TV Market Broken as Viewers Pay More, U.S. Senator Says

Consumers’ television bills keep climbing and blackouts of popular programs have become common, showing that marketplace rules set in the 1990s may need to be changed, a U.S. senator said.

“Consumers are still forced to purchase larger and larger packages of channels,” Senator Jay Rockefeller, the West Virginia Democrat who heads the Commerce Committee, said at a hearing on cable regulation. “The market isn’t working. Real competition should be bringing rates down.”

The session was part of a series of hearings in both houses of Congress to consider updating laws that govern the broadcast, cable and satellite industries. No change will pass this year because the topic is complex, Rockefeller told reporters April 25.

Regulation hasn’t kept pace with the rise of satellite broadcasters DirecTV (DTV) and Dish Network Corp. (DISH), or the spread of high-speed Internet links used by services such as Netflix Inc. (NFLX) and Barry Diller’s online Aereo Inc. that provides broadcast signals without a cable subscription, lawmakers and industry officials have said.

Senator Jim DeMint, a South Carolina Republican, said Congress should repeal the 1992 law that lets TV stations charge cable providers for broadcast signals.

“It was a right created out of whole cloth to combat a cable monopoly,” DeMint said. That monopoly no longer exists after inroads from competitors, including satellite providers, he said.

Negotiating Power

Senator John Kerry, a Massachusetts Democrat, said he wouldn’t support “radical proposals” to repeal the 1992 law.

“It would result in, probably, very few broadcasters being around,” Kerry said. “I want to preserve local broadcasting.”

“There’s a real divide here, and it’s going to be interesting to see how we manage it,” Kerry said.

Service disruptions caused by disputes over how much cable providers should pay broadcasters for their signals are a source of concern and Americans “deserve answers as to why their screens have gone dark,” Rockefeller said. Consumers should get refunds when they lose channels, he said.

The incidence of blackouts has spiked as broadcasters have become increasingly willing to withhold programming during fee disputes, Melinda Witmer, executive vice president at New York- based Time Warner, the second-largest U.S. cable company by revenue, said in testimony submitted to the panel. So far this year there have been 69 instances with programming being withheld in fee disputes, Witmer said.

World Series

Cable and satellite providers are seeking federal help as broadcasters seek more fees for program carriage. Pay-TV companies paid $1 billion in retransmission fees to local affiliate broadcast channels in 2010, according to data compiled by Bloomberg.

New York-area consumers in 2010 missed games in Major League Baseball’s World Series and the opening minutes of the Academy Awards in disputes between Cablevision Systems Corp. (CVC) and News Corp. (NWSA)’s Fox and Walt Disney Co. (DIS)’s ABC.

Viacom Inc. (VIAB), owner of the MTV and Nickelodeon networks, on July 20 announced a new programming fee agreement with DirecTV, ending a 10-day blackout for the satellite-TV service’s 20 million U.S. viewers.

Other program outages affected Time Warner, Dish Network Corp. and DirecTV, the FCC said last year as it began examining rules for retransmission negotiations. The FCC doesn’t have power to demand binding arbitration or to order TV stations’ signals restored during disagreements, officials said.

Market Power

Increased competition lets broadcasters play the cable companies and other pay-TV providers against each other, Time Warner’s Witmer said. Laws don’t let cable companies buy a broadcast signal from alternative sources, leaving them to deal exclusively with local stations, Witmer said.

Stations should be able to negotiate for compensation because they provide most of the top-rated shows, Gordon Smith, president of the National Association of Broadcasters, said in testimony submitted to the committee.

“When some suggest that these laws are ripe for a rewrite, they misstate history and facts,” Smith said. Members of his Washington-based trade group include ABC, Fox, Comcast Corp. (CMCSA)’s NBC and CBS Corp. (CBS)

Broadcast stations account for 35 percent of TV viewership and receive less than 7 percent of program carriage fees, Smith said.

Rewriting Laws

TV executives are watching for signs lawmakers may rewrite the carriage laws, Paul Gallant, a Washington-based analyst with Guggenheim Securities, said in an interview before the hearing.

“Broadcasters have a fair amount of leverage to raise fees,” Gallant said. “Their concern is Congress could undercut that leverage.”

A June 27 hearing before a House panel showed that “a good number of members” want to consider rewriting the rules surrounding blackouts, Gallant said.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net;

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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