Threat of New Retrans Negotiation Rules Could Affect Negotiations, Experts Say

Whether retransmission consent negotiations will be smoother in the near future is debatable as the FCC spelled out 15 negotiation tactics now under its microscope in a rulemaking notice Wednesday on the totality of circumstances in good-faith negotiating (see 1509020061), officials said in interviews. "This is known as 'regulation by raised eyebrow,'" said cable consultant Steve Effros. "The commission is saying ‘you ought to be very careful if you're engaged in this sort of activity -- we're watching.’" But an NAB spokesman said the group expects pay TV "to use the FCC’s NPRM as an opportunity to create more programming disruptions, not fewer. There is demonstrable evidence suggesting that pay TV providers like Dish use the prospect of government intervention into a free market as grounds for forcing impasses.”

The NPRM solicits input on the 15 actions, and whether other practices should be considered evidence of bad faith negotiation under the totality of circumstances test. The questions the FCC raises in the NPRM include whether "causing consumers harm to enhance negotiating leverage" -- without any elaboration or definition -- should be part of the totality test. Some of the 15 "are clearly" not about bargaining and may not be within FCC purview, such as online access to content that is blacked out, said broadcast lawyer Jack Goodman, who frequently works on retrans contracts.

The immediate effect on negotiations "could go either way" because some broadcasters might go to the table even more aggressively to try to lock in big retrans rate increases before a rule change limits their leverage, said Thomas Larsen, Mediacom group vice president-legal and public affairs. The effect of the NPRM on negotiations "varies from party to party and negotiation to negotiation," said John Hane of Pillsbury Winthrop, who has handled retrans consent negotiation issues. "Some people may be a little gun shy, others may say 'I'm not going to let this modify my practices.'"

Blackouts such as Dish Network/Sinclair's last month and Mediacom/Media General's in July, just before the All-Star game, seem to indicate broadcasters likely won't act any differently now than before the text of the NPRM came out, one cable industry official said.

The effect of the NPRM perhaps depends on the size of the multichannel video programming distributors negotiating, said Micah Caldwell, ITTA vice president-regulatory affairs. For larger MVPDs with the resources to file retrans consent complaints with the FCC, "the NPRM could potentially have a deterrent effect with respect to the conduct identified due to additional FCC scrutiny," Caldwell emailed. "For broadcaster negotiations with smaller and new entrant MVPDs like ITTA member companies, it is likely to be business as usual. Broadcasters are not likely to be constrained ... because there is less risk the MVPD will file a complaint calling the Commission's attention to the broadcasters' behavior. In fact, broadcasters may seize upon the time between now and the FCC's issuance of an order as an opportunity to engage in this and even worse conduct with smaller and new entrant video providers to lock in one-sided deals while they continue to have all the bargaining leverage." Only the actual adoption of enforceable rules will likely provide some deterrent protecting smaller and newer MVPDs, Caldwell said.

Whether the NPRM ultimately means new rules is equally murky. It will almost surely lead to some kind of FCC order, though what the actual changes will be is unclear, said a communications attorney who has represented both broadcast and cable. But any retrans rule changes likely won't ultimately accomplish much in real economic savings because, while retrans fees have skyrocketed, that is largely driven by programming costs -- an issue not regulated by the FCC, the lawyer said. Numerous NPRMs that similarly asked broad questions "have never seen the light of day," Goodman said. Whether the agency actually adopts new rules "is a long way off," and could be influenced in part by how MVPDs and broadcasters act in light of the NPRM, Effros said. "It is significant move the Commission has at least started to raise its eyebrow." That no rules might come out of the NPRM "is absolutely a possibility -- we're not claiming victory. It's a great step in the right direction," Larsen said, saying the proceeding will likely see "a record number" of broadcast filings and huge numbers from MVPDs and their allies: "There are going to be lot of busy telecom lawyers in D.C. over the next few months."