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Internet becomes a new battleground in retransmission feud

Retransmission disputes have gotten nastier in recent months, but the feud between Cablevision and Fox has broken out on a new front: Internet TV.

In its showdown with Cablevision last week, News Corporation tried to extend its blackout of the Fox Network to www.fox.com and to Hulu, the popular website for free TV viewing. Cablevision customers reported being unable to watch episodes of “Glee” and “House” on Hulu. It was the first time the controversial tactic has been used in a retransmission dispute.

The Internet shutdown lasted only a few hours, but the industry took note of the message. News Corp. was saying that viewers could not watch Fox online unless they paid for Fox on the cable system. The “New York Times” called the tactic “the latest evidence that entrenched media companies hope to replicate their walled gardens in a new medium, the Internet.”

Julie Henderson, a News Corp. spokeswoman, told the newspaper that the company’s actions temporarily prevented access to Fox shows on Hulu and Fox.com from the computers of Cablevision subscribers. “When we realized we were affecting non-Cablevision video subscribers, we quickly altered our position,” she said.

However, the “Times” reported three sources within News Corp. that said the Internet action was hotly debated within the company. While some executives said it had helped in the negotiations with Cablevision, others said it had backfired because it stirred up questions about net neutrality, a hot button national issue at the moment.

Public interest groups and at least one lawmaker cried foul, calling the action anti-consumer. “This certainly seems to be the first shot across the bow,” said Corie Wright, the general counsel for Free Press, one of the groups that condemned the action. Wright said access to Fox.com and Hulu.com is completely unrelated to Fox’s relationship with Cablevision.

Gigi B. Sohn, president and co-founder of the public interest group Public Knowledge, said, “We need to remember that the government’s policy is that consumers should have access to lawful content online, and that policy should not be disrupted by a programming dispute.”

Rep. Edward J. Markey, D-MA, called tying a cable television subscription to Internet access “a very serious concern.” In previous retransmission disputes, Internet access to shows has been left alone. The congressman called on the FCC to “defend Internet freedom and consumer rights.”

Since Oct. 16, stations owned by the News Corporation have been blacked out in Cablevision’s roughly 3 million homes in New York, New Jersey and Philadelphia. Also pulled were the cable networks Fox Deportes, Nat Geo Wild and the Fox Business Network. The stalemate continued all last week with no end in sight.

The Internet blockade brings up huge issues for Internet TV and programmers’ desires to make users pay for content on cable systems in order to watch online programming. That is reflected in the TV Everywhere concept, which says customers pay once and watch anywhere. It was established as an attempt to keep cable customers from cutting the cord and moving to the Internet for all television.

As the retransmission dispute continued, Senate Communications Subcommittee Chairman John Kerry, D-MA, called on FCC Chairman Julius Genachowski to help in settling such disputes before they lead to cable subscribers losing access to popular broadcast signals. Kerry has drafted legislation aimed at settling service disruptions through arbitration.

“It’s not our job to take sides, but it is our responsibility to help find a better way forward,” Kerry said in a prepared statement. “The goal of this legislation is to offer a path towards resolution that reforms a broken system and protects the consumers who get caught in the middle.”

The NAB, however, disputed the “broken system” part of Kerry's statement and called retransmission content a “fair, market-based carriage negotiation process.”

The NAB’s Dennis Wharton said, “as history has shown, 99.9 percent of these deals are reached without disruption. We don’t have a broken system; we have a broken pay-TV company that likes to play Washington games.”

News Corp. and Cablevision are at odds over what Cablevision has called Fox’s unreasonable fee increase demands. Fox has countered that it is only seeking fair compensation for its content.

Tom Rutledge, the Cablevision COO, said at the CTAM Summit in New Orleans that the biggest factor in the dispute is the country’s jobless rate and the underlying anemic economy. Citing a decline in the industry’s multichannel subscribers in the most recent quarter, Rutledge said Cablevision’s refusal to pay retransmission-fee increases to News Corp. is based on customer’s ability to pay those increases.

“It’s not cord cutting — it’s people actually unable to afford to stay in their homes,” Rutledge said during a panel discussion. “The actual occupancy rate in housing has declined.” Citing an unemployment rate of 15 percent, including jobless and those who have quit looking for work, “it is a bad economic situation. We don’t think it’s a time to be raising rates on people who can’t afford it.”

“To try to restructure the industry on the backs of consumers with the power that comes from broadcasting, the power that comes out of the public service obligation and the federal license seems inappropriate to Cablevision,” Rutledge said. ”So we will not pay those kind of increases.“