Before the Federal Communications Commission Washington, D.C. 20554 ) In the Matter of ) ) Amendment of the Commission‘s Rules ) Related to Retransmission Consent ) MB Docket No. 10-71 ) ) ) ) REPLY COMMENTS OF THE NATIONAL ASSOCIATION OF BROADCASTERS NATIONAL ASSOCIATION OF BROADCASTERS Jane E. Mago Jerianne Timmerman Erin Dozier 1771 N Street, NW Washington, D.C. 20036 (202) 429-5430 June 27, 2011 Table of Contents Page I. The Policy Rationales Underlying The System Of Retransmission Consent Are As Compelling Today As They Were When Congress Established The Retransmission Consent Regime .........................................................................................3 II. The Record In This Proceeding Demonstrates The Importance Of Retransmission Consent To Support Quality And Locally Focused Programming ......................................7 III. The MVPD Industry Yet Again Has Failed To Support Its Claims Of Marketplace Failure ................................................................................................................................10 A. The Emergence Of Competition Among MVPDs Has Not Resulted In Decreased Leverage For MVPDs In Retransmission Consent Negotiations .........12 B. Retransmission Consent Fees Are Not ―Too High‖ Merely Because They Have Increased From Zero And, In Fact, Broadcast Signals Represent Tremendous Bargains In An Evolving Programming Market ...............................15 C. The Open Market For Retransmission Consent Negotiations Has Not Resulted In A Significant Number Of Signal Deletions That Have Impacted Consumers ..............................................................................................18 IV. The FCC Lacks Authority To Implement Many Of The Specific Proposals Suggested By The MVPD Industry, Which Are Not Aimed At Protecting Consumers But Rather At Exempting MVPDs From Retransmission Consent Fees ........20 A. Section 325(b)(3) Cannot Be Used As Justification For The Sweeping Revisions Proposed By The MVPD Industry ........................................................21 B. No Commenter Has Effectively Demonstrated That The Commission Has Authority To Mandate Interim Carriage, Mandatory Arbitration Or Their Effective Equivalents .............................................................................................24 1. The Record Supports The FCC‘s Conclusion In The Notice That The Commission Lacks Authority To Mandate Interim Carriage Or Mandatory Arbitration ...............................................................................24 2. MVPD Proposals Which Effectively Amount To Interim Carriage Or Mandatory Arbitration Should Also Be Rejected As Outside The Scope Of The Commission‘s Authority ..............................................27 V. The Record Reflects That Non-Binding Mediation Would Exceed The FCC‘s Authority And Negatively Impact The Retransmission Consent Process..........................29 i A. The Record Confirms That There Is No Legal Basis For The Commission To Adopt Rules That Would Subject Parties To Non-Binding Mediation Procedures During Impasses In Negotiations ........................................................30 B. Comments Demonstrate That Mandatory Non-Binding Mediation Is Impractical, Costly, And Counter-Productive To Swift Resolution Of Retransmission Consent Impasses .........................................................................32 VI. Proposals To Place Regulatory Constraints On The Prices, Terms And Conditions Of Retransmission Consent Agreements Would Result In Excessive Government Intervention Into The Free Market Retransmission Consent System Established By Congress .......................................................................................................................34 A. The FCC Should Reject Calls To Establish Uniform Retransmission Consent Rates Or Otherwise Impede Broadcasters‘ Ability To Negotiate For Fair Compensation In Exchange For Retransmission Consent .......................35 B. The Commission Should Reject Proposals To Limit The Types Of Compensation Broadcasters May Seek In Arms-Length Retransmission Consent Negotiations As Contrary To Law ...........................................................38 C. The Record Does Not Support Regulation Of Retransmission Consent Rates Based Upon Alleged Price Discrimination Among Smaller MVPDs ..........41 VII. Even Assuming The FCC Had Authority To Regulate Broadcast Retransmission Consent Rates, Such Regulations Would Not Benefit Consumers As MVPDs Claim ..................................................................................................................................45 VIII. The Record Confirms That Joint Negotiations Provide Public Interest Benefits And Are Not Unlawful Or Anticompetitive .......................................................................47 A. Joint Negotiations Help Reduce The Disparate Bargaining Positions Between Broadcasters And MVPDs ......................................................................48 B. Joint Negotiations Among Broadcasters Are In the Public Interest And Consistent With Antitrust Laws .............................................................................50 IX. MVPDs Have Shown No Convincing Reason To Eliminate Broadcast-Related Exclusivity Rules, Which Provide The Procedural Means To Enforce Privately Negotiated Contractual Rights ...........................................................................................53 X. The Commission Should Not Require Broadcasters To Publicly Disclose Terms Of Privately Negotiated Agreements .................................................................................61 XI. No Commenter Has Demonstrated That It Is Necessary To Provide Special Consideration To Good Faith Violations During The License Renewal Process ..............64 ii XII. The FCC Should Adopt The Notice Requirement Because, Despite MVPDs Rhetoric, This Proposal Is Truly Aimed At Consumer Protection .....................................66 XIII. Conclusion .........................................................................................................................70 iii Executive Summary In these reply comments, the National Association of Broadcasters (―NAB‖) again urges the Federal Communications Commission (―FCC‖) to resist repeated requests of multichannel video programming distributors (―MVPDs‖) to micromanage the negotiation of thousands of complex retransmission consent agreements. The record has established that substantial changes in the existing FCC regulations governing retransmission consent are unnecessary, would (in many cases) exceed the Commission‘s authority, and would be harmful to the public interest. No consumer benefit would flow from the rule changes that MVPDs propose and, indeed, they nearly uniformly oppose Commission proposals that would, in fact, inure to the benefit of consumers. As evidenced by the record, the current retransmission consent marketplace is a successful and efficient means to deliver broadcast television programming to subscribers of MVPD services. Broadcasters have turned the retransmission consent fees they negotiate into predictable revenue streams that enable them to deliver high quality content to viewers. Importantly, retransmission consent fees represent an opportunity for broadcasters to help defray the high costs associated with the production of local news, which, as recently recognized by the FCC, continues to be important for local communities. An attached declaration and analysis of the economics of television broadcasting demonstrate that regulations artificially limiting broadcasters‘ ability to realize scale and scope economies (including potential limits on their ability to negotiate for retransmission consent) would substantially reduce both the number of financially viable stations and their programming output, including news. MVPD claims that the policy base for retransmission consent has been eroded by the emergence of competition among MVPDs are simply false. Congress established retransmission consent to remedy an anticompetitive distortion (as between broadcasters and MVPDs) under which cable systems used retransmission of local television signals without compensation, thereby forcing local stations to subsidize their competitors. This policy rationale is equally as compelling today as in 1992. There is no factual basis in the record to support claims that the retransmission consent marketplace is ―broken.‖ Allegations that the emergence of competition among MVPDs has provided broadcasters with undue bargaining power are greatly exaggerated and misleading. In fact, the record reflects that the carriage of broadcast signals via retransmission consent represents tremendous value for MVPDs, especially compared to carriage fees paid to non- broadcast programming networks. The mere fact that retransmission consent fees have increased from an initial level of zero does not mean that they are now somehow ―too high‖ from the perspective of economic efficiency, or in any way the cause of the rising rates paid by consumers for MVPD services. Although MVPDs complain of ―highly disruptive service withdrawals,‖ the record demonstrates that retransmission consent impasses rarely result in an interruption of service to MVPD subscribers, and that any disruptions represent an insignificant portion of annual television viewing hours. Section 325(b)(3)(A) of the Communications Act of 1934, as amended, does not provide the FCC with authority to make the sweeping