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Retrans Stars at Cable Act Hearing

There were few surprises at the Senate Commerce Committee
hearing Tuesday on the hot-button topic of retransmission consent and the Cable
Act of 1992, except that the chairman did not grill any of the witnesses and
that questioning of the witnesses lasted only about 45 minutes, though it is
unlikely to be the last word on the subject.

Indeed, it was billed by one senator as the beginning of a
conversation. If so, it was a relatively polite one. Cable ops said the Act had
been overtaken by marketplace changes and was long in the tooth, while
broadcasters argued that 20 was barely out of adolescence and no reason to ditch
the system.

CBS chief retrans negotiator Martin Franks characterized the
cable and satellite operators pushing for Cable Act reforms as an "unholy
alliance" of distributors who were supposed to be competitors but had banded
together to deprive broadcasters of the compensation they so clearly merit.

And while Chairman Jay Rockefeller (D-W. Va.) hammered cable
over rates in his opening statement and said the hearing was about more than
retrans, that was the major focus, though programming costs were a big part of
that discussion.

Sens. Rockefeller and Mark Pryor (D-Ark.) both pushed for
more transparency in terms of what cable operators are charged for programming.

American Cable Association chairman Colleen Abdoulah said
she would like to be able to share that info, but her contract would not allow

After Abdoulah and Franks got into a gentle tussle over
their relative market power in negotiations, Rockefeller asked them if they
could give him the info on prices, but to no avail.

Franks took issue with Abdoulah's claim of lacking leverage
in negotiations. He initially pointed out to the committee that CBS has done
close to 100 retrans negotiations in the past six years without incident,
including with Abdoulah's company, WOW! Internet, cable and phone, as well as
the other cable exec seeking congressional revamping of the Cable Act, Melinda
Witmer of Time Warner Cable.

He also pointed out that WOW! would not agree to carry CBS'
sports network, suggesting that gave lie to the image of the big bad media
company and the weak ACA member. Abdoulah said she had evidence that smaller
operators did not have leverage and had to pay more for the same channels than
larger operators, and added that she only wished she provide that evidence.
Martin took the chance to make a pitch for carriage of the sports net, but she
said it was not something her customers were asking for.

Sen. James DeMint (R-S.C.) put in a plug for his bill that
would get rid of the compulsory license and retrans, saying he thought broadcasters
would do fine negotiating for their content without help from the government.
But Franks and National Association of Broadcasters president Gordon Smith saw
it quite differently.

Smith suggested that the number of negotiations that would
be necessary would increase by tenfold, and thus logic would dictate, create
ten times the opportunities for disruptions. Franks agreed, and also pointed
out that CBS spent over $5 billion on content based on the current system,
which he called "the devil you know."

Former Senator Smith told the panel, some his former
colleagues on the committee, that broadcasters were still not getting
compensated for their content. But Witmer said that Time Warner Cable paid 69%
of its programming costs to the owners of broadcast stations -- when you add in
their co-owned cable channels including ones launched as part of retrans deals.

In the early days of retrans, there were few cash deals,
with broadcast parent companies compensated through ad inventory and carriage
of co-owned cable channels.

Sen. Tom Udall (D-N.M) Smith's cousin, said he had heard
from a religious broadcaster about the importance of must-carry. That gave
Smith the opportunity to make the point that the must-carry rules had helped
niche, diverse, often minority-targeted stations get to viewers. He added that
without must-carry, you would not have Univision, and even Fox, joking that chairman
Rockefeller might not have minded that.

But former Fox executive Preston Padden was ready for the
must-carry/retrans rules to go away. He told the committee that he did not
think that would lead to any increase in deals not getting done.

Udall also gave Abdoulah an opening. He said that small
rural cable operators had told him they had to pay more for programming that
some larger operators in New York and LA. "What explains that
difference?" he asked.

"Leverage," said Abdoulah, in they walk with the
same service and charge us double-digits more, she said. She pointed out that
her leverage is cutting off 5,000 or 500 subs, while a Comcast has 24 million
subs it could shut off.

Sen. John Kerry put the hearing in perspective, making the
point that there remained a gulf between the DeMint approach of sweeping away
retrans and copyright licenses and basic-tier must-buy and media ownership and
those who, like Kerry, would oppose such a move for, among other reasons,
because he wants to preserve local broadcasting, something he said was an
important goal of the 1992 Act.

He said such sweeping deregulation would have profound
impacts on distribution and concentration of ownership, including possibly
cutting the local stations out of the equation as cable channels purchased
content directly from a single source. He said that the Cable Act had brought
the Congress pretty much what it wanted -- pretty broad-based competition, but
that to sweep away the Act would likely leave very few broadcasters in its

Kerry, who has urged the FCC to get more involved in
resolving retrans disputes, urged it to wrap up its review of retrans rules
launched in 2011.

Kerry said he thought broadcasters should be fairly
compensated, but he also said he did not want to see repeated signal-pulling
become a common tool in retrans disputes, saying it was not fair to consumers.
Abdoulah echoed that sentiment, saying that beyond the question of how the
system was working for the parties was how it was working for the consumers.
She said it wasn't, citing 69 blackouts already in 2012.

Kerry said that in extreme cases signal-pulling may be only
choice, but that there should be a way to set up a process whereby there is
still access to must-have programming like football games or the World Series
or candidate debates. "Consumers should not be pawns in negotiations,"
he said.