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ACA Calls On FCC To Recognize Rampant Price Discrimination Against Independent Cable In New Competition Report To Congress

Price Fixing And Price Discrimination By TV Stations, Combined With Price Discrimination By National Cable Networks, Are Designed To Extract Higher Content Payments, Trade Group Says

PITTSBURGH,  June 9, 2011 - The American Cable Association called on the Federal Communications Commission to recognize the serious harms of rampant price discrimination practiced by content providers against independent cable operators in the agency's new report to Congress on the status of competition in the delivery of video programming to the public.

"Independent cable operators pay disproportionately higher prices for video content as a result of TV stations that engage in price discrimination and national cable networks that routinely abuse their market power," ACA President and CEO Matthew M. Polka said. "The FCC's video competition report must explain to Congress that content owners' coercive and anti-competitive conduct frequently documented by ACA leads to the gross misallocation of capital, undermining competition in the pay-TV market as well as reducing investment in broadband facilities."

ACA filed comments with the FCC yesterday as the agency prepares its annual video competition report for Congress mandated by law. ACA's comments provided the agency with hard evidence of widespread discrimination by local TV stations and national cable networks that exploit their market dominance to force smaller cable operators to pay above-market fees for retransmission consent and other programming distribution rights.

In its comments, ACA provided data showing that small and midsize cable companies on average pay twice as much for retransmission consent as the largest pay-TV providers in the country (companies that are in many cases the direct competitors of ACA members)  and about 30% more on average for national cable programming.

In the case of national cable programming, ACA explained that the price differential had to be the result of market power because there is no difference in the cost to deliver national cable network programming to a headend owned by a small cable operator as opposed to a headend owned by a large cable company.

Regarding retransmission consent, ACA submitted data that small cable operators pay approximately $1.21 per month, per subscriber in retransmission consent fees, about double the retransmission consent fees paid by the largest cable and satellite TV companies. ACA's data showed that the vast preponderance of retransmission consent fees flows to the stations affiliated with ABC, CBS, NBC and FOX.

ACA noted that the problem is getting only worse because TV stations are taking additional steps to enhance their market power. Increasingly, separately owned broadcasters are engaging in the joint negotiation of retransmission consent, either by formal contract or less formal means of price fixing.

"Coordinated retransmission consent negotiations among broadcasters permit broadcasters to secure higher retransmission consent fees not through increased program quality, but simply through increased bargaining leverage in retransmission consent negotiations," Polka said.

One cable operator told the FCC that it pays at least 22% more for retransmission consent when dealing with two Big Four stations at once, compared to dealing with network affiliates on an individual basis in other markets. Other cable operators have reported retransmission consent fee increases of 161%, 133%, and 30% when confronted by two Big Four affiliates in a single retransmission consent negotiation.

ACA urged the FCC to explicitly recognize and include in its video competition report the evidence presented by ACA of discriminatory retransmission consent fees paid by small and midsize cable operators, and explicitly acknowledge that these fees limit the services offered by ACA members, increase the prices paid by consumers, and hinder entry into video distribution and broadband markets.

In a related matter, ACA said in its comments that it considered an online video distribution service like Netflix to be a complementary service that competes more directly with premium cable service providers like HBO and Showtime -- both in the acquisition of subscribers and programming content - than with cable operators.  ACA noted that Netflix's CEO commented that his company wasn't driving customers away from their cable company because so-called cord cutting has been negligible.

About the American Cable Association

Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 900 smaller and medium-sized, independent cable companies who provide broadband services for more than 7.6 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 http://www.americancable.org/

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