There’s Probably a Blackout in Your Television Future: Tracking New Carriage Negotiation Strategies Between Video Content Programmers and Distributors

Abstract

Video programmers and distributors execute contracts for the mutually beneficial delivery of content to consumers. However, when the parties fail to reach closure on new terms and conditions before reaching the end date of an existing agreement, cable and satellite television operators must “blackout” the content thereby triggering consumer anger and mutual financial injury. Blackouts typically have occurred infrequently and for short time periods, because both parties understand the self-inflicted financial harm these service disruptions generate. Additionally, so-called Multi-channel Video Programming Distributors (“MVPDs”) have been able to pass onto subscribers higher programming costs through increased month rates without significant declines in subscribership. The marketplace for video programming has experienced significant change in recent years calling into question the ability of MVPDs to raise rates well above annual measures of general inflation. Likewise, content distributors have experienced unprecedented declines in subscribership and consumer resentment at having to pay rates, often in excess of $50 monthly, for programming tiers containing dozens of channels, many of which few subscribers have an interest in viewing. New designations, such as cord cutting and cord shaving, refer to the increasing number of video consumers who abandon an MVPD subscription, or incur lower monthly rates by downgrading to a less expensive service tier. Video consumers also have evidenced greater interest in so-called non-linear content, available as downloadable files and streaming on demand, in lieu of conventional “live,” linear content transmitted by television broadcasters and conventional cable and satellite MVPDs. The marketplace success of Amazon Prime, Hulu and Netflix evidences growing willingness of consumers to use their broadband network access for “Over the Top” access to alternative and competitive content sources. This paper assesses whether the video marketplace has, or soon will require major changes in the terms and conditions under which content providers and distributors agree to carriage terms. The paper will explain that while MVPDs, do not operate as common carriers, such as public utilities, they bear legal rights and responsibilities, predicated on marketplace conditions necessitating regulatory support for television broadcasters. Laws and regulations by the Federal Communications Commission now appear to be based on contestable assumptions about the public interest value in promoting local content sources, diversity in programming and ownership and offering broadcasters the option of mandatory carriage by MVPDs (“must carry”) in exchange for relinquishing demands for financial compensation from MVPDs. Additionally, both traditional MVPDs and market entrants using broadband networks for content delivery, have access to ample content alternatives, many of which also can trigger blackouts if carriage agreements lapse. The paper seeks to answer whether television broadcasters have overestimated the value of their content when electing to seek compensation instead of compulsory carriage by MVPDs. The paper also will assess whether non-broadcast video content providers make similar overestimates given the greater willingness of MVPDs to tolerate more frequent and lengthy blackouts occurring throughout the year.