographic zone of 35 to 55 miles around a market and that nonduplication can't be enforced if the imported signal is from a station that is already significantly viewed in the market, Lutzker said. Without exclusivity rules, networks can still prohibit affiliates from granting retrans consent for their signals to be imported into other markets, Lutzker said. Such third-party interference is among the issues pay TV raised in June 2014 when the FCC was taking comments in docket 10-71 regarding retrans rules, including the notion of amending or eliminating broadcast exclusivity rules (see 1406300055).
Under the media ownership rules, the FCC needs to take steps that would stop arrangements like third-party interference that would circumvent any elimination of exclusivity rules, said Micah Caldwell, Independent Telephone & Telecommunications Alliance vice president-regulatory affairs. Eliminating exclusivity alone "will not fix some of the problems we encounter with having very little bargaining leverage," though it would provide some rebalance of power in retrans negotiations, Caldwell said. "I would not call it a significant shift -- it's a step in the right direction." In an ex parte filing posted Wednesday in docket 10-71, detailing a meeting between ITTA President Genevieve Morelli and Chairman Michael O'Rielly Chief of Staff Robin Colwell about exclusivity issues, ITTA said program exclusivity rules distort as local stations -- which have a monopoly as supplier of network and syndicated programming -- are shielded from competition and allowed "to demand exorbitant retransmission consent fees through take-it-or-leave-it negotiation tactics." In the meeting, ITTA also reiterated its argument that a variety of actions should be considered per se failure to negotiate in good faith, including not making an initial contract proposal at least 90 days prior to the existing contract's expiration and preventing an MVPD for disclosing rates and terms to the FCC or other public entity in connection with a formal retrans consent complaint or other legal proceeding (see 1508100030).
Axing exclusivity rules would be "a highly symbolic change in the FCC view of broadcasting," said cable operator MCTV's president, Robert Gessner. "They have long felt their role in regulation of cable television was to ensure the financial integrity of broadcast television. This says 'We'll let it be level.'" The effect on cable operations would be seemingly be more workaday. MCTV no longer carries distant signals largely due to retrans-related issues, as network affiliation agreements "made it unattractive" for stations to let their signals be imported into other markets, Gessner said.
Broadcasters have begun rallying around keeping the exclusivity rules status quo (see 1508170048). In a filing posted Tuesday in docket 10-71, NAB said the problem with Wheeler's argument that exclusivity rules are outdated "is that the most relevant changes in the marketplace -- MVPD and cable consolidation, specifically, make the rules more essential than ever. The pay TV industry's steady consolidation has transformed numerous smaller regional operators into nationwide behemoths that have much greater control over subscription-based television (to say nothing of their near total control of the broadband-to-home market)." Already benefiting from the boon are blanket distant signal licenses, and "it makes little sense that the Commission should now ... drop an enormous weight on the scale for them by removing the exclusivity rules that have ensured some measure of balance as broadcasters have been overshadowed by a heavily concentrated, well-capitalized cable industry."