The New Year’s Eve game of “chicken” between the Fox television network and Bright House cable was a foreshadowing of a battle that will play out again and again around the country, and it could not be more important to broadcasters.
“Fox had threatened to force Time Warner Cable and another cable TV provider, Bright House Networks, to drop the Fox broadcast signal from 14 of its TV stations and half a dozen of its cable channels as a contract expired at midnight Thursday.
“But signals were extended into Friday as talks continued, allowing more than 6 million cable subscribers in New York, Los Angeles, Orlando, Fla., and other markets to tune into the Sugar Bowl and other programming.”
What is this about?
TV stations have two main revenue streams, advertising and cable retransmission fees. Some have side deals in which they produce newscasts for other stations. Some make a little money on production. But mainly, commercials pay the bills.
Stations want the retransmission fees to become a more significant source of income as advertising becomes a less reliable breadwinner.
Fox has been asking Bright House for a dollar per cable subscriber per month, and it threatened to pull the signal from the cable systems if it didn’t get paid. (By way of comparison, ESPN makes about $4 per subscriber.) Keep in mind, there are more than 100 million cable subscribers in the United States. Bright House is the nation’s second-largest cable provider, so any deals it makes will color future deals with other companies.
Networks have been saying recently that they may start leaning on local stations to give the network part of any retransmission fee the local owners negotiate. Forbes explains that according to estimates from SNL Kagan, which conducts media and communications intelligence, this is a battle worth fighting:
“In 2008, broadcast stations garnered slightly more than $500 million in retransmission cash from cable, satellite and telecommunications operators; SNL Kagan expects those fees to rise to $1.2 billion by 2011.
“But broadcasters aren’t stopping there. They’re also asking their affiliates (the independently owned stations throughout the country with which they’ve struck deals to carry their fare for a significant portion of the day) to pony up a portion of their retransmission fees. The networks’ argument: They deserve the lion’s share of any compensation because they’re the ones supplying the sort of must-watch fare (think ‘NCIS,’ ‘Desperate Housewives’ and ‘Sunday Night Football’) that draws eyeballs and big fees.
” ‘Any way you look at it, there should be a sharing,’ CBS Chief Leslie Moonves said at an investor conference” in December.”
Bright House said that when it pays more for retransmission, it will charge more for cable. Customers will foot the bill.
Broadcasters have argued that cable companies have cashed in on free signals for a long time. The Los Angeles Times’ Company Town blog reported that the Walt Disney Co. offered its support for Fox in its battle with Time Warner Cable:
Local stations have not always received cash for retransmission. A decade ago, cable companies were willing to give stations a better channel position on cable or even offer stations or station groups extra channels in exchange for retransmission. On SeekingAlpha.com, media executive Joseph Patrick Hannan explained how retransmission deals once worked:
“Rupert Murdoch was known to use retransmission consent to his fullest advantage in the 1990′s. News Corp. capitalized heavily on the strength of the Fox Network and its owned and operated television stations to secure national carriage for many of the then fledgling cable networks that are now highly profitable franchises for that company. EW Scripps Co. is another company that used this strategy to create lucrative national cable networks on the backs of its television station group.
“Others, such as Belo Corp. used the negotiating leverage of their station groups to launch local and regional news networks on cable systems. Cable operators were willing to provide additional channel capacity then as they wanted to ensure they continued to offer such things as local news and sporting events, but did not want to pay-out rights fees to do so.
“In addition, capacity was not as constrained or as valuable as it would become, hence the concessions were made. However, cable positions did eventually [become] much more in-demand with the proliferation of niche cable networks on both the analog and digital tiers of their systems, and cable operators significantly curtailed this practice. The introduction of satellite television as a formidable competitor forced the cable companies to revisit their stance on retransmission consent, though.
“The likes of Dish and DirecTV began aggressively seeking new ways to offer differentiated content, and broadcasters eventually persuaded regulators to mandate certain retransmission rights on satellite as well. This put many broadcasters in an enviable position, and finally gave them significant leverage to demand cash payments from the cable companies in the retransmission consent process.”
- National Association of Broadcasters briefing paper on retransmission consent
- National Cable & Telecommunications Association letter to the FCC explaining how retransmission fees hurt consumers [PDF]
- KeepFoxOn.com, Web site launched by Fox
- RollOverOrGetTough.com, Web site launched by Time Warner Cable