Before the FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554

In the Matter of ) ) Annual Assessment of the Status of ) MB Docket No. 06-189 Competition in the Market for the ) Delivery of Video Programming ) )

COMMENTS OF THE COALITION FOR RETRANSMISSION CONSENT REFORM

The Coalition for Retransmission Consent Reform (the “Coalition”)1/ respectfully submit these comments in response to the Commission’s annual request for comment on the status of competition in the video marketplace.2/

In the Notice, the Commission solicited comments on “the retransmission consent process, including the effect of retransmission consent on cable rates, the ability of small cable operators to secure retransmission consent on fair and reasonable terms and the impact of agreements that require the carriage of non-broadcast networks in exchange for

1/ The Coalition’s members on this filing include: Advance/Newhouse Communications manages Bright House Networks, which has cable systems serving over 2.2 million subscribers in Florida, Indiana, Alabama, California and Michigan. Crown Media United States, LLC operates The Hallmark Channel and Hallmark Movie Channel. The Hallmark Channel provides a diverse slate of high-quality entertainment, repeatedly ranks as a Top 10 network in both Prime Time and Total Day ratings, is seen in 75 million homes, and is distributed through 5,300 cable systems and communities as well as direct-to-home satellite services across the country. Insight Communications is the ninth largest cable operator in the United States, serves approximately 1.3 million cable customers in Indiana, Kentucky, Illinois, and Ohio, and manages additional systems in Indiana and Kentucky that are owned by an affiliate of Comcast Cable. Oxygen Media is a 24- hour cable television network dedicated to bringing women the edgiest, most innovative entertainment on television. Oxygen is independently owned and is currently available in over 69 million households. Cequel Communications LLC d/b/a Suddenlink Communications is a top-10 U.S. operator of cable broadband systems, serving approximately 1.4 million customers. The Weather Channel Companies are devoted entirely to weather, brings breaking weather news to its viewers and users and is seen in over 87 million U.S. households. 2/ Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 06-189, Notice of Inquiry, FCC 06-154, ¶ 1 (rel. October 20, 2006) (“Notice”).

the right to carry local broadcast stations on MVPD and consumers” (“Notice”).3/ The

Coalition responds to this inquiry and the continued efforts by broadcast conglomerates to leverage their retransmission consent power into carriage deals that increase both the price and the size of cable’s most popular service tiers.

I. INTRODUCTION AND SUMMARY

Congress enacted retransmission consent in the 1992 Cable Act to help preserve free over-the-air local broadcast television and to strengthen, on behalf of the then 40 percent of Americans without cable, the ability of free over-the-air television to compete against what was then the only viable multi-channel video programming distributor

(“MVPD”) in the country -- cable television.4/ Much has changed since retransmission

consent was enacted. Today, fewer than 15 percent of Americans are dependent on free

over-the-air local television, cable operators’ share of the MVPD marketplace has

dropped significantly, and new competition to cable has emerged from Direct Broadcast

Satellite (“DBS”) providers and telephone companies.5/

The chief beneficiaries of retransmission consent have not been local television

stations, but have instead been the Big Four broadcast networks and other large broadcast

conglomerates. By threatening to withdraw “must-have” local broadcast programming, the broadcast conglomerates have used retransmission consent to launch new

programming networks and to obtain higher license fees and broader distribution for

3/ Id. ¶ 38 (footnote omitted). 4/ S. Rep. No. 102-92, at 59 (1992), reprinted in 1992 U.S.C.C.A.N. 1133, 1192. 5/ Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Twelfth Annual Report, 21 FCC Rcd. 2503, 2506 ¶ 7 (2006) (“2005 Report”).

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those networks, thereby making them the dominant force in MVPD programming.6/ The

use of retransmission consent to launch -- and grow distribution of and fees for --

broadcaster-owned channels has been a major factor in shaping the price and composition

of the package, resulting in consumers paying higher prices than they otherwise would

for cable television service.7/ Retransmission consent has substantially foreclosed

programmers not affiliated with network owned and operated stations from competing for

carriage on the cable expanded basic tier, thereby depriving consumers of benefits in

price and program quality.

As demonstrated below, broadcast conglomerates continue to leverage

retransmission consent in a manner that increases both the price and size of popular cable

service tiers. Some broadcasters are becoming more insistent upon obtaining excessive

direct cash payments from cable operators at levels that could foster significant rate

increases for the entry-level Basic service tier. In contrast, while proffering cash

demands that will increase the rates for cable’s least expensive tier, the broadcasters are

making an ever-growing array of their programming content available for free on the

Internet from their own websites and portals.

Broadcasters’ insistence that unreasonable retransmission cash demands simply

reflect the operation of market forces rings particularly hollow, since they are insulated

from the workings of the marketplace by their status as recipients of free spectrum and

their guaranteed placement on cable’s most widely-purchased tier. In a market

6/ See William Rogerson, The Social Cost of Retransmission Consent Regulations 12-17 (February 28, 2005) (submitted as an attachment to Comments of Joint Cable Commenters, Inquiry on Rules Affecting Competition in the Television Marketplace, MB Docket No. 05-28 (March 1, 2005)) (“Rogerson”), attached as Exhibit A hereto. 7/ Id. at 12-19.

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negotiation, a programmer insisting upon unreasonable carriage fee demands would face

the risk of being moved to a higher tier of service. The current scheme, however, shields the broadcast conglomerates from the consequences of their unreasonable cash demands,

and shifts the burden of shouldering those demands onto cable consumers.

The Commission should look closely at the impact on consumers and cable prices

of continuing to afford broadcasters government-granted negotiating advantages that are

unavailable to all other programmers competing in the video marketplace. The

Commission has an obligation under the 1992 Cable Act to ensure that retransmission

consent does not inflate the price of the Basic Service tier. The Commission should

initiate a Notice of Inquiry to review the retransmission consent issue and consider what

steps it can take pursuant to its current authority under 47 U.S.C. § 325 to protect

consumers. In its Report to Congress, it should also recommend that Congress review

and reevaluate the current impact of retransmission consent on the marketplace and on

consumers.

II. BROADCASTERS ARE CONTINUING TO LEVERAGE RETRANSMISSION CONSENT IN A MANNER THAT INCREASES BOTH THE PRICE AND SIZE OF CABLE’S MOST POPULAR SERVICE TIERS AND FORECLOSES COMPETITION FROM MVPD PROGRAMMERS NOT AFFILIATED WITH THEM

Previous filings by some of the Coalition’s members have documented that

(i) retransmission consent has been used by broadcasters to become the dominant

providers of cable network programming, (ii) retransmission consent has significantly

strengthened the financial clout of the broadcast conglomerates, but has not demonstrably

improved the strength and quality of local over-the-air broadcasting; and

(iii) retransmission consent leverage by broadcasters has been a principal driver of cable

4 rate increases.8/ Regardless of whether retransmission consent-related revenues take the form of unreasonable direct cash payments for carriage of broadcast signals, or payment for carriage of affiliated cable channels, the end result is the same: consumers pay higher prices for cable than would otherwise be the case.

A. Broadcasters Are Still Using Retransmission Consent to Expand Carriage and Raise Fees for Affiliated Cable Channels

The broadcast conglomerates continue to use retransmission consent to drive expanded carriage of, and higher fees for, affiliated cable networks on popular cable service tiers.9/ NewsCorp. has been using retransmission consent negotiations to launch

Fox Reality in several major markets around the country.10/ NBC-affiliated stations have been seeking to drive carriage of Sleuth (which recycles old television crime shows) and

NBC Weather Plus in their retransmission consent talks with cable operators.11/ And despite its focus on cash, CBS acquired last year the College Sports Television Network

8/ See Reply Comments of Joint Cable Commenters, Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 05-255 (October 11, 2005); Supplemental Submission of Joint Cable Commenters, Inquiry on Rules Affecting Competition in the Television Marketplace, MB Docket No. 05-28 (May 23, 2005); Comments of Joint Cable Commenters, Inquiry on Rules Affecting Competition in the Television Marketplace, MB Docket No. 05-28 (March 1, 2005). 9/ See, e.g., John M. Higgins, TV Grudge Match Reignites; Stations and Cable Brace for New Retransmission-Consent Talks, Broadcasting & Cable, October 3, 2005, at 8 (retransmission consent a “powerful tool” for launching new channels); CSTV’s Addition By Acquisition, Mike Reynolds, Multichannel News, November 7, 2005 (CBS uses retransmission consent to boost distribution of CSTV); CBS2: Network In The News, Broadcasting & Cable, October 10, 2005, at 4 (retransmission consent leverage to launch repurposed content into 25 million homes); Linda Moss, Viacom Station, N.H. System Sparring Over Digital Signals, Multichannel News, October 10, 2005, at 6. 10/ See This Just In, Multichannel News, June 26, 2006, at 48 (Fox Reality “was one of the options presented to us for retransmission consent”); 11/ See When Multicasts Mean Cash, Broadcasting and Cable, June 10, 2006, at 22 (noting that NBC Weather Plus “typically gets carriage through retransmission consent negotiations”); Through the Wire, Multichannel News, January 16, 2006 (citing Sleuth as a cable network “whose distribution is driven by retransmission consent, in this case for NBC’s stations”).

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(“CSTV”), and it has been using expanded carriage and higher fees for CSTV as currency

in retransmission consent negotiations.12/

Once launched, new cable networks spawned by retransmission consent leverage

are able to use retransmission consent to seek their own rate increases -- further driving

up the cost of the enhanced basic tier. The recent round of negotiations between some

cable multi-system operators and NewsCorp. over the renewal rates that would be paid

for carriage of the Fox News Channel starkly illustrate this point. Recent news reports

indicate that the monthly, per-subscriber rate MVPDs pay for Fox News will nearly triple

in price.13/ As another example, USA Network, after becoming affiliated with NBC,

reportedly obtained a 60 percent rate hike linked to retransmission consent.14/ These

examples demonstrate that broadcaster-owned cable networks launched or expanded via

retransmission consent effectively become entrenched drivers of rate hikes on cable’s

most popular tier of service.

B. A Growing Number of Broadcasters Are Making Cash Demands in Retransmission Consent Negotiations That Will Result in Significant Rate Hike’s to Cable’s Entry-Level Service Tier

The impact of retransmission consent on cable television rates is likely to become

even more apparent to even more cable subscribers, as broadcasters push large cash

payments for retransmission consent. CBS Chairman Les Moonves “has practically

12/ CSTV’s Ready for the Big Game, Cable Fax’s Cable World, March 20, 2006 (CSTV “is tired of having [its] network languish on sports tiers. A powerful new owner may help”); Mike Reynolds, CSTV’s Addition by Acquisition, Multichannel News, November 7, 2005 (CBS “should be in a strong position to gain distribution” for CSTV). 13/ See e.g. FNC Triples Cablevision Sub Fee, Media Week, October 23, 2006; Fox’s Triple Play, Daily Variety, October 17, 2006. 14/ R. Thomas Umstead, Large Rate Hikes by FoxNews, USA, Multichannel News, Oct. 31, 2005.

6 made securing cash payments from operators his personal crusade.”15/ Moonves has been highly vocal regarding his expectation that the network will receive “hundreds of millions of dollars” in retransmission consent cash.16/ Industry observers expect that CBS will be far more insistent upon obtaining cash in the next round of negotiations, because it is no longer affiliated with Viacom’s cable channels,17/ and Moonves has suggested that the size of CBS’ cash demands will be substantial.18/

Other broadcasters are following suit with cash demands.19/ The head of the

National Association of Broadcasters (“NAB”) stated this year that “there will be increased pressure for retransmission consent agreements based upon cash from large cable companies.”20/ News Corp. head Rupert Murdoch believes his 35 U.S. television stations will one day receive a significant financial boost through retransmission consent cash deals with cable operators, predicting that it will only take one broadcast network to

“break through and then everyone will follow.”21/

15/ See e.g. Happy Hostilities: The Holiday Season Brings with It the Fight over Cable Carriage of Local TV, Broadcasting and Cable, November 13, 2006. 16/ Pay to Play, Broadcasting and Cable, March 6, 2006; CBS Ushers in Cash for Carriage as Verizon Pays for Retransmission, Financial Times, March 22, 2006 (“Verizon will pay about 50 cents per per subscriber” for CBS). 17/ See Pay to Play, Broadcasting and Cable, March 6, 2006 (“now that CBS has been separated from Viacom, it doesn’t have to worry about helping to get Spike, CMT or MTV’s new HD channel on cable systems”). 18/ CBS at Goldman Sachs Communacopia XV Conference, FD Wire, September 19, 2006 (“I think retrans is a no-brainer. . . When cable operators say they are not paying retrans for ABC, and they are paying $2.50 for ESPN, I say, come on guys. They’re paying $2 for ESPN and $0.50 for ABC. So the great news about CBS, we are a freestanding company without major cable assets to sort of pull us down in this area. So the future on retrans we’re very optimistic about”). 19/ See e.g., New Deals Spark Retrans Debate; Nexstar’s Cash-for-Carriage Setup Could Start Trend, Television Week, February 6, 2006. 20/ NAB Chief: Cable Will Pay For Retrans, Television Week, April 24, 2006. 21/ Murdoch Sets Sights on Cable TV Revenue, FT.com, October 7, 2006.

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Broadcasters clearly view the advent of video competition from the telephone

companies as an additional form of leverage that can be used to extract higher

retransmission fees from cable operators.22/ The head of NAB has stated that “satellite and telephone companies already recognize that they must compensate broadcasters” and

“so must cable-- especially as it’s own competitive position weakens. Frankly, it’s only a matter of time.”23/ If, as suggested by Rupert Murdoch, each of the Big Four begin

insisting upon the $0.50 per month per subscriber rate that CBS obtained from Verizon,

the result would be double-digit percentage hikes in the rates charged for cable’s lowest-

cost, entry-level service tier.24/

Broadcasters are clearly prepared to leverage the threat of service interruptions

that deprive consumers of their programming in order to enhance their prospects of

obtaining higher fees from retransmission consent.25/ CBS head Moonves has stated that:

“We’re going to get cash for our content by cable operators. Try running a cable

operation without the Super Bowl, the Grammys, CSI, the Final Four, Survivor, David

Letterman.”26/

Sinclair Broadcasting has been embroiled in a major retransmission consent

dispute with Mediacom, insisting upon millions of dollars in new cash payments in

22/ See CBS Ushers in Cash for Carriage as Verizon Pays for Retransmission, Financial Times, March 22, 2006. 23/ NAB Chief Forecasts Cash for Retrans - Rehr: Competitive Forces Will Pry Open Ops’ Wallets, Multichannel News, May 1, 2006. 24/ Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, Report on Cable Industry Prices, 20 FCC Rcd. 2718, 2721 ¶ 8 (2005) (citing the average charge for basic service as $13.80 per month). 25/ See e.g., Happy Hostilities: The Holiday Season Brings with it the Fight over Cable Carriage of Local TV, Broadcasting and Cable, November 13, 2006; Spats Over Retransmission Down to Wire, Multichannel News, January 2, 2006. 26/ Verizon Will Pony Up for CBS Content, Hollywood Reporter, March 21, 2006.

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exchange for continued carriage of its broadcast stations by Mediacom in Iowa and other

markets.27/ In the battle with Mediacom, Sinclair has stated that it will stop transmitting

its signal to Mediacom subscribers on December 1 unless its demands are met, stating

that “If we had literally turned our TV stations off out there tomorrow, the impact [on

Sinclair’s finances] would be negligible. . . .If Mediacom loses [the signals], it could be

fatal to them as a company.”28/ Sinclair reportedly has teamed up with DBS providers to

offer “rebates” or “bounty payments” for cable subscribers who switch to DBS during the pendency of its dispute with Mediacom.29/ Sinclair made similar demands earlier this

year in a retransmission consent dispute, now resolved, with Suddenlink in West

Virginia.30/

The impact of these disputes will ultimately be felt by the consumer. As one

Mediacom executive has put it: “If we agree to their outrageous demands, cable bills go

up even more. If we don't agree, Sinclair pulls the stations. Either way, the consumer gets

hurt.”31/

Broadcasters also are the only for-profit provider of commercial television content authorized to demand payments from cable operators and granted statutorily-guaranteed

27/ See Happy Hostilities: The Holiday Season Brings with it the Fight over Cable Carriage of Local TV, Broadcasting and Cable, November 13, 2006; Mediacom in Fight over KGAN, KDSM, Cedar Rapids Gazette, October 19, 2006. 28/ Sinclair: We Could Live Without Our Ia. Stations; Mediacom Can’t, Television A.M., November 2, 2006. 29/ Linda Moss, Mediacom-Sinclair Dispute Heats Up, Multichannel News, November 2, 2006; Cable Retransmission Battle Erupts in W.Va., Television A.M., July 7, 2006. 30/ In July 2006, Suddenlink and Sinclair were engaged in retransmission consent dispute involving stations in Charleston, West Virginia. Both companies filed motions with the Commission. On July 20, 2006, the Media Bureau established “Permit-But-Disclose” ex parte procedures for the motions. On July 25, three business days later, the parties reached agreement.

31/ Happy Hostilities: The Holiday Season Brings with it the Fight over Cable Carriage of Local TV, Broadcasting and Cable, November 13, 2006.

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access to a cable’s most popular tier of service.32/ The Commission should consider

whether it continues to make sense as a matter of policy to allow broadcast

conglomerates to make ever-growing demands for higher carriage fees, while at the same

time being completely insulated from the risk -- faced by all other cable programmers --

of being moved to a higher tier. If broadcasters are intent on putting more upward

pressure on cable rates through excessive cash demands for carriage of their

programming, then policy-makers should reexamine whether it continues to promote the

public interest to afford them guaranteed carriage on cable’s lowest price service tier.

C. Retransmission Consent Has Substantially Foreclosed Programmers Not Affiliated With Network Owned and Operated Stations From Competing for Expanded Basic Tier Carriage

In 1993, when retransmission consent went into effect, the only MPVD network

affiliated with a national broadcast network was ABC’s ESPN. As a result of their use of

retransmission consent, the broadcast networks and their parent companies today stand as

the predominant supplier’s of MPVD video programming. Former Disney chairman

Michael Eisner characterized Disney’s use of the retransmission consent process as

follows:

Without ABC in our own stations we would not have been able to achieve the major growth we have realized at ESPN and our other cable holdings; because ABC offers the highly valued programming that cable operators need, i.e., retransmission consent.33/

The retransmission consent dynamic has adversely affected programmers unaffiliated with broadcast network and broadcast groups in such programmers’ attempts

32/ 47 U.S.C. § 543(b)(7)(A). 33/ Michael Eisner, Chairman and CEO, The Walt Disney Company, Address at Smith Barney Entertainment, Media and Telecommunications Conference (January 6, 2004), available at http://www.highbeam.com/doc/1G1-111904434.html.

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to reach the greatest possible audiences found on the expanded basic tier. With these

broadcasters using their retransmission consent leverage to force their MVPD networks

on expanded basic, it became difficult, if not impossible, for unaffiliated programmers to

obtain favorable terms of carriage. While the former are on expanded basic, the latter are

often relegated to the digital tiers that are available to few subscribers. This competition

for access to audiences is distorted by a government-granted lever that was not designed

for the purpose it is being used.

Similarly, the broadcasters’ growing appetite for making excessive cash demands

based upon market power will injure the public interest in two ways. First, the

broadcasters will obtain an even greater share of the cable operators’ programming

budget, placing even greater financial pressure on unaffiliated programmers. Second, all

cable subscribers must purchase the basic tier on which broadcasters reside. Consumers

facing rising prices for the basic tier can be expected to respond by reducing

subscriptions to other tiers on which the unaffiliated programmers reside.

The public policy rationale for permitting the extraction of excessive cash

payments when broadcast programming is available free over the air and, increasing, also

free on the Internet,34/ seems absent.

34/ For example, ABC currently offers free video streaming of the past three most recently- aired episodes of 6 Degrees, Day Break, Desperate Housewives, Grey’s Anatomy, Lost, the Nine, and Ugly Betty. See ABC Broadcasting Company, Inc., http://dynamic.abc.go.com/streaming/landing (last visited November 28, 2006). CBS offers free video streaming of all episodes of 3 Lbs., CSI, CSI: Miami, CSI: New York, How I Met Your Mother, Jericho, NCIS, Numb3rs, Survivor: Cook Islands. See CBS Broadcasting, Inc., http://www.cbs.com/ (last visited November 28, 2006). Fox offers video streaming of most recently aired episode of: American Dad, Bones, The Loop, The OC, Prison Break, Standoff, Talk Show with Spike Feversten, and Vanished. See Fox Entertainment Group, http://www.fox.com/home.htm (last visited November 28, 2006). NBC also offers free video streaming of the most recently aired episode of: 30 Rock, The Biggest Loser, ER, Friday Night Lights, Heroes, Kidnapped, Las Vegas, My Name is Earl, The Office, Passions, and Studio 60. See NBC Universal, Inc., http://www.nbc.com/ (last visited November 28, 2006).

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CONCLUSION

In the 2005 Report, the Commission noted it would continue to monitor

retransmission consent issues.35/ In this proceeding the Commission should conclude that

retransmission consent to date has failed to meet its core intent of strengthening local

broadcasting, has greatly contributed to growth in the size and cost of the cable expanded

basic tier, and has substantially foreclosed programmers not affiliated with broadcast

networks owned and operated stations from competing for carriage. Finally, the

Commission should find that growth in the broadcaster demands for unreasonable cash

payments threaten substantially to increase the cost to consumers of the cable basic tier.

In addition, the Commission should recognize its broad authority to regulate tying

practices under 47 U.S.C. § 325 (conducting retransmission consent negotiations in good faith), and to adopt measures to restrict cash payments that result from unfair exercise of

market power under 47 U.S.C. § 543 (preventing unreasonable rate increases on the cable basic tier of service). The Commission should immediately commence a Notice of

Inquiry to consider steps that can be taken by the Commission and by Congress to prevent future abuse.

35/ 2005 Report, 21 FCC Rcd. at 2585 ¶ 182.

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Respectfully submitted,

Bertram W. Carp Bruce D. Sokler Williams & Jensen Christopher J. Harvie 1155 21st Street, N.W. Fernando Laguarda Washington, D.C. 20036 Christopher R. Bjornson MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. 701 Pennsylvania Avenue, NW Washington, DC 20004 (202) 434-7300

Attorneys for Coalition for Retransmission November 29, 2006 Reform Advance/Newhouse Communications Crown Media United States, LLC Insight Communications Oxygen Media Cequel Communications, LLC d/b/a Suddenlink Communications, Inc. The Weather Channel Companies

WDC 393119v.6

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