Carriage dispute

A carriage dispute is a disagreement over the right to "carry", that is, retransmit, a broadcaster's signal. Carriage disputes first occurred between broadcasters and cable companies and now include direct broadcast satellite and other multichannel video programming distributors.

These disputes often involve financial compensation – what the distributor pays the television station or network for the right to carry the signal – as well as what channels the distributor is permitted or required to retransmit and how the distributor offers those channels to its subscribers.^[1] While most carriage disputes are resolved without controversy or notice,^[2] others have involved programming blackouts, both threatened and real, as well as strident public relations campaigns. Carriage disputes have occurred both in the United States and internationally.

History

The history of carriage disputes can be seen as having two distinct circumstances: the first involving over-the-air broadcasters, whose signals can be received with an antenna; the second involving broadcasters transmitting via cable, satellite or other means—but not over the air. In the United States, the first led to a quagmire of legal disputes involving the Federal Communications Commission and the courts, shifting regulations, and questions over copyright law – all revolving around the basic question of whether a carrier has an inherent right to retransmit an over-the-air signal. Broadcasters accused carriers of being "leeches", making money off of programming content that they contributed nothing to produce.^[3] Carriers countered that their role was largely passive, because they were merely redistributing freely available signals more widely.^[4] By contrast, carriage disputes involving broadcasters who do not use the public airwaves, while representing many high-profile encounters, have raised fewer legal and policy questions, playing out largely at the negotiation table and in the court of public opinion.

The legal precedent for carriage disputes dates back to 1934 legislation, which required a broadcaster to get permission before using programming from another broadcaster. The law was later applied to cable companies, as well.^[5] In the 1950s, cable companies operating in the western United States began retransmitting broadcast signals for the benefit of customers situated too far from the station's transmitter to receive programs with an antenna. Stations objected that they were not being compensated for this retransmission or that they were having to compete with more distant stations that duplicated their content. From February 15, 1966 to December 18, 1968, the United States Federal Communications Commission barred cable companies from importing non-local broadcast signals into the top 100 television markets – while allowing cable companies to petition for exceptions. After an interim period, the FCC partially lifted these restrictions in 1972, eliminating them entirely by the end of the decade.^[1][4]

The issue was finally resolved with the 1992 Cable Television Consumer Protection and Competition Act. Among its provisions, the act mandated that distributors must carry local stations who make their signal available for free, but must also get retransmission consent before a signal can be retransmitted. Mandatory retransmission consent gave broadcasters the ability to seek compensation from distributors and established the basis for carriage disputes going forward. At first, the larger broadcasters negotiated not for higher fees, but for inclusion of their newer, lesser known, non-terrestrial channels. Fox, for example, obtained distribution for FX; NBC for CNBC.^[1][5] The practice has complicated carriage disputes by making bundled tiers not just a marketing choice, but a contractual obligation.^[6]

Carriage disputes have since increased both in intensity and frequency. The 2010 calendar year, for example, saw disputes between AT&T U-verse and Crown Media, the E. W. Scripps Company and Rainbow Media (now AMC Networks), Time Warner Cable and The Walt Disney Company, and Dish Network and Fox Entertainment Group. By this time, negotiations could lead to program blackouts. For example, after Fox and Dish Network could not come to terms for a September 30, 2010 deadline, the network's sports programming could no longer be viewed by Dish Network customers.^[7]

Examples

A Time Warner Cable advertisement from its December 2009 carriage dispute with Fox. Designed to resemble a ransom note, the ad continued: “We’re standing up to Fox. Don’t let Fox hold your TV hostage.”^[8]

The 2009 dispute between Time Warner Cable and Fox is an example of a carriage dispute involving an over-the-air broadcaster. The dispute pitted the second largest United States cable system against one of the four major U.S. television networks, whose broadcasts included the popular prime time series American Idol and National Football League games. Fox's then-parent company, News Corporation (which has since spun off the network and its cable channels to 21st Century Fox), reportedly sought a monthly fee of $1 per subscriber; Time Warner offered 20 to 25 cents. Both companies mounted aggressive public relations campaigns, including dedicated websites and advertising. Fox suggested that viewers look into alternatives to Time Warner, including satellite and Verizon's Fios service. Time Warner Cable countered that it was trying to reign in expenses that would ultimately be paid by subscribers. The companies ultimately settled close to the deadline, and, as is typical with carriage disputes, did not disclose the terms. The deal encouraged other over-the-air broadcasters to seek higher retransmission payments, thereby putting upward pressure on cable and satellite bills.^{[9][10][11][12]}

The 2012 dispute between DirecTV and Viacom is an example of a dispute involving a non-terrestrial broadcaster. Viacom's cable/satellite channels, including Comedy Central, Nickelodeon and MTV, were blacked out for some 20 million DirecTV subscribers, who together represented about 20 percent of all U.S. households who subscribed to cable or satellite. DirecTV claimed Viacom was seeking a 30 percent fee hike, about $1 billion over five years. Viacom countered that while its channels represented 20 percent of total DirecTV viewing, the broadcaster received only 5 percent of the distributor's license fees. DirecTV argued that Viacom made too much of its content available for free on the Internet. Viacom responded that the practice was a marketing tool, although it pared that content back after the blackout. Also mentioned as a point of contention was Viacom's bundling of its co-owned channels – making them available to distributors only as a package rather than individually.^[2][13] In a sign of the increasing pressure on carriers to limit subscriber fees, DirecTV competitors did not mount advertising campaigns to attract disgruntled customers, and some competitors issued statements of support.^[14] Viacom and DirecTV resolved the dispute with a seven-year contract nine days later. Financial terms were not disclosed, though one analyst estimated Viacom would receive around $2.85 per subscriber, up from $2.25. In a first for Viacom, the company also agreed to give DirecTV customers access to live feeds on mobile devices.^[15]

Occasionally, a carriage dispute can last for months or even years. In September 2012, Time Warner Cable and the National Football League ended a nine-year dispute primarily over NFL Network, and later, NFL RedZone Channel. The deal followed an earlier settlement between the NFL and Cablevision, making Time Warner the last major holdout. Time Warner had offered to carry NFL Network on a narrower sports tier and argued that the relative scarcity of annual games–eight, expanded to 13–did not justify the cost. SNL Kagan estimated the average subscriber fee at 95 cents per month.^[16][17][18] Some prolonged disputes are influenced by outside people and organizations. In 2003, New York City Mayor Michael R. Bloomberg helped arrange a deal between Cablevision and YES Network, which had kept many New York Yankees baseball games from being seen by some 3 million local subscribers for the first year of YES Network's run.^[19][20] In 2006, EchoStar dropped the female-oriented channel Lifetime for a competing channel, Oxygen. While Lifetime is partially owned by Disney, which in turn owns ESPN and ABC, the deciding factor for contract renewal came less from the parent company's clout than from a letter writing campaign spurred by the National Organization for Women, the YWCA, and other groups.^[1]

With more programming available as online streaming media, blackouts have extended to broadcasters' websites. In the summer of 2013, CBS blocked access to all Time Warner Cable subscribers, whether or not they lived in the disputed regions. In 2014, Viacom blocked streaming video access to Cable One customers. Broadcasters argue that the practice closes a loophole: if distributors are to feel pressure from their subscribers, those subscribers shouldn't be able to view the content elsewhere. Federal Communications Commission Chairman Tom Wheeler said the practice of extending blackouts to the Internet is of broad concern.^[21]

A February 2015 carriage dispute between Fox Sports 1 and AT&T U-verse produced a rare example of a partial blackout. When the parties couldn't agree, the channel did not disappear entirely from the U-verse lineup. Instead, the blackout only extended to some programing, including NASCAR events, Major League Soccer matches, and USGA golf events. FS1 had added most of these events after its launch and maintained it was only seeking to get paid for the added value provided. AT&T U-verse called the additional fees "unreasonable".^[22]

Aereo

In 2012, a carriage dispute of a different sort arose between Aereo, a small New York-based program distributor, and several major broadcasters, including CBS, NBC, ABC, Fox, Univision and PBS.^[23] Aereo used banks of small antennas to receive over-the-air signals from broadcasters, then made those signals available to subscribers via the Internet. But unlike other distributors, the company argued that, as an "antenna technology" company, it was exempt from paying retransmission consent fees, just as is any home viewer employing an antenna. Broadcasters countered that the Aereo service went beyond the conventional antenna because it both recorded programs for later viewing and charged subscribers a monthly fee, thus acting as a middleman. Aereo won its case in all but one lower court proceeding, including an April 1, 2013 ruling by the Second Circuit Court of Appeals.^{[24][25][26][27][28][29]} But in a 6-3 decision issued on June 25, 2014, the Supreme Court sided with the broadcasters, ruling that Aereo had violated copyright laws.^[30]

Proposed legislation

Some legislators have sought to dampen the effects of carriage disputes on subscribers by giving more power to the Federal Communications Commission. In 2010, then Senator John Kerry introduced draft legislation that would have given the FCC more oversight responsibility, with the power to monitor negotiations and impose binding arbitration if it deems discussions between broadcasters and distributors are not being carried out in good faith.^[13] In 2013, Representatives Anna Eshoo and Zoe Lofgren introduced the Video CHOICE (Consumers Have Options in Choosing Entertainment) Act, which would have enabled the FCC to prohibit channel blackouts during a dispute. The bill would also have prohibited broadcast channels from negotiating for carriage of its non-broadcast channels.^[31]

On the same day the Video CHOICE legislation was introduced, Representative Steve Scalise reintroduced legislation first drafted in 2011: the Next Generation Television Marketplace Act. The legislation, more far-reaching than CHOICE, would have repealed key provisions of the 1992 Cable Television Consumer Protection and Competition Act, including "must carry" and retransmission consent requirements, as well as compulsory copyright licenses stemming from 1976 copyright law. The legislative intent was that carriage negotiations for broadcast stations should play out on the same terms as those for non-terrestrial channels. Both bills, while given only narrow chances of passage, were generally welcomed by distributors and criticized by broadcasters.^[31][32][33]

Tradeoffs, consequences

As with all negotiations, carriage disputes involve tradeoffs for both parties. Distributors must weigh the effect of the carriage fees they pay on both their revenues and the fees they pass on to subscribers. Distributors also risk antagonizing their subscribers if they drop one or more channels from their lineup. For their part, broadcasters risk losing viewers, which in turn can reduce revenues from commercials and per-subscriber carriage fees. Financial consequences can ensue. Dish Network lost 156,000 customers in the fourth quarter of 2011 after a carriage dispute with Fox resulted in a loss of Fox Sports programming in October.^[34] AMC Networks' stock dropped by nearly five percent after the network's programming was dropped by Dish at the end of June 2012.^[35]

For distributors, much of the calculation hinges on whether programming content is so compelling that it is worth the retransmission fee. Sports programming provides a good example of how the calculation may favor either party.

In a 2013 dispute between CBS and Time Warner Cable, CBS's bargaining position improved as the National Football League season approached. In the wake of the settlement, the broadcaster increased its per subscriber fee from an estimated $.58 to between $1 and $2, setting a new standard for retransmission fees commanded by over-the-air broadcasters. CBS also retained digital rights to its contents for resale to online distributors. The agreement was expected to earn the broadcaster an estimated $1 billion to $2 billion in additional revenues by 2017.^{[36][37][38][39][40][41]}

On the other hand, some regional sports networks have seemingly overplayed their hand.^[42] CSN Houston, a partnership between the Houston Rockets, the Houston Astros and Comcast, was subsequently placed under bankruptcy protection after its October 2012 debut. While Comcast carried the channel, DirecTV, Dish Network and other competitors did not, citing the fee: $3.40 per month, one of the highest of any comparable channel. As a result, CSN Houston was unavailable to about 60% of the region's households. The owner of the Astros subsequently dropped high-salaried players, and the team finished the 2013 season with the worst record in baseball.^[42][43]

In January 2013, Time Warner Cable signed an $8.35 billion, 25-year contract with the Los Angeles Dodgers to carry and resell the Dodger-owned SportsNet LA. But in the 2014 season, the channel was only carried by TWC itself and a few smaller distributors, leaving about 70% of the region uncovered. TWC had reportedly asked other distributors for an initial $4 to $5 per-month per-subscriber, with carriage fees increasing yearly over the length of the contract. Those distributors, most notably DirecTV, balked at the terms.^[44][45] Los Angeles Times business reporter Joe Flint called the standoff a potentially "definitive moment for the world of sports programming, as the industry realizes that exorbitantly priced television deals can backfire."^[46] Other teams with whose regional sports networks did not gain traction include the Kansas City Royals and Minnesota Twins.^[42]

Some smaller cable companies, relying on revenues from broadband subscriptions, have been more willing to drop a bundled service, even at the cost of fewer television subscribers. In 2014, for example, Suddenlink, the seventh largest U.S. cable provider, entered into a lengthy dispute with Viacom, which continued even though Suddenlink lost 32,600 television subscribers over the first three months. But the company's net income was up 65 percent over the same period the previous year because it retained most of those subscribers as broadband customers.^[47]

OTT content

Whatever a carriage dispute's resolution, customers often emerge at a disadvantage: with either less programming to choose from or higher subscription fees.^[7] That no win situation could change now that some mainstream programming is becoming available over the Internet, enabling subscribers to piece together their own programming mix from a variety of sources. Such "over the top content" includes traditional over-the-air and cable/satellite channels offering programming directly to viewers, thereby cutting out the middleman, channels that "broadcast" exclusively over the Internet, and channel bundling services. ^[48][49]

Examples of television channels becoming available as OTT content include HBO Now, an on-demand library of new and old HBO content;^[50] Nickelodeon Noggin,^[51] which offers most Nickelodeon content; and CBS All Access service, which offers most CBS programming, excluding NFL football.^[52] Netflix is the leading OTT programmer, offering a mix of original content, movies and TV shows. In the United Kingdom, the company has outspent the BBC, HBO and Discovery on content. Amazon is also making significant programming investments in its Amazon Prime service.^[53] Related to these are OTT services that offer "skinny" bundles containing fewer channels than the bundles typically offered by cable and satellite companies.^[54] These services include Dish Network's Sling TV, which makes a selection of channels available over the Internet without requiring a subscription to Dish's mainstream satellite service,^[55] and Sony’s PlayStation Vue.^[51]

References