Unintended consequences of the Cablevision/Fox standoff

The Cablevision/Fox retransmission rights standoff is now more than a week old. Neither the New York Yankees nor the Philadelphia Phillies made it into the World Series, so there's going to be much less demand for Fox in those cities come Wednesday. However, Dish Networks is the next service provider to be threatened with losing Fox's over-the-air stations, and its subscribers in Texas and the San Francisco Bay Area would lose access to the World Series if Fox pulls the plug on November 1st.

I wrote previously about the likelihood that these retransmission battles would result in binding arbitration being imposed, either by the FCC or the U.S. Congress. There might be a different outcome, however. You may recall ivi tv, the Seattle company that's retransmitting over-the-air signals from stations in New York City and Seattle to subscribers across the U.S. over the Internet. Ivi has been sued by just about every broadcast network and programming supplier, but the company is relying on a statute that's been on the books for decades that requires broadcasters to make their signal available to any cable operator, in return for fees paid by cable operators to the U.S. Copyright Office. These fees are then distributed to the broadcasters. In most cases, these statutory license fees are a tiny fraction of what broadcasters are asking for, and getting, from service providers for their retransmission rights.

If enough political pressure is applied, the Congress could repeal the statute that gives broadcasters the right to deny permission for retransmission and the right to ask for compensation. In that case, the law would fall back to the statutory license procedure that's still on the books. It would put local broadcasters that have been relying on retransmission fees for an ever-increasing portion of their income in a world of hurt.

The service providers would love to go back to statutory licenses, even if the license fee was raised substantially. Broadcasters will fight the change with every breath in their bodies. Both sides need to be very careful, because they could end up losing control of the negotiating process.

Is binding arbitration coming in cable retransmission deals?

As of today, Fox's local television stations and cable channels have been unavailable to Cablevision subscribers for five days. Dish Network's retransmission deal with Fox runs out at the end of October, and the Fox channels may go dark on Dish as well. Cablevision has offered to enter into binding arbitration, but Fox appears to be afraid that it won't get what it wants from arbitration.

It's looking more and more like the U.S. Congress or Federal Communications Commission may step in and impose rules for retransmission negotiations. One line of thought is that broadcasters would be prohibited from withdrawing their over-the-air programming from cable, satellite and IPTV service providers while negotiations are underway. Cable networks would be exempt from this rule, but the problem is that service providers could simply stretch out negotiations indefinitely.

Here's where I think this will go: Broadcasters will be required to supply their programming to service providers for a limited time after the expiration of a retransmission contract (perhaps 30 to 60 days) to allow the parties to negotiate a new deal themselves. After that, binding arbitration would be imposed. This would only apply to over-the-air programming--Fox would be free to pull down its cable networks as soon as its contracts expire, as would NBC Universal or Disney.

Any such rules would be tied up in court challenges, potentially for years, but as retransmission standoffs escalate and more service provider customers lose access to channels they want to watch, there's simply going to be too much pressure on the U.S. Government to ignore.