A Loophole in an FCC Rule Imperils Local TV News

Networks and streaming services make deals that cut out affiliates, starving them of needed revenue.

By Robert M. McDowell
June 21, 2023 6:04 pm ET

Local television news is among the most popular and trusted media in the country. With newspapers disappearing TV stations are often the only sources of community news. Yet an outdated Federal Communications Commission rule is threatening this final outpost of community journalism by diverting revenue away from local TV news to middlemen.

The 1992 rule requires cable and satellite TV companies to negotiate directly with local broadcasters when they want to carry their signals. But digital streaming services such as Hulu+Live TV, YouTube TV and Paramount+ and others aren’t required to negotiate with local stations. Many stations have affiliation agreements with national broadcast networks to carry the networks’ programming, which they rebroadcast with their own local content.

The loophole allows networks to take control of local stations’ distribution rights, negotiate “on their behalf” with streaming services, pocket fees for others’ content, and leave stations with much less money than if they had cut their own deals. Stations are given a “choice” to accept the networks’ terms or risk losing network programming, which could put them out of business.

The FCC proposed a new rule in 2014 but never acted on it. Streaming services were nascent then but are now in 90% of U.S. households and are expected to have more subscribers than traditional cable companies within five years, according to Fierce Video, a site that reports on the streaming industry. Increasingly, streaming services carry local TV signals because customers want to watch local news.

But local TV news and weather reports are expensive to produce. Newsrooms cost as much as $5 million to build even in small markets, according to consultancy BIA Advisory Services, and annual operating costs start at $500,000. Stations rely on shrinking ad dollars and subscription fees to pay the bills. But TV ad revenue fell 40% between 2000 and 2018 because of competition from internet companies. All local TV ad revenue for 2021 totaled $14.9 billion, according to Pew Research. Meantime, Google parent Alphabet alone grossed about $27 billion in local ad dollars in 2022.

Subscription fees from cable and satellite TV viewers can account for 40% of a station’s income. The stations’ public service is likewise vital to their communities. Voters rely on local TV news more than any other news source to make election decisions.

Midsize cities such as Anchorage, Alaska, and state capitals like Cheyenne, Wyo., are down to one full-time TV newsroom. Trend lines predict they will continue to disappear like newspapers. Without local journalists, voters will have less credible information to make decisions. How will that affect democracy?

Mr. McDowell served as a commissioner of the Federal Communications Commission, 2006-13. He is a partner at Cooley LLP and a senior fellow at the Hudson Institute.

SOURCE: Wall Street Journal

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