Is Pay TV Hardball Over Broadcast Retransmission Fees a Sign of Regulatory Changes on the Horizon?

By Armstrong Williams

June 13, 2019 6 min read

In deciding to discontinue the carriage of WEYI-TV, Saginaw, MI and WWMB-TV in Myrtle Beach, South Carolina, and walking away on May 30 from retransmission negotiations that had been active for months, pay TV titan AT&T/DirecTV is acting like a 19th-century monopolist. It is using its gatekeeper power against local free-to-the-home TV stations to limit viewer choices. Compounding that sin, in the cases of WEYI-TV, an NBC affiliate, and CW affiliate WWMB-TV, AT&T/DirecTV is also impacting diversity by truncating market access by one of fewer than eighteen African American-owned TV stations in the nation. As that African American owner, I'm mad.

AT&T/DirecTV is the poster child of the highly concentrated pay TV industry. Unlike broadcasters, the pay TV industry faces no limitations on its ability to reach additional subscribers via video, broadband or over-the-top media services nor any restrictions on its acquisition of or affiliation with programming networks or content.

As recent comments filed by the National Association of Broadcasters in the Federal Communications Commission's current quadrennial review note, at the end of 2018, "75 percent of all TV households still subscribe to a traditional MVPD (multichannel video programming distributor) service." The NAB further notes that the 10 largest pay TV providers, including AT&T/DirecTV, "control a whopping 94.4 percent of the nationwide pay-TV market and 92.1 percent of the nationwide broadband market; (and) the top four providers (including AT&T/DirecTV) control 79.2 percent of the pay-TV market and 70.5 percent of the broadband market."

With that level of market control, I guess I shouldn't be too surprised with AT&T/DirecTV's "my way or the highway" attitude. But might doesn't make right. Moreover, with a market capitalization of $235 billion, which dwarfs that of even the largest TV broadcast groups, such as Nexstar ($5.4 billion) and Sinclair ($4.2 billion), AT&T/DirecTV is more than a Goliath to my WEYI-TV David.

The pay TV industry, including AT&T/DirecTV, defends its conduct by arguing that retransmission consent fees with TV broadcasters have become too expensive. But as the NAB has pointed out, according to the Kagan research group, total broadcast retransmission consent fees in 2018 accounted for only 15.1% of total pay TV programming fees (counting broadcast stations, basic cable, premium cable and regional sports networks). At the same time, broadcast stations, such as my WEYI and WWMB TV, accounted for almost 34% of prime-time viewing in 2018. Bottom line, the value of broadcast programming is well worth the price pay TV pays. And as NAB goes on to explain, "the quarter-over-quarter growth trend in stations' retransmission revenues slowed in all four quarters."

The audience numbers demonstrate the value of broadcast TV's programming to the pay TV titans, so why would AT&T/DirecTV move to discontinue carriage of WEYI and WWMB and walk away from retransmission negotiations? Perhaps pay TV companies sense an increase in negotiating leverage this year in terms of a shift in the regulatory environment as the STELA Reauthorization Act sunsets at the end of 2019. In an effort to squeeze even more cost savings from its bloated, growth-constrained corporate structure, large pay TV providers like AT&T/DirecTV will perhaps attempt to use their market dominance to force regulatory changes to the current retransmission rights framework.

As a former farmer who witnessed large-scale farm operations decimate the small farms in my local community of Marion County, South Carolina, I see many parallels between farming industry consolidation and pay TV consolidation. Pay TV consolidation puts so much price pressure on local broadcasters that it forces them to grow, acquire more stations or die. However, unlike pay TV providers, broadcasters are severely limited by severely outdated FCC regulations as to the amount of local TV market share they can own. This puts broadcasters at a distinct disadvantage when negotiating retransmission agreements with large pay TV providers. If the regulatory environment shifts in a way that constrains retransmission fee negotiations, local broadcasters will find ourselves at the complete mercy of large "plantation owner" pay TV providers who can negotiate from a position of vastly disproportionate market power.

Given the outsized market power exhibited by pay TV providers, anticipated changes to the current retransmission structure are likely to adversely affect small local broadcasters like WEYI and WWMB, for whom retransmission fees are its lifeblood. Without them, local broadcasters' ability to provide compelling public-interest programming is critically undercut. That serves no one's interest, least of all the public's. I thus urge AT&T/DirecTV to reconsider its position, reinstate WEYI and WMB's carriage and return to the negotiating table. If it doesn't, as one of the very few African American TV station owners, I can only wonder if something else is in play. Lord, I hope not!

To find out more about Armstrong Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Photo credit: StockSnap at Pixabay

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