Recently, the Federal Trade Commission heard an earful from a range of industry leaders at a hearing on the agency’s proposed “Click-to-Cancel” regulations, which aim to impose wide-ranging regulations to govern how subscription-based businesses must interact with their customers. The most compelling objection came from the cable industry, which pointed out — quite accurately — that its sign-up and cancellation practices are already closely regulated by a separate federal agency. 

Congress first granted the Federal Communications Commission a mandate to regulate the cable industry nearly four decades ago. In the years since, Congress has repeatedly reinforced that authority — including via 1992’s Cable and Television Consumer Act and 2019’s Television Viewer Protection Act (TVPA) — to ensure the FCC has the power to regulate precisely the kind of business practices on which the FTC has now set its sights. 

For example, under FCC rules, cable operators must maintain a customer service line 24 hours a day, seven days a week, and answer calls within 30 seconds. Cable operators must disclose the total monthly charge for service to consumers before entering a contract — and explicitly note the amount of any promotional pricing and when it expires. Within 24 hours of entering the contract, the provider must send this same information by email or online link and give consumers a 24-hour window to then cancel with no penalties. The TVPA also requires electronic bills to include information about charges and fees, the termination date of any promotional discount and the termination date of the contract. 

I’ve seen firsthand, as former chief of the FCC’s Cable Services Bureau, how the commission’s broad regulatory oversight in these areas effectively empowers it to protect consumers and investigate and punish any bad actors. Decades of close oversight has built within the FCC an in-depth, nuanced comprehension of the sector and the specific protections its customers need.  

By contrast, the FTC’s envisioned rule paints all industries with the same broad brush. A sweeping, “one-size-fits-all” proposal that sees no difference between cable TV service and scammy subscription businesses will cause confusion and may result in unintended negative consequences for consumers. 

Undoubtedly, there is need in other industries for the FTC’s proposed rule. Cast in the most favorable light, perhaps the FTC’s efforts could be viewed as that agency’s effort to do for the rest of the digital economy what Congress and the FCC have already done and continue to do for cable customers; that is, ensuring consumers have full disclosure of all the key facts — prices, terms and conditions — they need to make informed choices, and then making sure they can easily reach their providers if they want to modify service. Assuming that’s the FTC’s goal, it should take the logical step to exempt the cable industry from its proposed rules, rather than just overlapping the FCC’s efforts in ways that could lead to innumerable headaches and costs for both providers and their customers. 

The FTC’s proposal, for example, would likely lead to cable customers receiving less-relevant information and fewer options compared to the FCC’s current regime. In fact, the proposed rule strictly forbids any business from even offering a departing customer a better price or special offer without first asking and receiving their explicit permission to extend such an offer. Intentionally restricting a company’s ability to offer customers discounts or other benefits is hardly an intuitive approach to consumer protection. A key component of making informed decisions is not only access to information before signing up, but also access to information before canceling. 

The FTC’s simplistic, one-size-fits-all approach is particularly ill-suited for complex offerings like cable service, for which consumers can generally personalize their choices from a menu of bundled services, channel packages and speed tiers. Subscribers often opt for discounted packages with specific terms, and if a customer cancels early or cancels only one service in the package, the discount may be revoked. Restricting a provider’s ability to clearly explain those consequences could lead to subscribers unintentionally canceling desired services. 

The FCC’s long-established approach to protecting cable consumers is informed through decades of oversight and expertise and rooted in core principles of transparency, disclosure and consumer choice. The FTC should direct its efforts to those industries not already subject to comprehensive, industry-specific consumer protections. 

Television has changed a lot over the past 30 years. Our nation’s TV laws have not.

October 5, 2022, marks the 30th anniversary of the 1992 Cable Act, and American consumers continue to pay the price for these outdated regulations still on the books.

Just as the 2020s are an era of transformational change, so were the early 1990s. The Hubble Space Telescope launched, the World Wide Web debuted, the Soviet Union fell, and the United States elected a new president with fresh ideas and a new approach. And Congress enacted new cable legislation.  The goal at the time was admirable — Congress wanted to protect consumers and promote localism. But what remains today of this outdated law does neither.

The Cable Act established retransmission consent fees or “retrans fees,” which are payments that TV providers make to local broadcasters to carry their TV channels. When broadcasters lobbied Congress to create retransmission consent, they told Congress the fees would cultivate localism and help local affiliates. Today, however, those fees mostly flow to network conglomerates and satisfy ever-increasing Wall Street demands.

• Today, the “Big Four” national broadcast networks have largely seized their local affiliates’ control over retransmission consent decisions. They often dictate the terms under which consent can be granted and demand a huge cut of the stations’ retrans fees — called reverse retrans.
• Retrans fees represent the fastest-rising portion of consumer pay TV bills. Over the last 30 years, big broadcast conglomerates have collected more than $74 billion in retrans fees.
• On recent earnings calls, broadcasters have trumpeted the success of their retrans cash hauls. America’s largest broadcast company, Nexstar Media Group, is twice the size of its nearest competitor and reported $4.6 billion in 2021 revenue — 52% of which is from retrans fees. Standard General and Tegna together reported $1.38 billion in retransmission fees from their 2021 revenue sum of $2.7 billion. Gray Television’s retrans revenue topped $1 billion in 2021, reporting total revenues of $2.6 billion. An increasing amount of these fees are going to hedge funds like Apollo Global Management and Standard General, who buy broadcast stations to collect these fees. 

Worse yet, if pay TV subscribers do not concede to these demands for higher fees, broadcast conglomerates pull their signals — again, something the broadcasters promised would never happen back in 1992. This leaves the pay TV provider a choice: to either pay up or go dark. Either way, consumers lose with increased prices or by suffering through broadcaster blackouts.

Retrans blackouts are near epidemic levels, with consumers enduring more than 1,500 blackouts since 2010. At the height of the COVID-19 pandemic in 2020, when consumers needed access to local news and information the most, there were more than 350 broadcaster blackouts — a record for a single year — affecting tens of millions of pay TV viewers. Broadcasters continuously weaponize TV blackouts, deliberately targeting live sports and other must-see TV, blacking out the Super Bowl, NFL and college football postseason games, the World Series, the Grammys, and network TV premieres. When blackouts finally end, consumers get their programming back, often at a higher cost.

As often happens when regulating any industry, it’s difficult to predict its future. In 1992, Congress couldn’t have envisioned the creation of Netflix or YouTube — or foresee watching TV on a cell phone or tablet. Congress couldn’t understand how this new framework would eventually fail consumers.

Today, we live in an instant, on-demand digital world. Consumers have unparalleled choice and competition for video content. The market has changed. Retrans is broken. The American Television Alliance looks forward to working with members of Congress to pass video marketplace reform that benefits consumers.

It’s time to modernize the rules that favor broadcasters at the expense of consumers. It’s time to bring America’s television laws into the 21st century. ▪️

A new breed of TV distributors that’s wreaking havoc in the industry is now on its way to upending the retransmission-consent business model for both pay TV distributors and TV station groups.

Over-the-top subscription services such as Sony’s PlayStation Vue, Dish Network’s Sling TV and a planned offering from Hulu — known as virtual multichannel video programming distributors — aren’t just disrupting the way Americans consume content.

These new players are also forcing new business models on time-honored carriage negotiations between TV distributors that want to carry broadcast networks and those networks’ broadcast-station affiliates.

Virtual MVPDs are one of the hottest segments in distribution. As younger viewers continue to devote more time to watching content on mobile devices and online, they could become a force in the distribution sector, especially as the traditional pay TV universe declines.

Overall, pay TV subscriptions have dipped between 1.5% and 2% per year over the past two years. Although cable is expected to continue to improve its losses, ongoing subscriber losses at satellite TV and telco TV could push the annual declines higher in the future.

Those subscribers are going to have to go somewhere. And though many may cut the cord all together, opting for a broadband connection and a Netflix, Hulu Plus or Amazon Prime subscription, a good portion could go to vMVPDs.

That could create a sense of urgency for the station groups; 3 million vMVPD subscribers in 2017 could quickly escalate under the right market conditions, morphing into a serious source of revenue.

As vMVPDs are launched, they are hammering out new deals with broadcasters, but with a catch — the deals are on a national basis, unlike the market-by-market negotiations of the past.

Traditionally, broadcast networks took a laissez faire attitude toward retransmission consent. They negotiated deals with the distributors for only their owned-and-operated stations, leaving affiliate station groups to negotiate their own, separate deals.

But with vMVPDs, the strategy has been different. Networks have been striking their own, broad deals with OTT distributors, offering owned-and-operated stations in their local markets and next-day national network feeds in areas where they don’t own affiliate stations.

The idea is to bring the independent station groups on later, with those broadcasters receiving a percentage of the fee the network has negotiated. For example, if a network negotiated a fee of $3 per subscriber per month for its O&O stations and an additional $3 for its network feed, it would offer a percentage of that latter fee to station groups for its network affiliate stations. The share varies by market size, according to sources in the broadcast community.

For station groups, that could mean a substantially smaller piece of the pie. According to some cable executives, retrans fees for local stations from the likes of Sinclair Broadcast Group, Nexstar Broadcasting Group and Tribune Media could top $2 per subscriber per month. And some are holding out for more, to the chagrin of some broadcasters, who warn that if the station groups overplay their hands, they could end up with nothing.

From the station perspective, accepting the lower fee could mean they would have to squeeze even more money out of their existing retransmission- consent base — the cable, satellite and telco TV operators who are already complaining they are paying too much.

Revenue from retransmission consent, a product of the 1992 Cable Act, has been the savior of some broadcasters, taking up the slack during a depressed advertising market and in some cases representing more than 30% of a station’s total revenue.

At the same time, it has been the bane of cable, satellite and telco TV operators who have complained they are paying increasingly higher fees for content that is available over the air for free.

Regardless of the partisan claims, retransmission consent is a large part of the TV business, expected to top $7.7 billion in 2016 and growing to $11.6 billion in 2022, according to research firm SNL Kagan.

According to Kagan, more than half of that revenue is from local broadcast groups like Sinclair and Nexstar, which made up about $4.6 billion of the $7.7 billion generated in 2016. In contrast, owned and operated network stations accounted for about $2.9 billion of the estimated 2016 retrans haul.

Virtual MVPDs are new to the TV scene — Sling TV, the oldest, launched in 2015 — and still have relatively few subscribers. Sling TV leads the pack with about 900,000 customers, and the segment as a whole is expected to have between 2.5 million and 3 million subscribers by the end of 2017, according to Morgan Stanley media analyst Ben Swinburne.

Of the major vMVPDs, so far only Sony PlayStation Vue has a deal with local station groups, specifically Sinclair and Raycom Media for certain CBS affiliates. The other major vMVPDs — Sling TV, DirecTV Now and Hulu — have deals with national broadcast networks, but no station groups yet.

Not all of the national broadcasters have signed on, either. Hulu, which plans to launch its vMVPD service later this year, signed a carriage deal with CBS earlier this month, and has agreements with ABC and Fox, but not with NBC. NBC, a partner in the Hulu consortium, is expected to sign on at some point.

CBS, which has its own OTT service CBS All Access, a tough negotiator in vMVPD deals, still hasn’t reached a pact with the largest vMVPD, Sling TV.

NICHE NETS AT ISSUE

Adding to the confusion, some station groups want carriage of niche cable networks — such as Sinclair’s Tennis Channel and Tribune’s WGN America — to be included in their deals. That’s caused some bumps in more traditional negotiations: Tribune’s stations went dark to Dish Network subscribers last year, in part because Tribune insisted on including carriage of WGN America in the negotiations.

While the parties eventually worked out a deal that included carriage of the stations and the cable channel, the networks were dark to Dish’s 13.6 million customers for nearly three months between June 13 and Sept. 3. Other spats are expected as Sinclair, one of the more aggressive broadcasters on the retrans front, begins to bundle Tennis Channel, purchased in March of 2016, into future negotiations.

According to sources familiar with their thinking, broadcasters believe including the cable networks adds unnecessary friction to vMVPD negotiations. They prefer the deals to remain pure broadcast plays.

All this makes for a sticky situation for station groups, which rely on the networks for primetime content but have seen their revenue dwindle as the advertising market has declined and networks — through reverse compensation — are taking a large chunk of their retrans fees.

At least publicly, the stations have said they are trying to work out deals with new distributors as they come up.

At Tribune, that includes carriage on devices like Roku, Amazon Fire TV, Apple TV and Google’s Android TV. Three of its stations — The CW affiliate WPIX in New York and Fox affiliates KTSU in Salt Lake City and WGHP in Greensboro, N.C. — launched on those services in December. Tribune’s remaining 39 stations are expected to roll out in 2017.

“Our strategy is to get our live linear content carried on new distribution platforms in an economically sensible and sustainable way,” Tribune Media senior vice president of corporate relations Gary Weitman said in a statement. “We’re deep in discussions with all the major players and we are confident that we will make good progress on this front in 2017 … As everyone knows, solving the Rubik’s Cube of OTT requires coordination and negotiation with both OTT providers and our network partners. It’s a complicated situation, but we believe that the interests of consumers in having more ways to access the content they want will ultimately win out and that economic benefits will flow to all the parties involved.”

Sinclair and Nexstar representatives did not respond to requests for comment.

BTIG media analyst Rich Greenfield wrote in a note to clients that as more viewers leave linear TV for cheaper vMVPD services, they don’t miss local broadcast channels. If they did, a digital antenna would solve that dilemma.

But the analyst sees a fundamental change in the way vMVPD deals are being negotiated.

“We believe broadcast networks are creating a framework to bring affiliates into each vMVPD on terms set by the network, with the affiliates unable to negotiate directly with the vMVPD themselves,” Greenfield wrote in a recent note to clients. “Essentially, take it or leave it affiliate deals structured by the broadcast network” will “significantly reduce the net payments offered to affiliates.”

The broadcasters see the situation as a natural evolution. According to sources familiar with their thinking, most believe that the current structure is similar to deals struck for video-on-demand and TV Everywhere content. Local affiliates were kept out of those deals to ensure that the scope of programming was consistent.

The absence of station groups from many virtual MVPD deals is largely a matter of convenience, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said.

‘LIKE HERDING CATS’

“It’s like herding cats to get these local affiliates to agree to deals — very complex and time-consuming,” Wlodarczak said. “It is easier to sign a broad deal and to throw in the O&Os.”

The issue, Wlodarczak said, is that the cable operators will likely pass through most of these costs. “Given that the expense of pay TV is the No. 1 reason people leave, it will exacerbate the media players pay TV subscriber issues. Betting on a slightly cheaper skinny bundle is not going to solve that issue, and it will not be good for less popular networks.”

As far as increased retrans fees for pay TV, Wlodarczak said that anything can happen, but to “expect more fireworks.”

That may be an understatement, given how the last big battle between networks and affiliates was resolved. Affiliates first resisted when networks demanded back in the early 2000s that they turn over up to half of their retrans haul to them in the form of reverse compensation. That was resolved simply by the affiliates stepping up their retrans fees.

Traditional MVPDs have grown used to rising retrans costs and fickle stations who raise the ante for carriage on a whim, but the breaking point could be looming near, especially as skinny bundles and virtual MVPDs proliferate.

“They’re pushing the envelope,” said one cable executive who asked not to be named. “They’re trying to get to a certain number that is not sustainable. And kids don’t care as much about local news.”