A User’s Guide to the Video Wars

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Over the next year or so, there will be skirmishes in Congress about video regulations.  On the surface, they may sound technical – men wearing ties will bandy about terms like “compulsory license” and “local-into-local” – and it will be very easy to ignore the whole thing. But there are giants moving on the face of the earth when it comes to video, and many dollars are at stake. Just add zeroes until you get interested.

Here’s a quick user’s guide to the video wars:

1. The vehicle. The legislative twig that may become a Christmas tree is the mandatory need to figure out what to do with a particular license granted to satellite operators (Dish, DirecTV) that will otherwise end at the close of 2014. That license lets the operators send their subscribers signals that they have picked up from over-the-air broadcasters located outside the subscriber’s territory. (Without the license, the satellite operator would be a copyright pirate.) The great thing about this statutory license is that it must be granted by the program supplier – it’s “compulsory” – at a set rate. This avoids one-off negotiations. There are also compulsory licenses given to cable operators for retransmitting programming.

Back in 2010, after very painful wrangling, the President signed the Satellite Television Extension and Localism Act (STELA) into law, extending that license for another five years, or until the end of 2014. STELA also asked for reports from the Copyright Office, the FCC, and the GAO about mechanisms that might lead to phasing out these statutory licenses. Now it’s time to start thinking about whether and under what terms these licenses will continue.

The legislative problem, or opportunity, is that there are plenty of cable operators who would like to see the entire statutory structure governing retransmission of broadcasts and programming changed or repealed. Hence the opportunity: if they persuade Congress, they can force all programmers (eventually) into the marketplace; no more statutory assistance with negotiations. They would like to see everything on the table.

2.  The players. Broadcasters want things to stay as they are. At the moment, they are happy with the compulsory licensing system. They also don’t want to undermine a related statutory structure that is proving to be extremely lucrative::  they can ask to be paid by cable operators for their programming. This is “retransmission consent,” and it’s been great for broadcasters.

Back in 1992, the idea was that giving over-the-air local broadcasters the legislative right to elect to be paid for their programming or to require cable operators to carry it would support the nationwide over-the-air broadcasting system – one that about 40% of Americans were still watching at the time. We wanted that free system to continue. Allowing cable operators to run systems without broadcast content would, if it ended up being extremely popular, undermine broadcasting as a whole. So Congress forced cable operators to carry broadcasting.

Retransmission consent has ended up being a cudgel in the hands of the broadcasters. If they don’t like what they’re offered, they can threaten to pull their signals from cable and satellite operators. In the game of chicken that follows, broadcasters can often do extremely well – in the Fox/Cablevision fight of late 2010, Cablevision lost tens of thousands of subscribers and ended up having to pay what Fox asked for its signal. Consumers routinely lose in these cable/broadcast battles, and cable rates continue to go up. Also, smaller cable companies don’t have the leverage to win these games of chicken.

In the meantime, though, the broadcasters have not pushed their digital future as much as they could have; free over-the-air television, while it exists, is not their focus and less than 10% of Americans now watch it. They could have added more channels or pushed the desirability of their over-the-air service beginning in the early 1990s; instead, they saw money flowing in from cable subscriptions and decided to focus there. They don’t want retransmission consent (now generating billions) to go away.

The diversity and localism of the content provided by broadcasters is still (or should be) relevant. But they’re looking more like cable channels all the time.

The large cable operators would like to see retransmission consent vanish. They’d also like to take apart, over time, the compulsory licenses that they have been given; they’d be comfortable in the marketplace, where they have lots of power. (Comcast is on both sides of this discussion; they’re both a broadcast programmer, through NBCU, and a cable operator.) They’re pretty convinced that must carry is unconstitutional, because it forces them to carry particular kinds of content (broadcast television) without compensation.

And they’d also like to see program carriage and program access vanish. First, these statutory regimes require cable operators not to “unreasonably restrain the ability of an unaffiliated video programming vendor to compete fairly by discriminating in video programming distribution on the basis of affiliation or nonaffiliation of vendors.” That’s very hard to show; only Tennis Channel, in an order now stayed by the DC Circuit, has managed to show “unreasonable restraint.” Second, these statutory regimes require cable operators to make cable-affiliated programming available to satellite and other competitors. These rules have been extremely difficult to enforce.

The point of all of these rules was to moderate the power of the cable operators and allow competitors to them to emerge. Program access made the satellite business possible. But when it comes to bundled services, where their real power lies, the competition to the cable operators is insubstantial: Verizon doesn’t plan to reach more than 18 million people, and DirecTV and DISH can’t sell wired access that competes effectively with cable – they’re in the satellite business.

The small cable operators and the satellite companies would like to blow up retransmission consent but keep in place the program access rules that make it possible for them to stay competitive in video.

A new category, online video distributors, wants to get the same rights to cable-affiliated programming (think regional sports networks) that a small cable company or a satellite company gets. But the cable operators aren’t enthusiastic about that – they don’t want to see accelerating cord-cutting as viewers opt to turn off cable subscriptions and simply watch tv and video online.

3. The Problem.  All of these actors have strong interests in maintaining their powers: Broadcasters want the money associated with retransmission consent. The large cable distributors want no interference with their ability to pick and set the prices for particular cable packages, and don’t want to give anything more to either satellite operators or online video distributors. The small cable operators and the satellite companies are feeling squeezed by both the broadcasters and the large cable distributors and want help.

None of these actors (except, perhaps, the online video distributors) has a strong interest in disrupting the vertically integrated programming marketplace that accounts for so much of what America watches. The consumer, who is being squeezed the most, would like to watch what he/she wants, when he/she wants, and doesn’t want to be stuck with enormous must-buy bundles. But no one is talking about that.

So look for a long season of tussling. It’s good for lawyers; this stuff is very complicated. My prediction is that there will be very little in this discussion that will focus on what consumers would like to see. If it becomes a Christmas tree, there should be some presents under it for the rest of us.

One thought on “A User’s Guide to the Video Wars

  1. Ideally, we want all the over-the-air TV to go away so we can have their spectrum back for White Spaces (wifi maximized).
    Sounds like the best way to achieve this is to enable satellite broadcasters to carry ota tv (think of it as a really tall transmission tower) and keep cable as it is.
    Maybe we can subsidize either net access or satellite dishes for those still stock with ota tv.

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