Small cable operators are dealing with some big issues in Washington.
They are chafing at an FCC order requiring them to carry TV stations in analog and digital after the DTV transition if that's what it takes to provide a “viewable” signal to subscribers. But they see an ally in FCC Chairman Kevin Martin on the issue of “program tying,” in which cable programmers require operators to buy several channels in a package. They do not support retail a la carte, which they say won't work as a government mandate, but do want the government to require programmers to give them the option of buying those channels in more flexible ways. That includes government help with the retransmission consent/must-carry regime, which they say is outmoded and will take its toll on small operators.
American Cable Association President Matt Polka understands how some people have concluded that FCC Chairman Kevin Martin has a vendetta against the cable industry, but sees an ally in the chairman on program tying.
Fresh off a board meeting in advance of the ACA's annual conference in Washington, Polka talked to B&C about how his members, primarily small cable operators serving a few hundred or a few thousand viewers, are faring in Washington.
Why should the government intervene now in the wholesale market for
Because they did in the first place. Because it is the retransmission consent rules that have given rise to the consolidation of more and more content. The government already did try to balance the marketplace in 1992 based on what it saw as the need for some protection for broadcasters to be able to select either must-carry or retransmission consent. It is sort of like a teeter-totter. Back in '92, Congress perceived that there was an imbalance of market power between smaller broadcasters and larger cable operators, so they rejiggered the balance and moved the fulcrum more toward the broadcasters. But in 16 years of significant changes in the marketplace through consolidation, that fulcrum has never been adjusted.
One of the reasons we are very pleased that the FCC has undertaken its rulemaking on retransmission consent and program tying, is to fully view the application of retransmission consent in its current form and compare it to what was intended in 1992, when the marketplace was significantly different. In 1992, arguably there was a very good reason for the retransmission consent rule.
But when you fast-forward to today's market, where retransmission consent is a sword wielded by the major networks and very, very large and powerful broadcast affiliate groups in a marketplace where there now is competition, we question certainly the application of those rules in 2008—and more particularly the need for application of those rules to the smaller providers who lack any measure of market share in dealing with the large broadcast networks.
Larger cable operators certainly don't want that fulcrum to change if it means program unbundling.
The larger operators and programmers, and the broadcasters, have said there should be no change to current legislative or regulatory rules as they relate to retransmission consent or programming tying and bundling, with some exceptions. Some of the NCTA's larger members have commented about the harm of retransmission consent and the need for reform. And some independent programmers have focused on the fact that they have difficulty getting carriage.
The largest media companies in the world have the ability to use rules designed for a specific purpose in 1992 to exercise the monopoly ability to dictate a rate for retransmission consent in the marketplace. And as consolidation has increased, it has given the networks the ability to use their marquee cable and satellite programming in the same way that retransmission consent has been used—not only to demand increasing monopoly prices, but also to demand increasing tying arrangements ofprogramming.
We're not asking Congress or the FCC to abolish bundling, whether it is in retransmission consent or the cable programming perspective. What we are saying is that if broadcasters or programmers want to offer a bundled price, that's fine. But we also want them to offer, and what we have asked the FCC to do in the context of retrans and general programming authority, is to say that broadcasters and programmers also must provide a rate for carriage of that service on what may be a more limited tier or a single-channel basis. And that gets to a lot of the higher-cost sports programming that you see.
But how can you do that without price controls?
We're not asking for price controls. We're saying that if there is a dispute over price, let's bring it to the FCC for review and mediation and, hopefully, resolution.
It is not that the ACA, through this rulemaking, is advocating retail a la carte. We oppose it and don't think it is something our members can do. But if an operator, based on input from its customers, can create some greater choice through packages and, even with some of the very high-cost services, sell them on a single-channel basis, then everybody is happy.
I was in two congressional offices last week—one urban, one rural. There is today almost no difference between the packages of services offered in a downtown urban area and in the country, but people in rural areas are not really all that interested in MTV, VH-1 and some of the other stuff. They would rather have more Outdoor Channel, Sportsman Channel, things that really tie to their interest. Right now, these packages are all homogeneous, whether it is big cable, small, satellite, AT&T or Verizon.
The broadcast and programming industries say there is plenty of choice now. Yeah, except maybe on the television. My daughter can go and buy one episode of Lost for $1.99, which she does. She is happy with that. I'm happy with that. She gets what she wants and she is paying a lot more than maybe what the price of a channel is on a monthly basis. But she is happy with that choice even though she is getting less. People are doing that across the country daily.
So, with Congress concerned with elections, is the FCC your best hope?
That's where things are moving. Don't get me wrong; it could catch fire elsewhere. We've seen where one issue, like Janet Jackson at the Super Bowl, touched off an indecency debate that still is pretty hot and active. Given what we expect will be a difficult retransmission consent year for our members, we will have the opportunity to show to Congress and the FCC the real impact of their rules.
FCC Chairman Kevin Martin has talked about giving some low-power stations the same must-carry rights as full-power stations to help ease the DTV transition. Should they do that?
That issue is analogous from our perspective to the whole dual-carriage mandate issue. Basically, what the chairman was talking about was a greater carriage mandate for broadcast signals. From a smaller company perspective, that certainly does have a capacity impact. We're very concerned here about what amounted to even further carriage mandates.
At the same time, we understand there are issues raised by the low-power broadcasters, maybe legitimately so, on how they have been cut out on some of the legislation and may not have a means of a smooth transition. But I don't think the answer is greater carriage mandates.
You asked for a blanket waiver of the dual-carriage agreement that required cable operators to carry both analog and digital versions of a TV station, if necessary, after the DTV transition. Why?
It doesn't make sense for us to ask a very small company that in many cases may not have the money to buy the equipment before the transition to digital to have to pay the filing fee plus the legal expenses to try to move a waiver request through the FCC. And our experience with the waiver process has not been good.
NCTA Chairman Kyle McSlarrow has said Chairman Martin has a vendetta against the cable industry.
I can appreciate that sentiment. We certainly have tried very hard to work with the commission to see the unique circumstances faced by our members. But it has been difficult, no two ways about it. I have nothing I can point to about why there might be a vendetta, but I certainly can look to the actions of the commission, which have been pretty direct against the cable industry, larger operators as well as small. But we are not afraid to push back and say the commission got it wrong.
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