Treats For Broadcasters at Public Expense

This Halloween, News Corporation’s Fox Broadcasting joined in on the trick-or-treating. The trick: blocking over-the-air stations for cable television subscribers. The treat: big fees.

News Corp. and Cablevision Systems Corp. (CVC) had been locked in negotiations over fees since Oct. 15, when their previous agreement expired. The day the contract ended, Fox stations disappeared from the television sets of about 3 million Cablevision subscribers in the New York metropolitan area. Fox also briefly blocked Cablevision customers from viewing its shows online.

Cablevision subscribers missed National Football League games and the beginning of the World Series. As Sunday, Oct. 31, approached, football fans became furious about the possibility that they would miss another day of games. Worried about losing customers, Cablevision relented and, on Oct. 30, the two companies reached an agreement. The trick was scary enough, and Fox got its treat: Cablevision agreed to pay higher fees for the privilege of retransmitting Fox programming.

Cablevision said it considers the fee increases unfair, but agreed because, “It does not think its customers should any longer be denied the Fox programs they wish to see.”

This was not the first time Cablevision subscribers had seen their screens go black due to disagreements over fees. Last spring The Walt Disney Co. (DIS) pulled ABC stations from Cablevision for a 21-hour period that included the first few minutes of the Academy Awards. Satellite television providers have also been hounded by broadcasters. While Fox was withholding programming from Cablevision, it was conducting aggressive negotiations with Dish Network (DISH).

Under rules adopted in 2000, cable operators and other multichannel video programming distributors must obtain broadcasters’ consent before they retransmit programs, and broadcasters are free to demand money in return for that consent. If cable operators want to ensure that their customers have access to major sports events and awards programs, which may be covered exclusively by a single broadcaster, they have to pay whatever the broadcaster asks.

It has long been public policy in this country that the broadcast spectrum belongs to the citizens at large, held in trust by the government and used by broadcasters for public benefit. Fox has no legal right to charge me if I want to put an antenna on my roof and receive its broadcast signal. It follows, then, that Fox also has no right to charge me if my neighbor and I decide to share an antenna located on his roof. This ought to be true even if my neighbor requests payment for the expense of maintaining the roof, the antenna, and the rest of the infrastructure.

The cable television industry is essentially a system for sharing antennae. In fact, cable television was originally called Community Antenna Television and is still sometimes referred to by the abbreviation CATV. Cablevision, with its 3 million subscribers, certainly covers a large community, but that should not mean broadcasters can charge it for something they provide to others for free.

I am not challenging a broadcaster’s right to charge cable systems for carrying a cable-only network that is not otherwise freely available to the public over the air. If News Corp. wants to charge an arm and a leg for Fox News, or if Disney thinks ESPN is worth a king’s ransom, that’s their business. But the pendulum has swung too far by letting broadcasters interpose themselves in a business transaction between cable companies and their customers that involves the public radio spectrum.

It may no longer make economic sense to offer up programming over the air for free in the hopes of recouping costs through advertising revenue. In that case, broadcasters need to rethink their business models and find new ways to distribute programming to paying customers. If they want to hand their spectrum back to the government, which can then auction it for other purposes, they can step right up and do so. I advise you not to hold your breath while you wait for this to happen.

In the meantime, Congress ought to step in and fix this situation. There are not a lot of useful things a lame-duck session could do for us, but a bill to prohibit retransmission fees for public broadcasts would qualify. When broadcasters squawk about the lost revenue, our legislators (especially the ones soon to be unemployed) can remind them about all those expensive campaign advertisements they just sold. In business as in politics, you win some, you lose some.

Unfortunately, Congress is not going to act that fast, and when it does act, it probably is going to try to find a compromise. Politicians seldom risk offending broadcasters, who tend to be influential people back in the home district.

In response to the dispute between Cablevision and Fox, Sen. John Kerry, D-Mass., who chairs the Commerce Subcommittee on Communications, Technology, and the Internet, commented that the laws regarding retransmission fees are in need of “systemic reform.” He sent a draft bill to Federal Communications Commission Chairman Julius Genachowski on Oct. 19.

Kerry’s proposed reform would not do away with retransmission fees. It is aimed solely at facilitating negotiations between broadcasters and cable operators to try to avoid blackouts.

For now, Cablevision customers can relax and enjoy the rest of the football season (although they will eventually see increases in their monthly bills). But while Congress permits it, Fox and other broadcasters will come trick-or-treating again as soon as their agreements expire.

About Larry M. Elkin 533 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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