Representatives from local television affiliates of the four main broadcast networks have filed a letter with the Federal Communications Commission (FCC) complaining about the growing financial and competitive pressures they face in the era of streaming services.
Specifically, the groups representing independently-owned ABC, CBS, Fox and NBC affiliates note that the parent companies of each network are now delivering their premium entertainment and sports programming directly to consumers in a way that deprives local TV stations of viewership and much-needed advertising revenue.
The joint letter was filed with the FCC earlier this month and made public in the agency’s docket on Monday, according to a copy reviewed by The Desk.
Some of the country’s largest broadcasters — Nexstar Media Group, Sinclair, Gray Media, the E. W. Scripps Company and Hearst Television — have complained in recent years that the parent companies of local broadcast networks are charging them higher fees to subsidize the cost of live sports rights and national news investments.
At the same time, all four networks are now delivering their premium programming to consumers through apps like Hulu, Disney Plus, Fox One, Paramount Plus with Showtime and Peacock. Those services have proven popular with consumers because of their low cost to access — especially among services with ad-supported tiers — and flexibility in watching programming across devices.
But the services rarely carry local channels, except in rare cases when streaming simulcasts are available in costlier streaming plans. They also draw business away from cable and satellite companies, where local TV station owners receive financial compensation for the distribution of their channels on a per-subscriber basis.
The arrangement means there is less money for local broadcasters to invest in their own local news and community-oriented programming, the groups told the FCC this month. The situation is made all the more complicated by the insistence of networks to charge higher fees for their programming, which is passed along to cable and satellite companies through higher distribution fees and ultimately impact the pocketbooks of consumers who still pay for traditional TV services.
The situation is especially precarious in small and medium sized markets — communities where viewers are often more reliant on local TV for news and information because they are overlooked by network news programs. There, the higher network affiliation fees account for an outsized portion of a TV station’s budget.
“Affiliate fees consume all of, or even in excess of, a station’s total retransmission consent revenue,” the groups said in their letter. Retransmission consent revenue involves fees collected from cable and satellite companies.
In smaller markets, cable and satellite fees are often not enough to completely cover the bill for network programming offered by a local station or broadcast cluster, which means larger stations in stronger markets must make up the difference. For small broadcasters, that may not be possible, as small-market stations may be the only ones in their portfolio — and those stations tend to have a tougher time accounting for ongoing churn in the cable and satellite TV industry, with little ability to cover their expenses through advertising revenue, the groups contend.
Some consumers are paying for TV through other means: Streaming cable-like services, like YouTube TV and Hulu with Live TV, offer the same flexibility of watching content across devices, and at lower price points compared to traditional cable and satellite service. But local stations see no benefit from that shift: For years, independent broadcast station owners allowed the major networks to negotiate carriage of their channels on streaming services. Now, they complain that the practice has deprived them of the ability to raise much-needed revenue.
“Local stations disproportionately carry the economic burden of a declining linear television ecosystem, resulting in reduced local news, fewer investigative resources, delayed investment in critical technology, and, in some cases, the elimination of local programming altogether,” the groups said.
The FCC is currently weighing a number of proposals that are aimed at swinging the pendulum back in favor of local TV station owners.
First, the agency is considering a plan that would allow local TV stations to sunset their existing digital transmissions in favor of a new standard called NextGen TV, which uses ATSC 3.0 technology. The technology uses a mixture of traditional broadcast signals and broadband connections to deliver video feeds to consumers. It also allows local broadcasters to transmit hyper-local emergency messaging and targeted advertising, which they contend will create a more-level playing field with streaming services and connected TV platforms.
The benefit to consumers is incremental at best: Some will enjoy higher-quality video feeds, including ultra-high definition (UHD/4K) videos with support for HDR10 and Dolby Vision. But most Americans who rely on broadcast TV today will need to buy a new television set or a converter box, both of which are considerably more expensive than budget TVs compatible with the current transmission standard. (Pearl TV, an industry consortium that backs the new technology, recently introduced a program to make basic converter boxes available for around $60 per device.) Many of the enhanced features depend on a stable, always-on broadband connection, too.
Another proposal would grant the FCC greater ability to enforce distribution agreements between broadcasters and streaming services, similar to rules that cover negotiations involving broadcasters and traditional pay TV platforms. Those rules would allow broadcasters to negotiate carriage of their channels, for a fee, on streaming services as they do on cable and satellite platforms today.
Supporters of that initiative — mainly, the broadcasters themselves — say expanding distribution rules to cover streaming services will allow them to generate significant revenue from their programming, which will lead to greater investments in local news. Critics argue that, if the FCC approves the proposal, consumers will likely lose access to their local TV channels on streaming services just as they disappear from cable and satellite platforms during carriage disputes, only for those channels to eventually return with higher fees charged to customers.
