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Independent Cable Calls Foul on Broadcaster Abuse of Market Power

Retransmission Fees Demanded from Operators Increase by Staggering Amounts - Consumers Footing the Bill

Pittsburgh, April 7, 2008 – The claims of the independent cable industry have been confirmed, big broadcasters are extorting retransmission fees from small cable operators in record amounts. Five publicly traded broadcast groups have released their annual reports and the numbers are astonishing.

In fiscal year 2007, the Hearst Argyle, Sinclair, LIN TV, Gray Television, and Nexstar broadcast groups reported an average increase of more than 43 percent in “retransmission revenue” paid by television operators – a total of more than $115 million. Since 2005, broadcasters have increased the revenues generated from distributions by more than 70 percent, most notably from independent cable operators who provide small and rural communities with video service.

“Retransmission consent is a government-created rule that must be addressed by the government for the sake of the industry and our customers,” ACA President and CEO Matthew M. Polka said. “The record revenues reported by these multimillion dollar broadcast groups at the expense of small cable operators should be all the evidence anyone could need to see that the system is broken. The skyrocketing price of doing business for independent operators is putting their future at risk, and will ultimately be passed on to the small and rural communities they service.”

“The Commission is rightly working to address rising cable costs for average Americans and to bridge the digital divide that separates far too many communities from broadband access,” Polka continued. “Putting an end to the extortionist practices of broadcasters regarding retransmission fees negotiations would advance both of those goals. Money unfairly paid out to broadcasters cannot be used to invest in broadband deployment in the small and rural communities that only ACA members serve, and those independent operators will be faced with the choice of raising rates to cover expenses or shutting down their system. All, while broadcasters abuse their market power to line their pockets.”

William P. Rogerson, former FCC chief economist and professor of economics at Northwestern University, finds no economic rationale or discernable public policy support for the price discrimination against smaller cable distributors; rather, the lack of negotiating strength and bargaining power of the small and medium-sized cable operator is exploited by broadcasters abusing their government-granted ability to unfairly demand higher prices.

“There is considerable evidence that broadcasters do, in fact, engage in extensive amounts of price discrimination,” states Dr. Rogerson in a recent FCC filing. “The main economic cause of price discrimination in retransmission consent agreements is simply that small and medium-sized cable operators are in a considerably worse bargaining position than their larger brethren.”

ACA has filed comments with the Federal Communications Commission (FCC) as part of their ongoing Further Notice of Proposed Rulemaking (MB 07-198) addressing the broadcasters and programmers’ price discrimination and tying and bundling practices against smaller, independent cable operators, and urging the Commission to make moderate changes to existing rules and regulations.

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About the American Cable Association
Based in Pittsburgh, the American Cable Association is a trade organization representing 1,100 smaller and medium-sized, independent cable companies who provide broadband services for more than 7 million cable subscribers primarily located in rural and smaller suburban markets across America. Through active participation in the regulatory and legislative process in Washington, D.C., ACA’s members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business. For more information, visit www.americancable.org

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