By Robbie Salaman, J.D.
“Jimbo, can you DVR ABC at 8:00 for me tonight?”
How many times have you asked a roommate that question? Probably a lot more today than you did five years ago. Given the growing use of the DVR, TV ratings have fallen on average across the board. In turn, advertising rates have dropped thereby hurting broadcasters’ bottom line.
The one exception to this trend is sports programming. Sports is the only remaining DVR-proof television property. Sports fans far prefer watching their team play live rather than catching up on the DVR later in the night or reading the box score in the paper the next morning.
The cost of sports programming has risen exponentially over the past decade not only because of the DVR-proof status of sports, but also due to increased competition. New national cable networks like CBSSN, NBCSN and Fox Sports 1 (launching August 17) are all chasing a limited supply of sports programming. Add to that emerging niche-oriented TV channels such as Tennis Channel, BTN and the Pac-12 Networks and one can see how the value of live sports programming has soared. For example, Time Warner (fighting off a stiff challenge from Fox) recently spent over $7 billion to acquire the rights to broadcast LA Dodgers games locally in Los Angeles. The world with only three broadcast channels — ABC, CBS and NBC — is long in the rear view mirror.
The high costs of sports programming along with the introduction of niche channels has caused an increasing number of carriage disputes to develop between broadcasters and distributors.
A quick history lesson – the 1992 Cable Television Consumer Protection and Consumer Act mandates that distributors get consent before retransmitting the signal of a TV channel. In return for consent, broadcasters seek compensation (termed a sub fee) from the distributor. For instance, ESPN currently has a sub fee of more than $5 – the highest in the country. Distributors such as Comcast battle with broadcasters over sub fee rates often leading to carriage disputes.
The case involving Comcast and Tennis Channel currently before the US Circuit Court of Appeals in DC is a prime example of the growing problem of carriage disputes. Launched in 2003, Tennis Channel airs live tennis from the ATP and WTA tours on a weekly basis. Further, Tennis Channel airs the French Open five hours per day through 2024 and the Labor Day weekend night matches at the US Open through 2014. While not on the same level as ESPN, Tennis Channel still owns the rights to valuable live sports programming.
Comcast, now the owner of NBC, elected to place Tennis Channel on a different tier than some of its NBC-owned cable properties like Golf Channel and NBCSN. All three channels are niche sports channels that cater to a similar audience – young and male. Tennis Channel was placed on a more expensive sports premium tier that less than 10 percent of Comcast’s customers subscribe to. To watch Tennis Channel, Comcast customers were required to pay an additional $5 over and above the amount paid for regular digital cable service. Comcast’s decision cost Tennis Channel 20 million viewers and upwards of $3 million in advertising revenue.
In July 2012, the FCC held that Comcast violated federal anti-discrimination laws, namely section 616 of the Communications Act (see also Tennis Channel’s January, 2010 complaint). Section 616 states that distributors cannot discriminate on the basis of a broadcaster’s affiliation or non-affiliation in the selection, terms or conditions for carriage. In this case, the FCC ruled that, “Comcast used its market power as the nation’s largest cable operator to disadvantage Tennis Channel and protect the competing networks with which it was affiliated.” Subsequently, the FCC ordered Comcast to place Tennis Channel on the same tier as Golf Channel and NBCSN at no extra charge to consumers. Comcast appealed the FCC ruling to the DC Circuit Court of Appeals where a ruling is expected shortly.
Reading between the lines from the oral argument, the DC Circuit seems primed to reverse the FCC order on two grounds. First, there is the procedural issue that Tennis Channel issued their complaint to the FCC outside the 1-year statute of limitations window. Tennis Channel and Comcast entered into a carriage agreement in 2005. However, the case was filed with the FCC more than five years later.
Second, Comcast contends their First Amendment free speech rights allow them to prefer their own affiliated channels to their unaffiliated counterparts. Several of the DC Circuit judges seemed to side with Comcast on this point. Isn’t Comcast entitled under the First Amendment to like its own speech better than other speech? Moreover, the judges seemed to view Comcast similarly to the New York Times as a distributor of information. Therefore, Comcast — like the New York Times — has the power to determine that Tennis Channel does not belong on the front page of their paper.
However the DC Circuit rules in the near future, carriage disputes between broadcasters and distributors will continue. A protracted dispute is an issue for both sides. Broadcasters risk losing revenue from advertising while distributors are concerned with losing unhappy customers. Despite those dangers, the harshest ramifications fall squarely on the average customer. On the one hand, if the dispute leads to the channel being kept off air, consumers cannot see the program they want to watch. On the other hand, the distributors will pass down the higher negotiated sub fee to consumers resulting in an increased monthly cable bill. Therefore, the customer gets the short end of the stick no matter which way the carriage dispute goes.
In the future, what are the best options for the consumer? A la carte programming would allow the consumer beforehand to pick and choose which channels he wishes to watch and pay for. Emerging online networks such as Netflix and Hulu may provide cheaper alternatives to subscription-based TV channels. Whatever the future holds, it is clear that the status quo is unsustainable.
Click here to read a previous tennis piece by this author: Labor War Looms Large Over Tennis