DirecTV protests tying of TV station, cable license deals in FCC letter about Fox

DirecTV (Nasdaq: DTV) appears to be using a Fox ad campaign that warns subscribers that they may lose NFL games and other programs from local stations as ammunition in its fight to stop broadcasters from tying retransmission consent agreements with carriage deals for cable networks.

DirecTV included screenshots of a Fox ad in its letter to the FCC.

"Fox is using misleading advertising informing DirecTV customers that 'soon, in some markets, you may lose your local Fox station,' even though our retransmission consent agreement does not expire for over two months," DirecTV EVP of content strategy and development Derek Chang wrote in a letter to FCC media bureau chief William Lake Thursday. "While Fox continues to run these misleading ads, Fox has refused to provide us a separate offer for the continued carriage of its broadcast stations," Chang adds.

DirecTV's license deal to carry Fox-owned cable networks such as FX, National Geographic Channel, Speed, and regional sports networks expires on Nov. 1. But a retransmission-consent agreement that allows DirecTV to carry local TV stations owned by Fox in major markets such as New York, Los Angeles and Chicago doesn't expire until Dec. 31.

DirecTV has said that it will drop Fox-owned cable networks on Nov. 1 if it can't reach a deal with Fox, complaining that Fox is demanding a 40 percent hike in its monthly license fee. While DirecTV its using broad distribution base of 19 million subscribers to squeeze Fox into agreeing to more favorable terms, Fox is using its TV station group--which airs NFL games from teams in the AFC and hit series ranging from The Simposons to Fringe--as its own leverage. Fox parent News Corp. (Nasdaq: NWSA) demonstrated that it isn't afraid to pull its station signals to hammer a distributor into a better deal last year when it dropped its station feeds from Cablevision (NYSE: CVC) during the first game of baseball's World Series.

Cable operators and satellite TV providers have been pushing the FCC to reform its retransmission consent rules. One aspect of retransmission consent that distributors complain the most about is the strategy from Fox and Disney (NYSE: DIS) of tying retransmission agreements into carriage deals for cable networks owned by the media giants.

Following Comcast's (Nasdaq: CMCSA) acquisition of NBCUniversal and its cable networks and NBC-owned TV stations, the nation's largest cable MSO is also relying on retransmission-consent to boost revenue.

"Retransmission consent dollars is not a good thing for the cable side of Comcast, but it's going to be a very good thing for NBCU," new NBCU chief Steve Burke said at an investor conference last month, adding that NBCU expects to generate "hundreds and hundreds of millions of dollars" each year in retransmission revenue.

DirecTV and Time Warner Cable (NYSE: TWC) disclosed earlier this that they are lobbying the FCC together on retransmission-consent reform. Fox's public battle with DirecTV may be one example that the major distributors can use to push the FCC to reform its retransmission-consent rules.

It's worth noting that the letter that DirecTV's Chang sent to Lake isn't a formal FCC complaint, and DirecTV hasn't asked the FCC to take any action against Fox. As Chang notes in the letter, DirecTV is just attempting to "alert" the commission to Fox's ad campaign.

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