Kerry to Industry: Find Consumer-Friendlier Route to Retrans

Senator John
Kerry (D-Mass.) appeared to achieve what he set out to do--which was to hold a
"thoughtful dialog" on the retransmission consent regime--at the Nov. 17 hearing on the issue. By the end, he
advised the participants to try to find a
way to negotiate those deals that would not result in consumer
dislocations. He suggested that if such a solution is not found, the dialog would become government

Kerry is chairman of the Senate Communications Subcommittee, which
held the Wednesday hearing. The dialog was among major
players on
the cable and broadcast sides of the equation.

hearing from Cablevision COO Tom Rutledge, News Corp. Chairman Chase
Carey, Time Warner Cable Chairman Glenn Britt, Univision President
Joe Uva
and Ovation CEO Charles Segars, Kerry said he would continue to have a private dialog.

"To the degree that you want
this to remain a sort-of hands-off, arms-length transaction where the
marketplace has the maximum amount of ability to play itself out," he
warned them, "and that would be our preference
too, you have to think about what is the compromise mechanism here."

Kerrry said
all the companies at the table were making a profit and that the public
was not going to be thrilled with the idea of becoming pawns in
whatever extra
percentage of profitability is at stake, measured against the profits
they already make, measured against the "government gift" of
their right to take place in the marketplace.

That last part appeared to be directed at broadcasters.

Kerry said
that he wanted to put to rest the "myth" that it was a free marketplace.
He pointed to broadcasters gift of billions of dollars worth of
spectrum and the
public interest obligation that went with it. Rutledge, in one of his
most pointed criticisms of broadcasters, said they were using
that spectrum "in a
way that is abusing consumers." Carey pointed out that anybody who
wanted to could have watched the World Series for free during
the retrans impasse.
"Which makes the notion of paying for it ridiculous," shot back
Rutledge, drawing laughter from the audience.

When Chase
Carey asserted that broadcasters were going from getting paid nothing
for their signals to getting paid something, Kerry countered that
getting carriage for co-owned cable channels had been
compensation for earlier deals: "That was the quid pro quo." Carey
conceded that the channels had been part of the deals, but was not
conceding it as necessarily a "value transfer," calling it instead more
of a win/win for broadcasters and cable operators
with the creation of channels like Nat Geo and Fox Deportes. "Time
Warner Group is a bundle, Discovery is a bundle," he said, It's the
nature of the business."

Kerry asked
what the difference was between the majority of retrans deals that get
done without signals being pulled, and those, like the recent
Fox/Cablevision impasse, where there are blackouts.

said that the difference was when someone--he did not say News
Corp.-asks for a very disruptive price, regardless of market conditions,
the degree to which
that is an "exploitive request." Rutledge echoed Cablevision's criticism
that Fox was asking for more than it paid CBS, ABC, NBC
and Univision combined.

Carey said
it was because in this case, the entity in question--he, also, did not
mention Cablevision--wanted to politicize the negotiation and,
rather than pay a more-than-fair rate, have government step in to mandate a solution.

And while News Corp. may be profitable, Carey said the Fox network had lost $200-$300 million over the past several years.

Sen. Kerry
asked Carey if it wouldn't be possible for Fox to negotiate a
deal without pulling a signal. Carey said it had in three out of
the four retrans deals with major players.

Sen. Frank
Lautenberg (D-N.J.) pointed out to Rutledge that while Cablevision has
been involved in a couple of high-profile impasses in which signals
have been pulled,
its competition for the most part has not. Asked why, Rutledge said he
was trying to hold the line on cable rates, saying it was
fighting for its customers and had been successful for the most part in doing so.

Carey countered that he agreed cost of content is an issue with cable pricing, but that it needed to be looked at holistically over the hundreds
of channels. He said broadcasters should not be relegated to second-class status in order to deal with the cost of content.

several times talked about Fox's retrans price as only a fraction of the
cost of an ESPN or MSG Netwokr (the latter co-owned by Cablevision).

Kerry asked
Carey to reveal the price Cablevision paid. Carey declined. Senator
Kerry also asked Britt how much TWC paid for ESPN. Britt said he did
not know off the top
of his head, though Carey quickly weighed in, saying it was five or six
times what Fox was asking. ESPN is widely reported to
commend over $4 per sub.

Kerry said
the committee would probably need to get a better handle on those
numbers, saying he would have to "mull that one over."

Carey argued
throughout the hearing that broadcasters need to start getting paid for
their content so they can have the kind of dual revenue stream
that allows its
cable competitors to bid, and sometimes outbid, them for high-value
content. Britt countered that if Fox wanted to look more like a
cable net, that was
fine with him, but that it should then give up all the government
privileges--retrans, must-carry, market exclusivity--that cable
channels don't get.
Kerry seemed to be on the same page, saying later in the hearing a good
case had been made, including by the Congressional
Research Service, that there were government rules and regs that kept it from being a purely marketplace negotiation.

Outside of harsh media criticism from Commerce Committee Chairman Jay
Rockefeller, the questioning was pointed
rather than accusatory, and focus on the consumer impact of the negotiations.

for one, called broadcasting a precious commodity and a necessity in
people's lives approaching gas or electricity. Kerry suggested that
was an argument for the FCC using its power to protect consumers.

Kerry said
more than once that the subcommittee's predilection was to let the free
marketplace decide rather than jumping into it. But he also
suggested that the
marketplace was not an entirely free one, which necessitated the
committee's interest and, if need be, action, including his own
draft of a bill to make the FCC a mediator, though not arbitrator, of disputes.

"We have to
think this through carefully," Kerry said of the retrans reform issue.
"I don't think any member wants to come leaping in in an inappropriate

But Kerry also asked them to think about
his bill, which would require more transparency in terms of TV
station retrans pricing, and direct the FCC to step in during impasses
to vet the two sides' offers and positions and make a determination of
whether the bargaining was in good faith, and if it
is, then broadcasters would be allowed to pull their signals. "The bill
requires a simple level of both transparency and judgment. Are they
working in good faith. If you have a good faith argument based on the
marketplace, based on competitors based on the
various offerings available, people step back and say, 'OK. this is not
our deal,' and you can still pull your signal."

"I just ask
you to think about that," he said. Kerry suggested that if negotiations
go forward in the current atmosphere, "some people may feel more
compelled to press for an advantage and pull a signal. No one here, I think, is going to react very positively to that."

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.