Local television stations benefit from being the exclusive providers in their  markets of high-demand network content, such as professional sports  and primetime dramas. Local television stations  provide compensation to their affiliated national broadcast networks and  to the providers of syndicated content in exchange for the rights to be the  exclusive provider of that content in their market. FCC Rulemaking on Exclusivity Rules

In 2014, FCC issued a FNPRM to consider eliminating or modifying the  exclusivity rules, in part to determine if the rules are still needed given  changes to the video marketplace since the rules were first promulgated. Industry Stakeholders Have Differing Views of the Need for and Effects of Exclusivity Rules

		Broadcast Industry Stakeholders Report That Exclusivity Rules Are Needed to Protect Exclusive Rights and Support Production of Local Content

All 13 broadcast industry stakeholders (local television stations, national  broadcast networks, and relevant industry associations) we interviewed  and whose comments to FCC we reviewed report that the exclusivity  rules are needed to help protect stations’ exclusive contractual rights to  air network and syndicated content in their markets. By contrast, if cable operators could  import duplicative content on a distant signal, even on a temporary basis  to avoid not showing national network content during a retransmission  consent impasse, these stakeholders report that the bargaining position  of local television stations will decline, with a commensurate decline in  retransmission consent fees and the value of the local television station,  as the station will no longer be the exclusive content provider. These broadcasting industry  stakeholders also reported that by strengthening local stations’ revenues,  the rules help them invest in developing and providing local news,  emergency alerts, and community-oriented content, in support of FCC’s  localism goals. Cable Industry Stakeholders Report That Exclusivity Rules Lead to Increased Retransmission Consent Fees

Eight of 12 cable industry stakeholders we interviewed and whose  comments to FCC we reviewed reported that because the rules help local  television stations be the exclusive provider of network content in their  market, the rules allow local television stations to demand increasingly  higher retransmission consent fees from cable operators, which some  said can lead to higher fees that households pay for cable television  service. Broadcast  networks could provide such assistance. The potential ability of a cable operator to import a distant signal, and the  potential weakening of exclusivity that could result, may lead to a series  of effects on the distribution of content—including local content—and on  households and the fees they pay for cable television service (see fig. However, if during retransmission consent negotiations, a  cable operator can provide certain content by retransmitting the signal of  a station affiliated with the same broadcast network in another market, the  local station’s bargaining position declines because it is no longer the  exclusive provider of the national network content available to the cable  operator in the station’s market. However, without the  rules, the local television station may be less willing to pull its signal  from the cable operator, as the cable operator could provide the same  high-demand content to its customers by importing a station from a  distant market. Each television program may have  multiple copyright holders, and rebroadcasting an entire day of content  may require obtaining permission from hundreds of copyright holders. The transaction costs of doing so make this impractical for cable  operators. With contracts clearly protecting the exclusivity of local television stations  and preventing cable operators from retransmitting signals to distant  markets, cable operators may be unlikely to import distant signals as  doing so would be a clear contractual violation of their retransmission  consent contract. In this scenario, local television stations may retain their  exclusivity and may not have any change to their bargaining position  during retransmission consent negotiations. For example, if the compulsory copyright  license for distant signals were eliminated, as some broadcast industry  stakeholders suggest, removing the exclusivity rules may have little  effect. FCC  provided technical comments via email that we incorporated as  appropriate. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to examine (1) industry stakeholder  views on the need for and effects of the exclusivity rules and (2) the  potential effects that removing the exclusivity rules may have on the  production and distribution of content, including local news and  community-oriented content. To address both objectives, we reviewed all public comments filed by  industry stakeholders with the Federal Communications Commission  (FCC) as part of its further notice of proposed rulemaking (FNPRM)— FCC docket 10-71—considering elimination or modification of the network  non-duplication and syndicated exclusivity rules (exclusivity rules). We also interviewed FCC officials regarding these  rules and FCC’s rulemaking process. For our second objective, in addition to gathering information about  industry stakeholder views on the potential effects of eliminating the  exclusivity rules, we also analyzed those views in light of general  economic principles to understand more fully the potential effects of  eliminating the exclusivity rules.
Why GAO Did This Study

Local television stations negotiate with content providers—including national broadcast networks, such as ABC—for the right to be the exclusive provider of content in their markets. FCC's network non-duplication and syndicated exclusivity rules (“exclusivity rules”) help protect these contractual rights. In 2014, FCC issued a further notice of proposed rulemaking (FNPRM) to consider eliminating or modifying the rules in part to determine if the rules are still needed given changes in recent years to the video marketplace.
GAO was asked to review the exclusivity rules and the potential effects of eliminating them. This report examines (1) industry stakeholder views on the need for and effects of the exclusivity rules and (2) the potential effects that removing the exclusivity rules may have on the production and distribution of content, including local news and community-oriented content.
GAO reviewed all 31 comments filed by industry stakeholders with FCC in response to its FNPRM. GAO also interviewed 27 of those industry stakeholders and FCC officials. GAO also analyzed—in light of general economic principles—stakeholder views on the potential effects of eliminating the rules.
FCC reviewed a draft of this report and provided technical comments that GAO incorporated as appropriate.

What GAO Found

Broadcast industry stakeholders that GAO interviewed (including national broadcast networks, such as ABC, and local television stations) report that the exclusivity rules are needed to protect local television stations' contractual rights to be the exclusive providers of network content, such as primetime dramas, and syndicated content, such as game shows, in their markets. These stakeholders report that by protecting exclusivity, the rules support station revenues, including fees from cable operators paid in return for retransmitting (or providing) the stations to their subscribers (known as retransmission consent fees). Conversely, cable industry stakeholders report that the rules limit options for providing high-demand content, such as professional sports, to their subscribers by requiring them to do so by retransmitting the local stations in the markets they serve. As a result, these stakeholders report that the rules may lead to higher retransmission consent fees, which may increase the fees households pay for cable service.
Based on GAO's analysis of industry stakeholder views, expressed in comments to the Federal Communications Commission (FCC) and interviews, eliminating the exclusivity rules may have varying effects.
If the rules were eliminated and cable operators can provide television stations from other markets to their subscribers (or “import” a “distant station”), local stations may no longer be the exclusive providers of network and syndicated content in their markets. This situation could reduce stations' bargaining position when negotiating with cable operators for retransmission consent. As a result, stations may agree to lower retransmission consent fees. This potential reduction in revenues could reduce stations' investments in content, including local news and community-oriented content; the fees households pay for cable television service may also be affected. Because multiple factors may influence investment in content and fees, GAO cannot quantify these effects.
If the rules were eliminated, other federal and industry actions could limit cable operators' ability to import distant stations. For example, if copyright law was amended in certain ways, cable operators could face challenges importing distant stations. A cable operator could be required to secure approval from all copyright holders (such as the National Football League) whose content appears on a distant station the cable operator wants to import; with possibly hundreds of copyright holders in a day's programming, the transaction costs would make it unlikely that a cable operator would import a distant station. Also, broadcast networks may be able to provide oversight of retransmission consent agreements if FCC rules were to allow it. Cable operators may only import distant stations if retransmission consent agreements with those stations permit it, and stations' agreements with broadcast networks generally prohibit stations from granting such retransmission. If FCC rules allowed it, broadcast networks could provide oversight to help ensure such agreements do not grant retransmission outside the stations' local markets. Under these two scenarios, local stations may remain the exclusive providers of content in their markets, their bargaining position may remain unchanged, and there may be limited effects on content and fees for cable service.