Lawyer Speak :: Cable360

Mathew Brill: The statistics do confirm that we’re seeing more disputes this year than in the past. The pattern seems pretty familiar at this point—in almost every case, the broadcasters are seeking dramatic increases in retransmission consent fees and are willing to threaten blackouts and to make good on their threats. Strong competition among MVPDs has encourage broadcast stations to play each distributor off against the others, threatening to steer customers to competitors in the event of a dispute. And, unfortunately, as retrans fees continue to rise, each station group with an expiring deal believes it should obtain further increases. As a result, MVPDs have been facing ever-escalating price hikes, and I’m afraid that disputes and blackouts will continue absent some change in the governing rules.

Jeremy Kissel: There definitely seems to be an uptick in retransmission consent disputes over the last few years. Over the last few retransmission consent election cycles, broadcasters have begun to place a larger focus on revenue generated by retransmission consent fees in an effort to make up for declining advertising revenues. Over the same time period, MVPDs have faced increased competition in the video distribution marketplace while retransmission consent fees have continued to rise exponentially. The failure to provide consumers with the programming a competitor offers places an MVPD at a competitive disadvantage, so MVPDs have begrudgingly accepted the higher fees in most instances. I believe the convergence of these two realities has contributed to an increase in the number of retransmission consent disputes. I also think broadcasters have begun to seek increased retransmission consent fees from larger MVPDs and not just the small and medium-sized MVPDs that have seen rising fees for the past few retransmission consent election cycles. I also think the number of potential consumers that could be affected by a retransmission consent blackout involving a larger MVPD has likely increased—or at least focused—the media’s attention on these disputes.

Should Congress rewrite the Act? Could a rewrite be coming in the next Congress?

Paul Glist: We’ll see efforts to rewrite the Communications Act. Historically, the Communications Act and FCC policy has looked at the “pipe” as though that is the one element with all the market power that has to be regulated. It is my hope that dramatic changes in today’s multiplatform world will provide an opportunity for the government to look with fresh eyes at how the market has grown into more complex “multisided” market involving networks, devices, applications and content. There is constant interplay of these elements: Think of how Apple captured most of the profit compared to AT&T when it launched the iPhone. Some may think of broadband as a grown up monopoly telephone wire, but the broadband market is delivering the investment, rising bandwidth, increasing adoption, declining price per bit, lack of blocking and innovation characteristic of highly competitive markets. The reason it behaves like a competitive market is that it is just one part of this network-device-app-content “platform” and it competes for revenue share and customer attention with all the other components of this complex ecosystem. Policy can no longer look at the “pipe” as though that is the one element with all the market power. The Communications Act should reflect this fundamental change, but I don’t know what to predict for how long it will take for complex legislation to make its way through a politically gridlocked Congress.

Brill: I do believe it’s time for a major overhaul of the Communications Act. As many observers have recognized, today’s Act is based on an outdated approach under which providers too often are regulated based on the historical label that applies to them, rather than the functional characteristics of their service. That approach results in significant marketplace distortions and impedes innovation, and it does not seem to deliver any countervailing benefits. I think there is a broad and growing consensus that a more technology-neutral approach to regulation would be far preferable—one that justifies more limited intervention in the marketplace based on demonstrated market failures or discrete consumer protection goals. Comprehensive reform takes time, so I’m not sure it will get done in the next Congress, but I’m sure we’ll see increasing momentum towards that goal.

Dan Brenner: There is a big difference between whether Congress will and whether it should rewrite the Act. It takes several years for a rewrite—even one as ultimately ambiguous as the 1996 Act—to emerge from the many voices that should be heard on the matter. So the idea that Congress can start and finish the process in one year seems fanciful. Should Congress re-write the Act? Most people can identify some part of the Act that is either out of date or could use clarification. But as the 1996 Act showed, Congress can leave ambiguous phrases to the FCC—and then the courts—to figure out, so a rewrite might not provide much clarity anyway. The silos of the existing act—Title I, 2 3, and 6-hardly describe the world we live in. And all of it is moving toward IP and broadband where, for example, voice is just an application and not a very interesting one from a bandwidth-consumption standpoint. Meanwhile, spectrum needs vary—New York or Los Angeles is facing a crunch but Fairbanks? Not so much. Yet with each state having two senators, what’s important in one area is not the same as another. Legislation will have to address a lot of regional issues to get passed.

Kissel: The cable industry has certainly changed over the 20 years since the Cable Act was enacted into law. The entire video distribution marketplace has changed over that time, and I think Congress should evaluate the current marketplace and make any adjustments to the Cable Act to reflect those changes. There has been some chatter recently about a potential Cable Act rewrite in the next Congress, but I don’t think it is likely. However, the Cable Act rewrite might have a fighting chance if it is linked to economic issues and job creation.

With the approval of SpectrumCo, are any other potential spectrum transactions? Any potential activities on TV white space?

Briller: I am sure we’ll continue to see additional spectrum transactions, not simply because the SpectrumCo transaction has been completed, but because the enormous growth in wireless broadband consumption will drive existing carriers to acquire more spectrum. Indeed, AT&T already has announced a series of proposed spectrum acquisitions, and no doubt there are more to come. In addition, I am sure companies will continue to look for innovative ways to make use of unlicensed spectrum, including both WiFi and TV white spaces. The one certainty in the communications arena is that wireless broadband consumption will continue to grow at a dramatic rate, making spectrum an indispensable resource.

Kissel: I see the potential for additional spectrum transactions. Consumer demand for reliable, high-speed wireless data will only increase in the next few years. In order to meet that demand, companies will need to start making strategic decisions on spectrum in the very near future to build out their networks. Once those decisions are made, I think you will see more spectrum transactions. I think there could be some potential activity with regard to television white spaces once the Commission has laid out its spectrum auction plan and it becomes clear what spectrum broadcasters will relinquish.

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Lawyer Speak

By Joyce Wang