Understanding the Un-Free Market for Retrans Consent Is the First Step for Reforming It

In a truly free marketplace, private parties have the liberty to pursue commercial deals with whomever they choose. By mutual consent, private parties operating in a free market are at likewise at liberty to bind themselves to negotiated terms and conditions. The parties must abide by the terms and conditions they’ve agreed to. And an impartial authority enforces the bargained-for expectation of the parties in cases where one side fails to perform as agreed.

Unfortunately, video programming services remain stuck under a decades-old legacy regulatory apparatus that in certain critical respects marks an unfree market. The retransmission consent and must-carry regulatory regime established by Congress and enforced by the FCC is a regrettable case in point.

For over 20 years now the retrans consent/must carry regime has subjected the market for video programming to forced access mandates and to restrictions on private bargaining. Under "must-carry" rules, video broadcasters are granted special rights against multichannel video programming distributors (MVPDs), such as cable and direct broadcast satellite (DBS) operators. Those rules allow broadcasters to compel carriage of their program content by an MVPD on a basic tier channel.

On the flip side, TV broadcasters can chose to forego their must-carry rights and instead require that MVPDs negotiate directly with them for permission to retransmit their video programming. But retrans consent regulations grant protections to broadcast networks and local stations by limiting the ability of cable operators to choose what broadcasters to bargain with and what programming to bargain for. In particular, network non-duplication rules block MVPDs from importing network programming from another affiliate of the same broadcast network as a designated local TV station, even if the local TV station is not carried by the MVPD. And syndicated exclusivity rules block MVPDs from carrying syndicated programming broadcast by out-of-market TV stations when the same programs are broadcast by local TV stations.

FSF Board of Academic Advisors member Bruce Owen recounted the history of political favoritism and protectionism behind retrans consent and must carry in his Perspectives from FSF Scholars paper, "The FCC and the Unfree Market for TV Program Rights." And in a Perspectives paper titled "Broadcast Retransmission Negotiations and Free Markets," FSF President Randolph May concluded the retrans consent regime "creates artificial constraints that make the negotiations anything but a free market situation" and has "the effect of conferring certain advantages that may work to the negotiating advantage of broadcasters and against the MVPDs."   

Now in a December 12 blog post at RedState, CEI's Fred Campbell took aim at the American Television Alliance's (ATVA) 2010 petition requesting that the FCC adopt certain retrans consent negotiation and dispute resolution rules. In so doing, he likened ATVA's efforts to obtain such retrans consent regulations with the efforts of pro-regulatory advocates to impose network neutrality regulations.

Fred Campbell is a former FCC Wireless Bureau Chief, a skilled analyst, and, in general, a free marketer. We at FSF are in considerable agreement with him on many communications policy issues and respect his work. But I believe a false equivalency has been made in his blog post between rules that modify an existing regulatory regime for one type of services and rules that subject a previously free market to new regulatory controls. 

Even if the FCC never acts on ATVA's petition, video programming negotiations between TV broadcasters and MVPDs are already un-free in significant respects. This is due to the 20 year-old restrans consent regulations, discussed above, that restrict who MVPDs can negotiate with. By contrast, prior to the FCC's Open Internet Order, broadband Internet access providers were free, if they pleased, to negotiate with content or "edge" providers regarding data transmission. The FCC's net neutrality regulations now restrict – or at least disfavor – certain kinds of two-sided pricing arrangements that may be consumer welfare-enhancing.

Surely there may be costs associated with all of the various proposals contained in ATVA's petition, just as there may be benefits associated with them. I leave the merits of ATVA's various proposals to others. The real focus should be on the more fundamental task of establishing a truly free market context for retrans consent negotiations, and for video services generally. The ultimate goal should be to eliminate regulatory intrusion in this space – and to thereby eliminate occasions for debate over whether this or that particular modification to the old regulations will tip the scales in favor of one class of competitors over another.

One promising vehicle for comprehensive free market reform is H.R. 3720, the Next Generation Television Marketplace Act. Just introduced again by Congressman Steve Scalise, the bill would finally eliminate outdated legacy video regulations that rest on an early 1990s snapshot picture of the video market. Among other things, the Next Generation Television Marketplace Act would repeal retrans consent regulations and allow negotiations for carriage of TV broadcast stations to take place in a deregulated and truly free market context.

Perhaps Fred Campbell may agree with me that this would be a good thing and that Rep. Scalise's "NextGenTV" bill represents the proper direction for reform.