Cable and Satellite Television Issues in the 116th Congress

Cable and Satellite Television Issues in the 116th Congress

December 20, 2018
Cable and Satellite Television Issues in the 116th Congress
More than 119 million U.S. households watch television.
broadcast station that originated the signal. When granting
Of those, more than three-quarters receive television signals
permission, a commercial station has two options: it may
via cable, telephone lines, or direct broadcast satellite.
require cable operators, and, to a more limited extent,
satellite operators to carry its signal without compensation
Federal laws govern which broadcast signals subscribers to
to subscribers located within the station’s market, or it may
these services can view. The laws also govern the
negotiate retransmission consent in exchange for payment.
compensation that owners of copyrighted programming
carried on certain broadcast signals can receive and the
Provisions in broadcast stations’ network affiliation
negotiations between broadcasters and cable and satellite
agreements typically give them the exclusive right to
operators for the right to retransmit broadcast signals. Some
negotiate for the retransmission of their signals, including
of these provisions of the Communications Act of 1934 and
the network programming that airs on an established
the Copyright Act, most recently revised in 2014 in the
schedule. These negotiations often occur at the corporate
Satellite Television Extension and Localism Act
level, between a company that owns multiple broadcast
Reauthorization Act (STELAR Act; P.L. 113-200), are set
stations and an MVPD that operates many cable systems or
to expire at the end of 2019.
a nationwide satellite service, rather than the local level. If a
station’s parent company and an MVPD fail to reach an
As Congress considers whether to renew these provisions or
agreement, the broadcasting company may require the
otherwise revise communications and copyright laws,
MVPD to black out its stations’ signals and not retransmit
technological, consumer, and business forces are reshaping
the stations’ broadcasts to subscribers.
the television industry.
The broadcast networks have claimed that much of the
Background
value of broadcasters’ signals derives from the networks’
There are two primary ways for a household to receive
sports, entertainment, and news programming. Broadcast
broadcast television programs: by using an individual
stations’ network affiliation agreements may require them
antenna that receives signals over the air from a television
to pay the network a portion of their retransmission consent
station or by subscribing to a multichannel video
revenues.
programming distributor (MVPD), such as a cable or
satellite company, which retransmits signals of broadcast
DMAs and Geographic Exclusivity
stations to subscribers. In addition, a growing number of
The Nielsen Company, a market research firm, assigns each
viewers are watching broadcast television over the internet.
television station and each U.S. county to one of 210
separate geographic markets, known as Designated Market
Since the 1970s, Congress and the Federal Communications
Areas (DMAs). In the private sector, advertisers and
Commission (FCC) have constructed a regulatory
television stations rely on Nielsen’s audience measurements
framework for the retransmission of broadcast television
to negotiate rates for advertising slots. Broadcast television
signals by MVPDs. This regulatory framework attempts to
networks use DMAs in their contracts with stations to
balance a number of potentially conflicting public policy
define geographic zones within which each station has the
goals, including the competitive provision of video
exclusive right to broadcast the network’s programs.
services, protection of property rights, localism, the
provision of television service to customers unable to
The DMAs generally define the geographic zones of
receive over-the-air broadcasts, and the interests of
exclusivity for retransmission of broadcast signals. In
broadcasters, television networks, MVPDs, content owners,
general, a cable or satellite operator must retransmit the
device manufacturers, small businesses, and consumers.
broadcast signal of a network affiliate to subscribers within
the affiliate’s DMA, and may not import the signal of a
Retransmission Consent and Flow of Payments
network affiliate based in one DMA into a DMA served by
Broadcast television stations produce some of the
another of that network’s affiliates. The policy rationale is
programming they transmit and also contract with
that protecting broadcast stations’ rights to geographic
television networks, which supply them with programs. The
exclusivity enables them to invest in local programming
networks produce some of the programming they distribute
that is responsive to viewers living within the stations’
and therefore own the copyrights to those programs. In the
communities.
case of other programs, however, third parties such as
sports leagues and studios may own the copyrights.
Television Trends
Since Congress enacted STELAR in 2014, television
MVPDs may not redistribute a broadcast signal to their
viewing habits have changed in ways that could make
customers unless they have obtained the permission of the
retransmission consent negotiations more contentious.
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MVPDs have lost about 9.1 million subscribers since 2014
Issues for Consideration
(Table 1), and the share of television households
In addition to facing competition for viewers from online
subscribing to MVPDs has fallen from 88% to 77%. As of
video services, broadcast stations compete for advertising
June 2018, the total of number of households subscribing to
dollars with social media platforms. Consequently,
MVPDs was 92.5 million.
broadcast stations have sought alternative sources such as
retransmission consent. Research firm SNL Kagan
Table 1. Media Usage Trends
estimates that the portion of broadcast industry revenue
Television Household Numbers in Mil ions
provided by advertising declined from 93% in 2008 ($21.0
billion) to 62% in 2018 ($20.5 billion).

Q2 2014
Q2 2018
Companies’ quest for greater bargaining power in
Traditional MVPD
101.6
92.5
retransmission consent negotiations has driven
Broadcast Only
12.0
15.4
consolidation in the broadcast television and MVPD
industries. For example, after acquiring the Tennis Channel
Broadband Only
2.2
7.5
in 2016, Sinclair Broadcasting, which owns or operates
(excluding vMVPDs)
more than 190 television stations, sought carriage of that
vMVPDs
0
4.1
cable network. The increasing presence of vMVPDs,
however, has challenged broadcasters’ ability to limit
Total TV Households
115.8
119.6
viewing of broadcast network programming within their
Source: CRS estimates based on data from Nielsen.
DMAs. In September 2018, after Sinclair failed to reach an
agreement with Hulu with Live TV to retransmit the signals
Note: A “TV household” is a home with at least one operable
of stations affiliated with the CBS network in 24 DMAs,
TV/monitor that can deliver video via antenna, a cable set top box, a
CBS bypassed Sinclair and reached an agreement with Hulu
satellite receiver, and/or with an internet connection.
directly to provide a national feed of its shows.
This decline in MVPD subscriptions reflects several
Two expiring provisions of STELAR relate generally to the
converging factors. One is higher prices. According to the
retransmission consent process. Section 325(b)(3)(C)(ii)
Bureau of Labor Statistics, the price of cable and satellite
prohibits television broadcast stations from engaging in
television service for urban consumers rose 12% between
exclusive contracts with MVPDs for carriage or failing to
June 2014 and June 2018, more than twice the increase in
negotiate in good faith. Section 325(b)(3)(C)(iii) also
consumer prices in general during the same period.
prohibits an MVPD from failing to negotiate in good faith.
Under these provisions, the FCC has established criteria for
MVPDs claim the higher prices reflect higher costs for the
determining whether the parties are acting in good faith.
programming they purchase from cable networks and
The FCC can investigate allegations of good-faith
higher fees paid to television broadcasters for the right to
violations and take enforcement action when a party fails to
retransmit their programs. Many consumers also pay
fulfill its statutory obligations. Absent these provisions, the
MVPDs to lease equipment in order to access the
FCC’s involvement in monitoring retransmission consent
programming.
disputes could be more limited.
Technological developments have also contributed to the
Groups representing MVPDs contend that Congress should
decline in MVPD subscriptions by enabling households to
completely reform retransmission consent laws. Broadcast
watch television in other ways. As of June 2018,
stations support the current laws, claiming that the
approximately 9.7% of television households (or 11.6
negotiation process is market-driven.
million households) receive video exclusively through an
internet connection. Of those, more than one-third (3.4% of
Additional expiring provisions of STELAR allow satellite
all TV households, or 4.1 million households) use “virtual
operators, in certain circumstances, to bypass the process of
MVPD” (vMVPD) services such as Sling TV, DIRECTV
negotiating retransmission consent with broadcast station
Now, and Hulu with Live TV. These services aggregate
owners and instead pay royalties set by the Copyright
programming from selected broadcast and cable networks
Royalty Board (CRB), a tribunal within the Library of
and, in some cases, broadcast stations into packages that,
Congress. The CRB sets royalty rates when households
similar to traditional MVPDs, allow subscribers to view
cannot receive the signals of one or more local network-
programming on the same established schedule as
affiliated stations and a satellite operator then imports the
programming transmitted via traditional MVPDs and over
signals of broadcast stations from a different DMA. After
the air.
the CRB determines how to allocate the royalties among the
copyright owners, the Copyright Office distributes them.
In contrast to traditional MVPDs, however, vMVPDs offer
Broadcasters favor allowing these provisions to expire,
slimmed-down bundles of programming and refuse to pay
while satellite operators would like Congress to make the
for carriage of networks they claim are less popular. While
provisions permanent. Expiration would require satellite
vMVPDs still serve a relatively small percentage of
operators to negotiate directly with station owners for the
television households, their growing popularity may
right to retransmit distant signals.
increase pressure on MVPDs to restrain price increases, and
thereby affect retransmission consent negotiations.
Dana A. Scherer, Specialist in Telecommunications Policy
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Cable and Satellite Television Issues in the 116th Congress

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