Networks: FCC Intervention in Affiliate Contracts Threatens TV Ecosystem

For the system to remain viable, “there must be some assurance to program suppliers and advertisers that network programming will be distributed to all markets on a consistent basis,” Paramount said. “Without that broad and consistent distribution of network programming, the fundamental structure of the network programming model could be undermined, placing its future in doubt.”

If the FCC makes rule changes that undermine the ability of networks to buy premium content and ensure its distribution through broadcast stations, it could “lead to marquee programming migrating increasingly to platforms owned by Big Tech companies, diminish the ability of broadcasters to produce local content, and leave viewers with less choice and higher costs,” said NBCU. “There is no legal requirement for local stations to enter into network affiliation agreements -- stations enter into these agreements because it is ultimately in their best economic interest to do so.”

The rules giving stations the right to reject programming have limitations, Paramount added. Affiliates can turn down network content that's “unsatisfactory, unsuitable or contrary to the public interest,” or they can bump programming for other content of greater local or national importance. That shouldn’t be conflated with a right to impose “any preemption a station would like to make regardless of its motivation or impact,” Paramount said.

DirecTV -- which is normally a regulatory opponent of broadcast station groups -- said that because the networks are vertically integrated and have their own distribution systems, the network programming system is already broken. Networks "now have an incentive to dilute the value of content they provide other distributors in favor of their own direct-to-consumer" businesses, it said. However, the company added that the FCC should address the issue by rejecting station owners' calls for relaxed TV ownership rules. “Allowing broadcaster consolidation will not address the problems of vertical integration, but instead will exacerbate them.” Instead, the agency should holistically reform the retransmission consent system and take up a “local choice” proposal championed by Altafiber, DirecTV said.

All the networks said the FCC’s authority to regulate network/affiliate agreements is limited, and the agency has no authority over network negotiations with virtual MVPDs.

While the FCC’s network/affiliate NPRM pointed to language in the Communications Act giving the agency authority to regulate “stations engaged in chain broadcasting,” the focus of those provisions is on the stations, not the networks, Paramount argued. “Any regulatory actions ... must be tied to the licensees’ public interest obligations,” it said. “As foundational as the public interest is to local broadcasting, it is critical to recognize that the public interest standard does not entitle affiliates to network-owned and financed programming, or allow them to access and further distribute this programming on their preferred terms.”

In their reply filings, affiliate station owner groups disagreed (see 2512290032). The FCC concluded in the 1940s that “it had authority in this space pursuant to both its power to make special regulations respecting chain broadcasting as well as its more general licensing power,” said a joint filing from all four affiliate owner groups. “Although the Commission reached that conclusion decades ago, its authority remains unchanged.” The groups also said the FCC would have authority to intervene in contracts that take away stations’ control of their own programming.

“Additional rules are unnecessary and would exceed the Commission’s authority, especially in relation to virtual [MVPDs],” Disney said. NBCU similarly argued that Congress “has provided no statutory authority for the Commission to regulate vMVPDs,” and “any attempt to read the Communications Act to provide for such authority would be unsupportable” after the U.S. Supreme Court’s ruling against deference to federal agencies.

Broadcast station owners calling for FCC intervention in affiliation contracts have ignored the rising cost of programming, all four networks said. “The foundation of the network-affiliate programming model is that networks bear the cost and risk of acquiring programming that local broadcast stations -- even the largest station groups -- could not afford on their own,” said Fox. “Big Tech-backed streaming companies” continue “to drive the cost of programming into the billions of dollars per year.”

Imposing new rules on networks also flies in the face of the current FCC’s prominent focus on deregulation, Fox said. “As this Commission has recognized in every other context ... heavy-handed government regulation can only cause disruption and harm to the public interest in such a dynamic competitive environment.”