ReportIn a report to Congress released on April 14, 2015, the United States Government Accountability Office (“GAO”) found that the effects of eliminating the FCC’s network non-duplication and syndicated exclusivity rules would “depend on other federal actions and industry response.”  To arrive at this “conclusion,” the GAO reviewed comments filed by industry stakeholders (including numerous broadcasters and MVPDs) in response to the FCC’s 2014 further notice of proposed rulemaking considering elimination or modification of the exclusivity rules; conducted “semi-structured” interviews with the industry stakeholders; and reviewed relevant rules, statutes, and affiliation agreements.

As the GAO recognized, local television stations negotiate with content providers, including national networks and syndicators, for the right to be the exclusive provider of that content in their markets.  The exclusivity rules help protect these contractual rights be requiring the blackout of duplicative programming from other sources.  Thus, the GAO found that if the exclusivity rules were eliminated, local stations “may no longer be the exclusive providers of network and syndicated content in their markets” due to cable providers’ ability to import distant signals.  As a result, stations’ bargaining position in retransmission consent negotiations could be reduced, which could in turn cause stations to agree to lower retransmission consent fees. This potential reduction in revenues could reduce stations’ investments in content, including local news and community-oriented content, and could affect the fees households pay for cable television service. However, “because multiple factors may influence investment in content and fees,” the GAO stated that it could not quantify these effects.

The GAO then went on to speculate as to how the effect of elimination of the exclusively rules on broadcasters might be offset or limited.  The GAO first stated that, if copyright law were “amended in certain ways” (i.e., by eliminating the compulsory copyright license for distant signals), cable operators would need to secure approval from all copyright holders whose content appears on a distant station in order to provide that station to their customers.  With “possibly hundreds of copyright holders in a day’s programming,” the transaction costs involved in obtaining approval would “make it unlikely that a cable operator would import a distant station.”  In such a scenario, the GAO opined, local television stations may “retain the same bargaining position that they currently have during retransmission consent negotiations.”

The GAO also suggested that broadcast networks could provide “oversight” of retransmission consent agreements to ensure that stations do not grant retransmission consent outside their local markets.  This scenario would require the FCC to make clear that network oversight does not run afoul of its rules regarding good faith negotiations.  Once over that regulatory hurdle, however, networks could provide suggested contract language that limits retransmission by cable operators to the station’s local market. Having agreed to contracts “clearly protecting the exclusivity of local television stations and preventing cable operators from retransmitting signals to distant markets,” the GAO opines that “cable operators may be unlikely to import distant signals as doing so would be a clear contractual violation of their retransmission consent contract.”

Although the GAO report is far from conclusive, it serves as a strong reminder that the Commission’s exclusivity rules are part of an intricate regulatory structure in existence of decades.  Removing one piece will necessarily have collateral effects that are difficult to predict or quantify.

Related Posts: