A month ago, the FCC released its Notice of Proposed Rulemaking looking to reassess the requirement that broadcasters and MVPDs (cable and satellite television) engage in “good faith” negotiations over the retransmission consent necessary for the MVPD to rebroadcast the signal of a broadcast television station, triggering numerous questions throughout the industry (and among financial analysts who follow the television industry) as to what that release meant. On Friday, the Notice of Proposed Rulemaking was published in the Federal Register, setting the dates for the filing of comments on the questions raised by the Commission. Comments are due on December 1, and Reply Comments on December 31. Given that this may well be the same period of time in which TV stations are preparing their initial applications for the incentive auction, and given that the reply falls in the middle of the holidays, don’t be surprised if requests for an extension of these comment dates are filed.

But no matter the dates on which comments are filed, this proceeding obviously raises a number of important issues. While many industry analysts wondered if, by the very fact that the Notice was released, it signaled the FCC’s intent to “go after” broadcasters in their retransmission consent dealings – perhaps as a way to encourage them to participate in the incentive auction by threatening the revenue from the retransmission consent fees that they now receive. But what most of these observers fail to note is that the release of the NPRM by September 1 was actually not the initiated by the FCC Commissioners. Instead, the action was mandated by Congress when it adopted STELAR, the law that extended the right of satellite television companies to retransmit the signals of local television stations. That legislations included many required actions and studies (see our summary here), including the requirement that this NPRM be started by September 1. Thus, the Commission actually waited as long as it could in releasing this rulemaking order.It is also worth noting that the NPRM itself is not a one where the FCC has signaled the ultimate outcome by setting out very specific proposed rules. Instead, the NPRM asks a series of broad questions about the retransmission consent process, suggesting many possible directions in which the Commission could go in reforming or redefining the good faith negotiation standard in some way – or for that matter leaving it alone in its present state. Nothing is preordained by the questions asked.

What areas are included in the Commission’s inquiry? The Commission asks whether the following should factor into the analysis as to whether retransmission consent negotiations are being conducted in good faith – either considering some of these practices as per se violations of the rules, or alternatively as part of an assessment of the “totality of the circumstances” as to whether or not the negotiations are being conducted in good faith:

  • Broadcasters preventing consumers’ online access to their programming to gain leverage in a retransmission consent dispute (e.g. blocking online access to network programs by subscribers of an MVPD’s internet service).
  • Broadcasters relinquishing their retransmission consent rights to a third party (e.g., a network – given that joint in-market negotiations on behalf of non-commonly owned stations is now against the rules, should that also extend to out-of-market joint negotiations conducted by a network).
  • Broadcasters requiring MVPDs to accept the bundling of broadcast signals with other broadcast stations or cable networks as a condition of entering into a broadcast retransmission consent agreement.
  • Broadcasters seeking to prevent an MVPD from temporarily importing an out-of-market signal during a blackout (an issue also front and center in the debate over the retention of the network nonduplication rules, see our articles here and here).
  • Broadcasters threatening a blackout just before a “marquee” sports or entertainment event.
  • Broadcasters demanding an MVPD limit subscriber use of lawful devices and functionalities (e.g. various kinds of home recording devices).
  • Broadcasters imposing minimum penetration requirements.
  • Broadcasters preventing an MVPD from disclosing rates, terms, and conditions to the FCC or a court in connection with a formal retransmission consent complaint or other proceeding.
  • Broadcasters discriminating in price among MVPDs in a market absent an economic showing justifying that discrimination.
  • Either party refusing to provide information that substantiates reasons for negotiating positions.
  • Either party engaging in “surface bargaining” to delay negotiations.
  • Either party demanding or receiving retransmission consent based on “most favored nation” provisions.
  • Either party failing to negotiate based on actual local market conditions.
  • Either party attempting to manufacture a dispute to encourage government intervention.
  • Whether there any circumstances under which an MVPD’s demands with respect to online rights, or a broadcaster’s unwillingness to offer such rights, should be considered evidence of bad faith under the totality of the circumstances test (many broadcasters refuse to provide rights to on-demand access to their programs, or the right to stream programs via the Internet to MVPD customers, as the broadcasters themselves don’t have the rights to permit such uses).

While most of the issues seem to be examining the conduct of broadcasters, not MVPDs, the FCC has made clear that it is examining the conduct of both parties in such negotiations. Obviously, given the nature of these negotiations, there are simply more options for the broadcaster in the conduct of the negotiations, prompting the greater number of questions. The MVPDs big decision is simply whether or not to pay for the carriage at the price offered by the broadcaster. Those lobbying on behalf of the MVPDs have also done a good job of turning broadcaster negotiating tools into issues of potential concern – while broadcasters argue that many of these issues are simply matters of marketplace negotiation, and in fact highlight the value of their programs (e.g. the pressure put on an MVPD to agree to retransmission consent terms just before a “marquee event” demonstrates the value of broadcast programming containing such events).

Under current rules, findings of the lack of good faith are few and far between, basically being limited to refusals to deal by one party or the other, or situations where there are attempts to use negotiations to attempt to exert market power (e.g. forbidding an MVPD from carrying the signal of another station in the market would be a good faith violation, as would the negotiation by an MVPD to forbid the station from giving retransmission consent to a competing MVPD). The FCC has never been authorized to review or regulate the prices charged by a broadcaster for retransmission consent, and they do not appear to be suggesting any such authority here. The FCC does not appear to want to be a rate court for retransmission consent fees.

Instead, they are only out to assure that negotiations are done in good faith. And, given the complexity of any business negotiation, and the natural biases towards one’s own position that often makes the other side often seem unreasonable in their demands, coming up with enforceable standards of what constitutes good faith negotiation is not an easy task – and likely this proceeding is one that will not be decided for quite some time.

But with several high-profile retransmission consent disputes likely to arise between now and when the outcome of the rulemaking is decided, it is important to give the FCC perspective on these issues from all angles. So file your comments with the Commission in December – now that the comment dates have been established.