Do TV Stations Compete for Carriage?

October 26, 2010 | Media & Entertainment

According to this article just posted by Broadcasting & Cable, Time Warner Cable asked the FCC “to deny the sale of two TV stations over the issue of joint retransmission-consent negotiations, or put retrans conditions on the sale if the agency does allow them.”  This isn’t the first time that cable operators have complained about stations jointly negotiating retransmission consent — about a year ago both Mediacom and Comcast were complaining about Sinclair negotiating agreements for its owned stations alongside the stations it operated under local marketing agreements.

Antitrust law condemns two competitors getting together and fixing prices or terms; in some cases, where it’s blatant and serves no legitimate business purpose, it may be considered per seillegal, rather than being subject to the more flexible “rule of reason” standard, which calls for a balancing of the procompetitive benefits of a particular arrangement against its anticompetitive effects.

Whether an agreement between broadcasters would be considered a per seviolation, or judged under the rule of reason depends on what procompetitive benefits the stations could proffer.  My guess is that a naked agreement to jointly neogitate would be more likely considered a per se violation than one attendant to a local marketing agreement, where the retransmission consent neogitation is simply one of many jointly-performed business functions.

Under a rule-of-reason analysis, either the Justice Department — the agency charged with enforcement of the antitrust laws in the broadcasting industry — or a private plaintiff would be required to demonstrate adverse competitive effects in the market for carriage.  And that begs the question: is there a market for carriage?

TV stations clearly compete in the market for viewers, and in some cases, for advertisers, but it’s a closer call whether they compete with one another for carriage.  To say that stations so compete is to say that cable operators make decisions about which broadcast stations to carry in a particular market.  Is it really the case that a cable operator such as Time Warner Cable decides between, say, the NBC and the CBS station?  I doubt it.  It’s far more likely the case that the cable operator considers each broadcaster in a market as essential to its lineup.  Drop ABC, and you miss out on Desperate Housewives and Dancing with the Stars; drop CBS or Fox and you don’t get NFL football, NCIS or American Idol; similarly, no NBC means no The Office or 30 Rock.  Put simply, to effectively compete, a cable operator needs them all.

And the same is true for the stations.  They don’t sit around debating which cable, satellite, and telco providers to license their signals to — they want them all.

So, broadcast stations are “must-buys” for cable operators, and cable carriage is a “must-sell” for broadcasters, which suggests that there is little to be gained (and, conversely, little to be lost) by broadcasters jointly negotiating carriage terms.  Accordingly, it seems unlikely fodder for an antitrust challenge.

So, why is Time Warner Cable raising it with the FCC?  I suspect two reasons:

  1. It fits in with the cable industry’s narrative that broadcasters are bad people as the industry fights over retransmission terms generally (nicely illustrated by the highly publicized (and, as of this writing, ongoing) battle between Fox and Cablevision); and
  2. The FCC’s statutory mandate is far broader than that of the Justice Department.  The latter can enforce only the antitrust laws, whereas the FCC can generally do anything it reasonably finds is in the “public interest, convenience, or necessity.”  It has previously noted that competition is one of its policy objectives.

My guess is that the FCC won’t deny the sale on the basis of Time Warner’s complaint, nor do I believe that it will place any retransmission-specific conditions on the transaction.  But, I could be wrong; it wouldn’t be the first time that the FCC has surprised me.

Shameless plug: I discuss competitive issues surrounding local marketing agreements in my recent article Regulating Relationships Between Competing Broadcasters which, I’m told, should be appearing in the Hastings Communications and Entertainment Law Journal any day now.  You can also find it on SSRN.