TV Retransmission: Cable Subscribers to Pay More

Broadcast Networks Seek Increased Retrans Fees, Dual Revenue

A recent and widely-distributed AP story began with a chilling assertion: “For more than 60 years, TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer” (“Business model unraveling for TV networks,” 29 December 2009). Though it may seem dull, those who understand the TV business model see why TV retransmission grabs the headlines.

Fox-Time Warner Cable Retrans Dispute

Retrans issues plagued the end of 2009, crystallized by the last-minute negotiations carried out between News Corp – which owns Fox and FX, among others – and Time Warner Cable. News Corp wanted retrans fees for the Fox broadcasting channel; Time Warner didn’t want to pay them. As a result, News Corp threatened to pull all its channels from Time Warner, beginning on 1 January 2010. This was especially problematic given that Time Warner is the second-largest cable carrier in the country, serving 14 million customers.

Disney-Time Warner Cable Dispute

It’s not an unprecedented battle. In 2000, amidst contentious negotiations between the Walt Disney Co and Time Warner, Disney’s channels were pulled from Time Warner, including broadcast network ABC. When Time Warner customers tried to watch those channels, all they saw was a blue screen with a banner that read, “Disney has taken ABC away from you.” The outage affected 3.5 million Time Warner customers and lasted for 39 hours. The move infuriated subscribers and the company later expressed regret for the way it handled the negotiation.

That battle was not over retrans dollars per se; instead it revolved around terms. According to PBS, as a condition of carrying ABC, Disney required Time Warner to carry Disney’s cartoon and soap opera networks (“Disney Duels with Time Warner,” 2 May 2000). Additionally, they’d have to shift the Disney Channel to basic cable. Time Warner objected, saying it would cost $300 million. A deal was eventually reached on 25 May 2000.

Broadcast Networks and TV Retransmission

In the 2009 dispute, Fox had made it well-known that it was not going to settle. As Forbes noted, at an October 2009 News Corp shareholder meeting Rupert Murdoch announced, “Going forward, we will be seeking retransmission dollars from our distributors” (“Networks Put the Squeeze on Cable,” 21 October 2009). CBS’ Les Moonves ramped up the issue back in 2006, when he told shareholders, “We’re going to get paid for our content by cable operators” (Ibid). He prevailed. CBS has let Wall Street and others know that it’s getting around $.50/subscriber/month from Time Warner. Moonves’ success may have emboldened Murdoch in his demands.

The Fox-Time Warner dispute did not result in a channel blackout. Lawmakers began applying pressure – notably Senator John Kerry and FCC chairman Julius Genachowski – and Fox agreed to a series of 3-hour extensions as the two sides continued to negotiate. They reached an agreement on New Year’s Day. Indeed, Variety proclaimed that “what broke the Fox-Time Warner impasse was the face-to-face huddle and the threat of a political firestorm erupting if they didn’t come to terms” (“Retransmission issues nab spotlight,” 3 January 2010).

Fox Gets Retrans Fees

Early speculation put Fox’s fee at $.60/subscriber/month, but now sources tell Variety that Time Warner will be paying more than $.75/subscriber/month by the end of the deal’s 5-year term (“Fox-TW details emerge,” 6 January 2010). Fox had initially asked for $1/subscriber/month; the last known estimate had Time Warner willing to pay $.30/subscriber/month. The general consensus is that Fox did better than expected.

Most importantly, the Fox-Time Warner deal is viewed as “a key benchmark for a slew of retrans deals to come for broadcast TV station owners in the next few years.” That means that when ABC goes to Time Warner to renegotiate its deal – which is set to expire at the end of 2010 – it’ll have the Fox deal as a precedent. And broadcasters are expected to get tougher about retrans fees. It’s projected that broadcast TV stations got $739 million in retransmission fees in 2009; projected fees for 2010 are $933 million (“Retransmission issues nab spotlight,” 3 January 2010). It’s a significant amount of money.

Higher Cable Fees?

Cable/satellite providers pay TV retransmission fees, not customers directly. For those asking why TV viewers should care, many critics have suggested that providers will increase cable costs as a result. As Nikki Finke put it, “subscribers lost because programming is now more expensive than ever and the cable/satellite companies will pass the increased costs onto the consumer like they always do” (“Who Won Time Warner Cable vs Fox War? (I Know Who Lost: Subscribers),” 4 January 2010).

Whether that’s a foregone conclusion remains to be seen, but it wouldn’t be unprecedented. Retrans may be the savior of the broadcast networks, but it may also be the bane of cable customers everywhere. And there’s more to come. As a TV studio executive told The Hollywood Reporter, “Retransmission consent will be the next big battleground”

 

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