Carriage dispute

A carriage dispute is a contractual disagreement over the right to "carry", that is, retransmit, a broadcaster's signal. Carriage disputes first occurred between broadcasters and cable companies and now include direct broadcast satellite and other multichannel video programming distributors.

These disputes often involve financial compensation—what the distributor pays the television station or network for the right to carry the signal—as well as what channels the distributor is permitted or required to retransmit and how the distributor offers those channels to its subscribers. While most carriage disputes are resolved without controversy or notice, others have involved programming blackouts, both threatened and real, as well as strident public relations campaigns. Carriage disputes have occurred both in the United States and internationally.

History

The history of carriage disputes can be seen as having two distinct circumstances: the first involving over-the-air broadcasters, the second involving broadcasters with no terrestrial signal. In the United States, the first led to a quagmire of legal disputes involving the Federal Communications Commission and the courts, shifting regulations, and questions over copyright law—all revolving around the basic question of whether a carrier has an inherent right to retransmit an over-the-air signal. Broadcasters accused carriers of being "leeches", making money off of programming content that they contributed nothing to produce. Carriers countered that their role was largely passive, because they were merely redistributing freely available signals more widely. By contrast, carriage disputes involving non-terrestrial broadcasters, while representing many recent high-profile encounters, have raised fewer legal and policy questions, playing out largely at the negotiation table and in the court of public opinion.

The legal precedent for carriage disputes dates back to 1934 legislation, which required a broadcaster to get permission before using programming from another broadcaster. The law was later applied to cable companies, as well. In the 1950s, cable companies operating in the western United States began retransmitting broadcast signals for the benefit of customers situated too far from the station transmitter to receive programs with an antenna. Stations objected that they were not being compensated for this retransmission or that they were having to compete with more distant stations that duplicated their content. From February 15, 1966 to December 18, 1968, the United States Federal Communications Commission barred cable companies from importing non-local broadcast signals into the top 100 television markets—while allowing cable companies to petition for exceptions. After an interim period, the FCC partially lifted these restrictions in 1972, eliminating them entirely by the end of the decade.

The issue was finally resolved with the 1992 Cable Television Consumer Protection and Competition Act. Among its provisions, the act mandated that distributors must carry local stations who make their signal available for free, but must also get retransmission consent before a signal can be retransmitted. Mandatory retransmission consent gave broadcasters the ability to seek compensation from distributors and established the basis for carriage disputes going forward. At first, the larger broadcasters negotiated not for higher fees, but for inclusion of their newer, lesser known, non-terrestrial channels. Fox, for example, obtained distribution for FX; NBC for CNBC.

Carriage disputes have since increased both in intensity and frequency. The year 2010 was particularly active, with disputes between the carrier AT&T and broadcaster Crown Media, E. W. Scripps Company and Rainbow Media (now AMC Networks), Time Warner Cable and Disney, and Dish Network and Fox. By this time, negotiations could lead to program blackouts. For example, after Fox and Dish Network could not come to terms for a September 30, 2010 deadline, the network's sports programming could no longer be viewed by Dish Network customers. In response to a dispute between Fox and Cablevision that year, Senator John Kerry introduced draft legislation that would give the FCC more oversight responsibility, with the power to monitor negotiations and impose binding arbitration if it deems the discussions are not being carried out in good faith.

In 2012, a carriage dispute of a different sort arose between Aereo, a small New York program distributor, and several major broadcasters. Aereo uses banks of small antennas to receive over-the-air signals from broadcasters, then makes those signals available to subscribers via the Internet. But unlike other distributors, the company has argued that, as an "antenna technology" company, it is exempt from paying retransmission consent fees, just as is any home viewer employing an antenna. Broadcasters countered that the Aereo service goes beyond the conventional antenna because it both records programs for later viewing and charges subscribers a monthly fee, thus acting as a middleman. Fighting charges of copyright violation, Aereo has so far has won its case in court, including an April 1, 2013 ruling by the Second Circuit Court of Appeals that upheld a July 2012 District Court decision in favor of the company.

Notable disputes

A Time Warner Cable advertisement from its December 2009 carriage dispute with Fox. Designed to resemble a ransom note, the ad continued: “We’re standing up to Fox. Don’t let Fox hold your TV hostage.”

One of the most memorable disputes took place in 2009 between Time Warner Cable and Fox, pitting the second largest United States cable system against one of the four major U.S. television networks, whose over-the-air broadcasts included the popular prime time series American Idol and National Football League games. Fox's parent company, News Corporation, reportedly sought a monthly fee of $1 per subscriber, whereas Time Warner offered 20 to 25 cents. Both companies mounted aggressive public relations campaigns, including dedicated websites and advertising. Fox suggested that viewers look into alternatives to Time Warner, including satellite and Verizon's Fios service. Time Warner countered that it was trying to reign in expenses that would ultimately be paid by subscribers. The companies ultimately settled close to the deadline, and, as is typical with carriage disputes, did not disclose the terms. Looking back, some analysts believed that the deal would encourage other networks to seek higher retransmission payments, thereby putting upward pressure on cable bills, with the potential long-term consequence of attracting more government regulation.

Another wide-ranging carriage dispute occurred in July 2012 between DirecTV and Viacom, whose 17 non-terrestrial channels include Comedy Central, Nickelodeon and MTV. Broadcast of Viacom channels were cut for some 20 million DirecTV subscribers, which represent about 20 percent of all U.S. households who subscribe to cable or satellite. DirecTV claimed Viacom was seeking a 30 percent hike, about $1 billion over five years, in fees. Viacom countered that its channels represent 20 percent of total DirecTV viewing, but the broadcaster receives only 5 percent of the distributor's license fees. DirecTV argued that Viacom made too much of its content available for free on the Internet. Viacom responded that the practice was a marketing tool, although it pared that content back after the blackout. Also mentioned as a point of contention: Viacom's bundeling channels—making them available to distributors only as a package rather than individually. In a sign of the increasing pressure on carriers to limit subscriber fees, DirecTV competitors did not mount advertising campaigns to attract disgruntled customers, and some competitors issued statements of support. Viacom and DirecTV resolved the dispute with a seven-year contract nine days later. Financial terms were not disclosed, though one analyst estimated Viacom would receive around $2.85 per subscriber, up from $2.25. In a first for Viacom, the company also agreed to give DirecTV customers access to live feeds on mobile devices.

Some carriage disputes are influenced by outside people and organizations. In 2003, New York City Mayor Michael R. Bloomberg helped arrange a deal between Cablevision and YES Network, which had kept many New York Yankees baseball games from being seen by some 3 million local subscribers for the first year of Yes Network's run. In 2006, EchoStar dropped the female-oriented channel Lifetime for a competing channel, Oxygen. While Lifetime is partially owned by Disney, which in turn owns ESPN and ABC, the deciding factor for contract renewal came less from the parent company's clout than from a letter writing campaign spurred by the National Organization of Women, the YWCA, and other groups.

While most carriage disputes are settled before subscribers lose access, some disputes last much longer. In September 2012, Time Warner and the National Football League ended a nine-year dispute primarily over NFL Network, and later, NFL RedZone Channel. The deal followed an earlier settlement between the NFL and Cablevision, making Time Warner the last major holdout. Time Warner had offered to carry NFL Network on a narrower sports tier and argued that the relative scarcity of annual games—eight, expanded to 13—didn't justify the cost. SNL Kagan estimated the average subscriber fee at 95 cents per month.

Tradeoffs, consequences

As with all negotiations, carriage disputes involve tradeoffs for both parties. Distributors must weigh the effect of the carriage fees they pay on both their revenues and the fees they pass on to subscribers. Distributors also risk antagonizing their subscribers if they drop one or more channels from their lineup. For their part, broadcasters risk losing viewers, which in turn can reduce revenues from commercials and per- subscriber carriage fees. Both sides are affected by the growing number of online alternatives for viewing programming, including Netflix and Hulu.

When negotiations fail, both sides often lose. Dish Network lost 156,000 customers in the fourth quarter of 2011 after a carriage dispute with Fox resulting in a loss of Fox Sports programming in October.AMC Networks' stock dropped by nearly five percent after the network's programming was dropped by Dish at the end of June 2012.

Whatever a carriage dispute's resolution, customers often emerge at a disadvantage: with either less programming to choose from or higher subscription fees. That no win situation has led to some observers calling for government mandated "a la carte" pricing. Under this scheme, distributors choose which channels to distribute, rather than negotiating for a broadcast network's entire suite of channels, offered on a bundled, all-or-nothing basis. Distributors in turn unbundle their services, billing viewers by the individual channel, rather than by the tier. Presumably, subscriber fees are more realistic because each channel's revenues are pegged more directly to what the market will bear. Channels that cannot attract enough subscribers could potentially be dropped, limiting channel diversity. New York Times reporter Brian Stelter noted that, as of early of 2013, no major content provider has gone a la carte, nor has any company launched a successful virtual cable company on the Web. "The television ecosystem, which at times has seemed close to its breaking point, has not broken. Both programmers and distributors have found it in their best interests to keep it intact." Business columnist David Lazarus, an a la carte pricing advocate, wrote that this approach "scares the bejeebers out of everyone in the business because it would entail a wholesale reinvention of how the industry operates."

See also

Some Wikipedia articles on broadcasters and distributors contain sections describing specific carriage disputes. The following links go directly to those sections.

Broadcasters:

• AMC Networks
• ESPN
• HBO Central Europe
• HGTV (Home & Garden Television)
• NBC Sports Network
• NFL Network
• Sky1
• Sinclair Broadcast Group
• The Weather Channel
• Tribune Broadcasting
• TV Azteca
• TV Ontario
• Yankees Entertainment and Sports (YES) Network

Distributors:

• AT&T U-verse
• Cablevision
• DirecTV
• Dish Network