The Retransmission Consent NPRM: An Overview as the Comment Deadline Approaches

Here's your chance to let the FCC know how to assess the "good faith" of parties to a retrans negotiation.

While many (if not most) television licensees are likely trying to sift through the several hundreds of pages of FCC materials laying out the fast-approaching incentive auction process, it's important not to lose sight of another upcoming deadline: the one for comments relative to the retransmission consent process. TV licensees not cashing in their chips and bidding the industry adieu in the auction will have to live with the new retrans consent process post-auction. With that in mind, those hangers-on should pay particular attention to the FCC's currently open retrans rulemaking.

In their current form the retrans consent rules require television licensees and cable and satellite operators to conduct their retrans negotiations "in good faith". The rules set out two separate ways to determine whether any particular negotiations meet that standard. First, the FCC has identified a number of specific practices that are per se violations of the requirement. Second, in the absence of any of those practices, the good faith or bad faith of any negotiating party will be based on analysis of the "totality of the circumstances".

As we reported almost a year ago, Congress (in the STELA Reauthorization Act of 2014, a/k/a STELAR) added two per se violations to the existing list. The two new, Congressionally-mandated violations of the "good faith" bargaining requirements (about which we previously reported): (1) joint negotiations by non-commonly owned station within a market and (2) blocking by a broadcaster of the importation of a significantly-viewed signal into its market. Congress also directed the Commission to take another look at the "totality of the circumstances" standard used in determining whether retrans negotiations have been conducted in good faith. And in a Notice of Proposed Rulemaking (NPRM) released last month, the FCC has asked for comments on what, if anything, it might do along those lines. We can expect the proceeding to be contentious.

Historically, the FCC has had surprisingly little to say about the "totality of the circumstances" in retrans negotiations. It has issued decisions in only four cases of "good faith" claims, and it has ever found only one violation. (This doesn't mean the issue hasn't been raised more often. In practice, when such claims are filed, the parties themselves usually reach an agreement fairly quickly, mooting the claim before the FCC can come to a decision. Frequently in such cases, though, the Commission has informally involved itself by reaching out to both parties in an attempt to resolve disputes after the filing of a claim.)

What does the Commission have in mind now? It's hard to say because, in a flashback to the days of the Chairman Martin Commission, the NPRM does not in fact propose any specific rules. Instead, it asks a long series of questions about whether certain specific practices should be considered in a claim of bad faith, and what, if any, more general changes may be required to update its "totality of the circumstances" test. While cable and satellite operators may be cheered that the majority of the practices about which the FCC specifically requests comments address broadcasters' actions in negotiations, the Commission does identify a few practices applicable to MVPDs as well as broadcasters. And in any event, the FCC does indicate that any standards it adopts will be applied to both parties to a negotiation (to the extent they apply).

The NPRM is primarily devoted to discussion of certain specific negotiation practices that - according to some interested parties (mainly MVPDs, it would seem) - should be considered evidence of bad faith. The Commission requests comment on whether these practices should be considered at all and, if so, whether they should be deemed to be per se evidence of bad faith or just items to be considered under the "totality of the circumstances" test.

Among the behaviors considered is the practice by some broadcasters of preventing online access to their programming while their signals are blacked out on a particular cable or satellite system. The FCC acknowledges that, in such circumstances, the broadcaster's programming remains readily available to the local audience through over-the-air reception; but the NPRM evinces some apparent concern with this practice, particularly if it affects customers who subscribe only to the MVPD's Internet services (i.e. not their video offerings) or customers who reside in markets that are not otherwise affected by the retrans consent dispute. The Commission also requests comment on the practice of granting to third parties (e.g., networks) the right to negotiate or approve retransmission consent agreements. That, of course, is a practice to which MVPDs have been vocally opposed.

Further demonstrating the increasing importance of online access to programming, the FCC also requests comment on how, if at all, it should consider an MVPD's demand for online rights, or a broadcaster's refusal to grant such rights.

The NPRM also requests comment on the practice of "bundling" in the more traditional sense. In this context, "bundling" involves the insistence by a broadcaster that the MPVD carry programming from other broadcast stations or cable networks as a condition to consent to carry the desired broadcast station. What a difference a decade and a half makes! In 2000, the FCC had found that this practice was presumptively acceptable (absent any violation of the antitrust laws). Indeed, "bundling" was one of the primary forms of compensation broadcasters historically received (at least until cash compensation became a viable negotiating term). That was then, this is now: the NPRM specifically requests comment on whether it would be a violation of good faith for a broadcaster to insist on the MVPD's agreement to carry an as-yet-unlaunched programming source as a condition to allowing the MVPD to carry the broadcaster's existing station. (Perhaps not surprisingly, DISH recently complained that Sinclair Broadcasting has made such a demand.) And if insistence on bundling were to be deemed a factor to be considered under the "totality of the circumstances" analysis, the Commission asks how an alternative offer of standalone carriage (presumably in return to cash consideration in lieu of any bundling) should be factored into the mix.

Without significant discussion of any specifics or in-depth analysis, the NPRM also requests comment on whether any of the following practices should be considered in the "totality of the circumstances" analysis:

• Setting expiration dates immediately prior to "must see" programming (e.g., Superbowl). Such scheduling can put pressure on the MVPD to get a new deal done in time to insure that it will be able to provide the "must see" programming to its subscribers; failure to achieve that goal can result in negative publicity;
• Preventing an MVPD from importing an out-of-market signal during a broadcaster-imposed blackout following the initial failure of the parties to reach a retrans agreement; ditto for prohibiting (under the same circumstances) an MVPD from exporting a signal to another market, at least where the station is significantly viewed;
• Placing limits on subscribers' use of lawful equipment (e.g., DVRs, etc.);
• Demanding fees based on viewers who are not video subscribers of the MVPD;
• A failure by either party to provide substantiation for its negotiating positions;
• Engaging in "surface bargaining", i.e., conduct that is "designed to delay negotiations, but that does not necessarily constitute an outright refusal to bargain";
• Discrimination against non-affiliated MVPDs by an MVPD-affiliated broadcaster;
• Demanding "most favored nation" (a/k/a "MFN") protections;
• Failure by a broadcaster to make an initial proposal at least 90 days prior to expiration of an existing agreement;
• Preventing an MVPD from disclosing rates, terms or conditions to the FCC or other governmental forum in connection with the prosecution of a complaint or other proceeding;
• Imposition of penetration requirements;
• Demand for placement of affiliated channels on a specific tier;
• Discrimination by broadcasters between MVPDs absent a showing of a legitimate justification; and
• Failure by either party to negotiate based on actual local market conditions.

More generally, the Commission is also looking for input on how it should determine whether any of these practices, or others that may arise, could be factored into the determination of whether or not parties have negotiated in good faith. Back in 2000 the FCC had concluded that Congress expected it to follow established precedent from other areas of law - especially labor law - in determining whether negotiations had been conducted in good faith. The Commission is now asking whether there have been any recent precedents - in labor law or in other areas of the law - that might be useful in determining what constitutes good faith.

Retransmission consent has become crucial to many television stations, as well as MVPDs. The existing system has afforded many television licensees the opportunity to negotiate on a playing field substantially different from the field that existed when the retrans consent option was first introduced more than 20 years ago. But the NPRM clearly suggests that the FCC is contemplating changes - and likely major changes - to the existing system.

The outcome of this proceeding will be critically important both to broadcasters who rely on retrans fees as a source of revenues and other compensation and to MVPDs trying to keep down the costs they pay for programming. In view of the open-ended nature of the questions posed in the NPRM, it would obviously behoove any and all interested parties to share their own views and experience with the FCC. Comments in response to the NPRM are due to the Commission by December 1, 2015; reply comments by December 31. Comments may be submitted through the FCC's ECFS online filing system; refer to Proceeding No. 15-216.