Retransmission Consent: Do We Believe in a Free Market or Not?

by Dom Caristi and Brendan McMahon

                  Retransmission consent rules have gotten a lot of attention lately. On March 31st the Federal Communications Commission voted to prevent most television stations from joint negotiations for carriage of their signals on cable and satellite systems. FCC Chair Tom Wheeler stated that the rule was needed to “level the table.” In his view, collective negotiations by broadcasters somehow make the process unfair.

At the same time, cable operators can be forced by channel aggregators to carry packages of unwanted channels in order to carry one or two popular channels, but the government never bats an eye. The most egregious pressure is brought to bear on small, rural systems that have less negotiating power. “Bundling” is a process that predates the retransmission rules and can result in a much greater cost to consumers than the retransmission rules. According to the American Cable Association, programmers demand that cable systems carry more than 60 additional channels in order to get the most popular offerings.

A recent study by SNL Kagan says that retransmission fees account for just under 9 percent of the fees MVPDs pay to program providers: that’s even less than 9 percent of the total cable bill, which would also include office expenses, maintenance, profit, etc. The evidence would suggest bundling has a larger impact on a consumer’s cable bill than retransmission consent, but that’s not what the government seems to care about.

Americans say they believe in the marketplace as the best way to regulate a free market, but some people have a misguided notion of the way the marketplace works. What we see happening right now is the appropriate playing out of marketplace forces. Hearst stations disappeared from Time Warner Cable systems for 10 days in 2013. The Weather Channel vanished from DirecTV for less than three months. In these and other cases, brief channel outages were resolved after the companies negotiated an agreement. Let’s be frank for a moment: the loss of any of these channels does not rise to a level of “public service” concern. Even The Weather Channel, which tried to sell itself as public service, is far less effective at notifying people of local threatening conditions than local, over-the-air broadcasters. People who have complained to the FCC or their elected representatives complain that they might miss their favorite programs, or some sporting event. Is this the stuff of government intervention into the marketplace?

Let’s consider what is likely to happen with no government intervention: if channels begin to charge MVPDs too much, eventually some invisible line will be crossed and a courageous MVPD will be the first to drop a channel – not just temporarily, either. Subscribers to that service will then have to decide whether the channel is so necessary as to cause them to switch providers. If a significant number switch, the MVPD “loses” in the marketplace. If the subscribers don’t care, then the channel “loses.”

It’s up to consumers to decide when enough is enough. Given the plethora of options; from cutting the cord, to switching providers, to giving up on television altogether (gasp!), the marketplace ought to be where consumers choose the winners and losers.