Cable and Satellite Television Issues in the 116th Congress

December 20, 2018

Cable and Satellite Television Issues in the 116th Congress

More than 119 million U.S. households watch television.

Of those, more than three-quarters receive television signals

via cable, telephone lines, or direct broadcast satellite.

Federal laws govern which broadcast signals subscribers to

these services can view. The laws also govern the

compensation that owners of copyrighted programming

carried on certain broadcast signals can receive and the

negotiations between broadcasters and cable and satellite

operators for the right to retransmit broadcast signals. Some

of these provisions of the Communications Act of 1934 and

the Copyright Act, most recently revised in 2014 in the

Satellite Television Extension and Localism Act

Reauthorization Act (STELAR Act; P.L. 113-200), are set

to expire at the end of 2019.

As Congress considers whether to renew these provisions or

otherwise revise communications and copyright laws,

technological, consumer, and business forces are reshaping

the television industry.

Background

There are two primary ways for a household to receive

broadcast television programs: by using an individual

antenna that receives signals over the air from a television

station or by subscribing to a multichannel video

programming distributor (MVPD), such as a cable or

satellite company, which retransmits signals of broadcast

stations to subscribers. In addition, a growing number of

viewers are watching broadcast television over the internet.

Since the 1970s, Congress and the Federal Communications

Commission (FCC) have constructed a regulatory

framework for the retransmission of broadcast television

signals by MVPDs. This regulatory framework attempts to

balance a number of potentially conflicting public policy

goals, including the competitive provision of video

services, protection of property rights, localism, the

provision of television service to customers unable to

receive over-the-air broadcasts, and the interests of

broadcasters, television networks, MVPDs, content owners,

device manufacturers, small businesses, and consumers.

Retransmission Consent and Flow of Payments

Broadcast television stations produce some of the

programming they transmit and also contract with

television networks, which supply them with programs. The

networks produce some of the programming they distribute

and therefore own the copyrights to those programs. In the

case of other programs, however, third parties such as

sports leagues and studios may own the copyrights.

MVPDs may not redistribute a broadcast signal to their

customers unless they have obtained the permission of the

broadcast station that originated the signal. When granting

permission, a commercial station has two options: it may

require cable operators, and, to a more limited extent,

satellite operators to carry its signal without compensation

to subscribers located within the station’s market, or it may

negotiate retransmission consent in exchange for payment.

Provisions in broadcast stations’ network affiliation

agreements typically give them the exclusive right to

negotiate for the retransmission of their signals, including

the network programming that airs on an established

schedule. These negotiations often occur at the corporate

level, between a company that owns multiple broadcast

stations and an MVPD that operates many cable systems or

a nationwide satellite service, rather than the local level. If a

station’s parent company and an MVPD fail to reach an

agreement, the broadcasting company may require the

MVPD to black out its stations’ signals and not retransmit

the stations’ broadcasts to subscribers.

The broadcast networks have claimed that much of the

value of broadcasters’ signals derives from the networks’

sports, entertainment, and news programming. Broadcast

stations’ network affiliation agreements may require them

to pay the network a portion of their retransmission consent

revenues.

DMAs and Geographic Exclusivity

The Nielsen Company, a market research firm, assigns each

television station and each U.S. county to one of 210

separate geographic markets, known as Designated Market

Areas (DMAs). In the private sector, advertisers and

television stations rely on Nielsen’s audience measurements

to negotiate rates for advertising slots. Broadcast television

networks use DMAs in their contracts with stations to

define geographic zones within which each station has the

exclusive right to broadcast the network’s programs.

The DMAs generally define the geographic zones of

exclusivity for retransmission of broadcast signals. In

general, a cable or satellite operator must retransmit the

broadcast signal of a network affiliate to subscribers within

the affiliate’s DMA, and may not import the signal of a

network affiliate based in one DMA into a DMA served by

another of that network’s affiliates. The policy rationale is

that protecting broadcast stations’ rights to geographic

exclusivity enables them to invest in local programming

that is responsive to viewers living within the stations’

communities.

Television Trends

Since Congress enacted STELAR in 2014, television

viewing habits have changed in ways that could make

retransmission consent negotiations more contentious.

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Cable and Satellite Television Issues in the 116th Congress

MVPDs have lost about 9.1 million subscribers since 2014

(Table 1), and the share of television households

subscribing to MVPDs has fallen from 88% to 77%. As of

June 2018, the total of number of households subscribing to

MVPDs was 92.5 million.

Table 1. Media Usage Trends

Television Household Numbers in Millions

Q2 2014

Q2 2018

Traditional MVPD

101.6

92.5

Broadcast Only

12.0

15.4

Broadband Only

(excluding vMVPDs)

2.2

7.5

vMVPDs

0

4.1

115.8

119.6

Total TV Households

Source: CRS estimates based on data from Nielsen.

Note: A “TV household” is a home with at least one operable

TV/monitor that can deliver video via antenna, a cable set top box, a

satellite receiver, and/or with an internet connection.

This decline in MVPD subscriptions reflects several

converging factors. One is higher prices. According to the

Bureau of Labor Statistics, the price of cable and satellite

television service for urban consumers rose 12% between

June 2014 and June 2018, more than twice the increase in

consumer prices in general during the same period.

MVPDs claim the higher prices reflect higher costs for the

programming they purchase from cable networks and

higher fees paid to television broadcasters for the right to

retransmit their programs. Many consumers also pay

MVPDs to lease equipment in order to access the

programming.

Technological developments have also contributed to the

decline in MVPD subscriptions by enabling households to

watch television in other ways. As of June 2018,

approximately 9.7% of television households (or 11.6

million households) receive video exclusively through an

internet connection. Of those, more than one-third (3.4% of

all TV households, or 4.1 million households) use “virtual

MVPD” (vMVPD) services such as Sling TV, DIRECTV

Now, and Hulu with Live TV. These services aggregate

programming from selected broadcast and cable networks

and, in some cases, broadcast stations into packages that,

similar to traditional MVPDs, allow subscribers to view

programming on the same established schedule as

programming transmitted via traditional MVPDs and over

the air.

In contrast to traditional MVPDs, however, vMVPDs offer

slimmed-down bundles of programming and refuse to pay

for carriage of networks they claim are less popular. While

vMVPDs still serve a relatively small percentage of

television households, their growing popularity may

increase pressure on MVPDs to restrain price increases, and

thereby affect retransmission consent negotiations.

Issues for Consideration

In addition to facing competition for viewers from online

video services, broadcast stations compete for advertising

dollars with social media platforms. Consequently,

broadcast stations have sought alternative sources such as

retransmission consent. Research firm SNL Kagan

estimates that the portion of broadcast industry revenue

provided by advertising declined from 93% in 2008 ($21.0

billion) to 62% in 2018 ($20.5 billion).

Companies’ quest for greater bargaining power in

retransmission consent negotiations has driven

consolidation in the broadcast television and MVPD

industries. For example, after acquiring the Tennis Channel

in 2016, Sinclair Broadcasting, which owns or operates

more than 190 television stations, sought carriage of that

cable network. The increasing presence of vMVPDs,

however, has challenged broadcasters’ ability to limit

viewing of broadcast network programming within their

DMAs. In September 2018, after Sinclair failed to reach an

agreement with Hulu with Live TV to retransmit the signals

of stations affiliated with the CBS network in 24 DMAs,

CBS bypassed Sinclair and reached an agreement with Hulu

directly to provide a national feed of its shows.

Two expiring provisions of STELAR relate generally to the

retransmission consent process. Section 325(b)(3)(C)(ii)

prohibits television broadcast stations from engaging in

exclusive contracts with MVPDs for carriage or failing to

negotiate in good faith. Section 325(b)(3)(C)(iii) also

prohibits an MVPD from failing to negotiate in good faith.

Under these provisions, the FCC has established criteria for

determining whether the parties are acting in good faith.

The FCC can investigate allegations of good-faith

violations and take enforcement action when a party fails to

fulfill its statutory obligations. Absent these provisions, the

FCC’s involvement in monitoring retransmission consent

disputes could be more limited.

Groups representing MVPDs contend that Congress should

completely reform retransmission consent laws. Broadcast

stations support the current laws, claiming that the

negotiation process is market-driven.

Additional expiring provisions of STELAR allow satellite

operators, in certain circumstances, to bypass the process of

negotiating retransmission consent with broadcast station

owners and instead pay royalties set by the Copyright

Royalty Board (CRB), a tribunal within the Library of

Congress. The CRB sets royalty rates when households

cannot receive the signals of one or more local networkaffiliated stations and a satellite operator then imports the

signals of broadcast stations from a different DMA. After

the CRB determines how to allocate the royalties among the

copyright owners, the Copyright Office distributes them.

Broadcasters favor allowing these provisions to expire,

while satellite operators would like Congress to make the

provisions permanent. Expiration would require satellite

operators to negotiate directly with station owners for the

right to retransmit distant signals.

Dana A. Scherer, Specialist in Telecommunications Policy

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Cable and Satellite Television Issues in the 116th Congress

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