FCC Issues Retransmission Consent Reform Order

Prohibits Non-Commonly Owned Top Four-ranked Stations in the Same DMA from Jointly Negotiating Retransmission Consent Agreements

            On March 31, 2014, the FCC released an Order prohibiting top four-rated (“Top Four”) television broadcast stations licensed in the same Designated Market Area (“DMA”) and not commonly owned, operated or controlled, from jointly negotiating retransmission consent agreements with a multichannel video programming distributor (“MVPD”).  The prohibition applies to:

• A Top Four station delegating negotiating authority to another Top Four station;
• Two or more Top Four stations delegating authority to a common third party (e.g., a consultant); and
• Top Four stations entering into any informal, formal, tacit or other agreement and/or conduct that signals or is designed to facilitate collusion regarding retransmission terms or agreements between them.

            The rules will become effective 30 days after publication of the Order in the Federal Register and will apply to future negotiations.  While the Order does not invalidate existing agreements that have been jointly negotiated, it prohibits joint negotiations going forward even if existing agreements call for such negotiations.

Background

            The FCC’s rules obligate television broadcast stations and MVPDs to negotiate in good faith the terms and conditions of retransmission consent agreements.  The FCC issued regulations addressing retransmission consent negotiations following enactment of the 1999 Satellite Home Viewer Improvement Act, and amended these “good faith negotiation regulations” pursuant to the 2004 Satellite Home Viewer Extension and Reauthorization.

            Under the FCC’s rules, the following actions or practices violate a broadcast television station’s or MVPD’s duty to negotiate retransmission consent agreements in good faith:  

• Refusal to negotiate retransmission consent;
• Refusal to designate a representative with authority to make binding representations;
• Refusal to meet and negotiate at reasonable times and locations, or acting in a manner that unreasonably delays retransmission consent negotiations;
• Refusal to put forth more than a single, unilateral proposal;
• Failure to respond to a proposal of the other party, including the reasons for the rejection of any such proposal;
• Execution of an agreement that prevents a party from entering into a retransmission consent agreement with any other television broadcast station or MVPD; and
• Refusal to execute a written agreement that sets forth the full understanding of the parties.

In addition, a television broadcast station or MVPD may demonstrate, based on the totality of the circumstances of a particular retransmission consent negotiation, that the opposing party breached its duty to negotiate in good faith.

In March 2010, the American Cable Association (“ACA”), along with 14 MVPDs and public interest groups, filed a rulemaking petition arguing that changes in the marketplace, and the increasingly contentious nature of retransmission consent negotiations, justified revisions to the FCC’s retransmission consent rules.  ACA specifically argued that competing broadcast television stations obtain undue bargaining leverage by negotiating together when they are not commonly owned.  In 2011, the FCC issued a Notice of Proposed Rulemaking regarding proposals contained in the petition, and the action in the Order follows from this Notice.

New Joint Negotiation Prohibition

            The Order declared that a Top Four station owner commits a per se violation of its statutory duty to negotiate in good faith if the station jointly conducts retransmission consent negotiations with another Top Four station if the stations (i) are not commonly owned, operated or controlled, and (ii) serve the same DMA. 

The FCC considered this to be prohibited “joint negotiation.”  A “Top Four” station is one that is ranked among the top four in a DMA, based on the most recent all-day Nielsen audience share measurement.

            The FCC recognized that although much of the existing coordination between stations occurs as part of formal agreements, a prohibition should apply not only to agreements that are legally binding, but also to less formal methods of coordination.  Accordingly, a same-market Top Four station that is not commonly owned, operated or controlled may no longer:

• Delegate authority to negotiate or approve a retransmission consent agreement to another Top Four station (or its representative);

• Delegate authority to negotiate or approve a retransmission consent agreement, along with another Top Four station that is not commonly owned (e.g., a consultant); or

• Engage in any informal, formal, tacit or other agreement and/or conduct that signals or is designed to facilitate collusion regarding retransmission terms or agreements with another Top Four station.

The Order also provides that MVPDs could be subject to complaint by broadcasters if they jointly negotiate and that the FCC would closely scrutinize any such negotiation.  Broadcasters argued that it would be inconsistent with Congress’s decision to impose a good faith bargaining obligation on both parties to prohibit joint negotiations by broadcasters while permitting it by MVPDs.  The FCC, however, took no specific action in response to this argument other than to direct broadcasters to file complaints under the totality of the circumstances test in appropriate cases.  The FCC explained that the record indicated that joint negotiation by MVPDs is not a widespread practice and there was insufficient evidence on how this affects the retransmission consent fees paid by broadcasters.

Notes about when the rule does not apply: 

• A non-commonly owned, operated or controlled Top Four station and a non-Top Four station may still jointly negotiate retransmission consent.  For example, in markets where the ABC, CBS, FOX and NBC stations are the Top Four Nielsen rated stations, the rule still permits one of them to jointly negotiate with a CW and/or MyNetworkTV station.

• The rule likely will only apply to full-power station negotiations, although the Order is not explicit on this point.  Thus, the rule would likely not prohibit joint negotiations between non-commonly-owned, operated or controlled stations in the same-DMA involving a Top Four station on a digital multicast sub-channel (e.g., D.2), or a Top Four station operating as a Class A or LPTV broadcaster.

Effective Date

The FCC adopted the rules prospectively.  Stations subject to this rule are prohibited from engaging in joint negotiation as of the effective date of the Order (30 days following publication in the Federal Register), regardless of whether they are subject to existing agreements, formal or informal, obligating them to negotiate retransmission consent jointly. 

However, the rule does not apply to joint negotiation by same market, separately-owned Top Four stations that has been completed prior to the effective date of the rules, and it does not invalidate retransmission consent agreements concluded through such joint negotiations.

Enforcement

            MVPDs or broadcasters may file complaints with the FCC within one year of:  (i) entering into an agreement that they believe violates the good faith rules; (ii) identifying conduct that they believe violates the good faith rules, so long as the negotiations are unrelated to any existing agreement between the parties; or (iii) providing notice that they intend to file a complaint on the grounds that their request to negotiate retransmission consent has been denied, unreasonably delayed, or unacknowledged in violation of one or more of the good faith rules.

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If you have questions about the FCC’s good faith rules, or retransmission consent negotiations in general, please contact Barbara Esbin at (202) 872-6811 or besbin@cinnamonmueller.com, Scott Friedman at (312) 580-8557 or sfriedman@cinnamonmueller.com, or Elvis Stumbergs at (202) 872-6881 or estumbergs@cinnamonmueller.com.