The House Subcommittee on Communications and Technology will soon consider whether to reauthorize the Satellite Television Extension and Localism Act (STELA) set to expire at the end of this year. A hearing scheduled for this week has been postponed due to weather.
Congress ought to scrap the current compulsory license in STELA that governs the importation of distant broadcast signals by Direct Broadcast Satellite providers. STELA is redundant and outdated. The 25 year-old statute invites rent-seeking every time it comes up for reauthorization.
At the same time, Congress should also resist calls to use the STELA reauthorization process to consider retransmission consent reforms. The retransmission consent framework is designed to function like the free market and is not the problem.
Those advocating retransmission consent changes are guilty of exaggerating the fact that retransmission consent fees have been on the increase and blackouts occasionally occur when content producers and pay-tv providers fail to reach agreement. They are also at fault for attempting to pass the blame. DIRECTV dropped the Weather Channel in January, for example, rather than agree to pay “about a penny a subscriber” more than it had in the past.
A DIRECTV executive complained at a hearing in June that “between 2010 and 2015, DIRECTV’s retransmission consent costs will increase 600% per subscriber.” As I and other have noted in the past, retransmission consent fees account for an extremely small share of pay-tv revenue. Multichannel News has estimated that only two cents of the average dollar of cable revenue goes to retransmission consent.
According to SNL Kagan, retransmission-consent fees were expected to be about 1.2% of total video revenue in 2010, rising to 2% by 2014. at that rate, retrans currently makes up about 3% of total video expenses.
Among other things, DIRECTV recommended that Congress use the STELA reauthorization process to outlaw blackouts or permit pay-tv providers to deliver replacement distant broadcast signals during local blackouts. In effect, DIRECTV wants to eliminate the bargaining power of content producers, and force them to offer their channels for retransmission at whatever price DIRECTV is willing to pay.
There is a need for regulatory reform in the video marketplace. Unfortunately, proposals such as these do not advance that goal. The government intervention DIRECTV is seeking would simply add to the problem by forcing local broadcasters to subsidize pay-tv providers instead of being allowed to recover the fair market value of their programming. Broadcaster Marci Burdick was correct when she observed that regulation which unfairly siphons local broadcast revenue could have the unintended effect of reducing the “quality and diversity of broadcast programming, including local news, public affairs, severe weather, and emergency alerts, available both via [pay-tv providers] and free, over-the-air to all Americans.”
Broad regulatory reform of the video marketplace can and should be considered as part of the process House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Communications and Technology Subcommittee Chairman Greg Walden (R-OR) recently announced by which the committee will examine and update the Communications Act.