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.