Where Independent Cablecos are Furious, Genachowski is Pleased

Still stinging from inordinate increases in retransmission consent fees after the latest round of negotiations, independent cable providers in the American Cable Association (ACA) and ACA ceo Matthew Polka brought a clear message to the Hill on March 14-15,2012: “It’s time for change in Washington.” Independent cablecos badly want the FCC and/or Congress to intervene and reform the retransmission consent system before small companies see yet another 100-300% increase in retransmission costs. However, FCC chairman Julius Genachowski said he was actually pleased with the latest round of retransmission negotiations because blackouts were minimal. How, exactly, is the occurrence of any blackout—be it for 100 customers or 1m—"pleasing?"

Genachowski may not understand the realities of being a small cable operator any more than he understands the realities of being a small rural telecom operator. I attended the ACA Summit and couldn’t help but make connections between the similar struggles of RLECs and independent cablecos—in many cases, RLECs are also cablecos and must try to balance the equally daunting challenges of lost USF and ICC, cord-cutting phone and cable consumers, skyrocketing retransmission fees, competition from wireless and OTT, and increasing end user rates. Meanwhile, the independent industry has few (if any) strong allies at the FCC.

There may be more allies on the Hill though, and ACA chairwoman and ceo of WOW! Colleen Abdoulah emphasized the importance of strong advocacy. “ACA defends what’s right for these companies and their 7.5m customers,” she said in the opening remarks at the Summit. Senator Mark Pryor (D-AR) followed Abdoulah and discussed broad issues like the daunting political climate in DC and the economy. Pryor expressed his commitment to rural broadband, commenting, "Rural broadband will connect not only Jonesboro, Arkansas, to the world, but it also connects the world back to Jonesboro. That's the power of the Internet. We need to try to make it as widely available as we can and a lot of you all are going to be providing those services. So I'm a big rural broadband guy." Pryor also talked about issues he is working on like cybersecurity, digital privacy, identity theft, and federal agency reform. Pryor urged ACA Summit attendees to get involved in these issues, too: "You all should have a seat at that table. We need to hear from you.”

Genachowski took the stage next, where he answered questions from ACA’s Polka. USF reform came up almost immediately, and Genachowski made his usual comments—the old USF system was broken and the FCC did “something people didn’t think was possible, and moved away from old fashioned phone service.” Polka asked how the FCC will ensure that Connect America Funds are not used inefficiently, and Genachowski responded that ACA members should engage with the FCC and take requests for data seriously to make sure that money flows to areas where it is needed the most. Genachowski said CAF Phase II reverse auctions will be a great opportunity for independent cablecos to obtain support and expand into new areas. He also mentioned that the wireless white spaces may provide new opportunities for cablecos.

It was after a question about whether the FCC really understands the small cableco’s struggles with retransmission consent when Genachowski dropped the ball and said to an audience of companies who were recently gouged by broadcasters that the FCC was "pleased that the number of blackouts and very serious instances of consumer disruption was minimized.” Minimized? Compared to what? The recent blackouts were high profile and impacted customers of large nationwide cable companies like Time Warner in primarily metro areas. One reason why the FCC may not have heard about many blackouts in small rural communities is because independent cablecos lack the leverage (or wiliness to lose customers) to fight back when broadcasters demand outrageously high retransmission fees. So, just because blackouts were allegedly “minimized,” according to Genachowski, this definitely does not mean that the latest round of retransmission negotiations was “pleasing.” For small cablecos, it was anything but, which ACA Summit attendees heard plenty about in the afternoon panel on retransmission consent.

The retransmission consent panel featured perspectives from both sides of the retransmission consent fence, which made a lively and engaging discussion. A few notable comments and debates included:

• When asked how long it might take for real retransmission reform, Cinnamon Mueller managing partner Barbara Esbin responded, “Let me whip out my crystal ball.” She added that she remains hopeful that reform will occur eventually, but “In general, reform in Washington take a very long time.” From the broadcaster perspective, Antoinette Cook Bush (partner, Skadden, Arps, Slate, Meagher & Flom) replied that “It doesn’t seem like the stars are aligned,” there isn’t widespread support for retransmission reform, and the current system is working fine.

• Cristina Pauze, vp of regulatory affairs for Time Warner said what most of the audience was likely thinking during Genachowski’s speech: just because there were fewer blackouts, “that doesn’t mean it’s good!” Pauze does not think the FCC should condone what’s going on with retransmission fees, and the problem will not go away on its own.

• Esbin acknowledged that although consumers have a choice in video programming, cable operators have no choice in where they get their broadcast programing: “You have to say yes,” she said. Esbin expects the increasing retransmission fees to continue, with “no obvious break in sight… unless the arms race of attacking the consumer wallet comes to an end.” She later emphasized that cable consumers cannot opt out to programming they do not want to pay for, like ESPN.

• Antoinette Cook Bush explained that high retransmission fees are simply a product of the current market, competition, and the impact of the Internet and streaming video. She later explained that cable operators can just say “no” if broadcasters demand too much. Esbin shot back that the ability of a large company like Time Warner to say “no” is much different “than any provider in this room.”

• Audience questions and comments confirmed that small operators are in a precarious situation with retransmission fees. One member explained, “If we went dark, we’d be ruined.” Another commented that the current system is very one-sided, “and that will kill the small operator.”

So, what happens next? The independent cable industry will surely pressure the FCC and Congress to reform retransmission consent rules, but as many ACA Summit participants explained, change does not come quickly in D.C.—just ask anyone who waited a decade for USF/ICC reform! When you think about how the video marketplace might look in 3-5 years, do you actually see retransmission fees decreasing simply by “free market” forces? If OTT programming options improve and continue to attract millions of subscribers, as predicted, broadcasters will feel the squeeze and continually heave cost recovery burdens on pay-TV operators. The problem was very clearly laid out at the ACA Summit, and hopefully the momentum to pressure lawmakers for reform will continue until lawmakers take action.