By Charles McDonald
January 24, 2017 at 5:00 am ET
In 1992, Congress passed a law that allowed local TV stations to collect fees from cable and satellite TV providers. These “retransmission consent” payments flowing to “free TV” providers were supposed to replace lost ad revenue to help finance investment in local news and entertainment programming tailored to the needs of the communities where they operate.
But in the last decade, a well-intentioned act by Congress has become a giant migraine headache for millions of consumers. Time and time again, TV stations are blacking out pay-TV customers — usually before marquee sporting events and entertainment programs — until they receive huge and unjustified increases in retransmission consent fees. And, according to published reports, the preponderance of the fees are not staying with the stations, but instead are going to fatten the coffers of the national broadcast networks.
Smaller and rural cable operators with the most challenging economics are prized TV station blackout targets. A perfect example is the recent conduct of Northwest Broadcasting in Cleveland and Grenada, Miss. Seconds into the new year, Northwest Broadcasting forced regional cable operator Cable ONE to discontinue distribution of those markets’ ABC (WABG), CBS (WNBD2), NBC (WNBD) and Fox (WABG2) stations, leaving consumers without local news, weather, sports and other broadcast programming for the past two weeks.
Northwest Broadcasting’s comprehensive blackout of all local stations in the market is unprecedented and was clearly timed to inflict the most pain on Cable ONE customers. It occurred not only in the midst of a three-day national holiday weekend, but also just hours before the start of the National Football League’s final day of the regular season, when so much was at stake in terms of playoff berths and home field advantage. This blackout has also deprived Cable ONE’s customers of all local news, sports, emergency information and weather programming in the market. Cable ONE had recently resolved more than a half dozen deals with other broadcasters throughout the country for fair rates and expected to do so with Northwest Broadcasting as well.
Although Federal Communications Commission rules generally limit ownership to one or two stations per market, somehow Northwest Broadcasting has gained control of all Big 4 network feeds in these small Mississippi markets. Northwest Broadcasting used that overwhelming bargaining leverage to demand an outrageous fee increase from Cable ONE, which has decided that the better course is to protect its customers than to accept Northwest Broadcasting’s price-gouging demands.
Broadcasting and pay-TV providers are legally required to negotiate retransmission consent in good faith. Since the start of 2017, however, TV stations have initiated 75 blackouts — that’s more than the combined number of blackouts to start 2016 (14), 2015 (26) and 2014 (5). Four million households in 25 states and 46 markets have been victimized by dark TV screens just days into the new year.
In the end, it’s really the consumer who pays the price for TV stations that fail to negotiate in good faith. Although mouthpieces for the broadcast industry would have you believe that blackouts are short and sweet, the truth is that a blackout can go on for months. For example, from Dec. 15, 2013 to July 14, 2014 – some 212 days – Sinclair Broadcasting withheld WNWO, the NBC affiliate in the Toledo, Ohio, from Buckeye Broadband. Cable ONE customers in Cleveland and Grenada, Miss., are getting the same treatment from Northwest Broadcasting, only four times worse.
Preying on smaller cable operators has proved rewarding to the TV station industry. Since 2005, retransmission consent fees have soared 27,400 percent. Last year, retransmission consent fees totaled $7.7 billion and are expected to reach $11.6 billion by 2022. With that much money at stake, the ideal that TV stations will abandon their blackmail-or-blackout strategy is ridiculous.
Congress must understand that retransmission consent needs to be repealed and replaced. Blackouts are an effective weapon for broadcasters like Northwest Broadcasting and Sinclair, because Cable ONE and Buckeye Broadband are barred by law from negotiating with stations in an adjacent market. And cable customers can’t opt out of retransmission consent because federal law says that they have to buy the local broadcasters before buying ESPN, CNBC or Fox News Channel.
Enough is enough. Congress needs to embrace reforms that expose retransmission consent to real market forces. Otherwise, harmful blackouts will continue to rise and the price for “free TV” will go nowhere but up.
Charles McDonald is senior vice president of operations at Cable ONE.
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