High (Def) Stakes
Over-the-Air HD Signals Are the New Prize in Retransmission-Consent Fights
By Randy Barrett -- Multichannel News, 8/12/2007 8:00:00 PM
This year on Super Bowl Sunday, cable customers in pockets of the United States couldn’t watch the Chicago Bears take on the Indianapolis Colts — allegedly the year’s crème de la crème of gridiron action — on their big-screen TVs in high-definition.
The timing was no accident: Local stations were using the marquee football game in an attempt to gain bargaining leverage to wring cash out of their regional multiple-system operators.
In Albuquerque, N.M., Comcast customers were unable to receive HD signals from the CBS affiliate there, LIN TV’s KRQE, during the game.
And guess who got the blame? “Comcast doesn’t offer CBS HD,” wrote Albuquerque Tribune sportswriter Phil Parker on his blog during the game, “and for that the decision makers deserve to die a slow death.”
Parker described his friend’s purchase of an over-the-air antenna from Best Buy so they could catch Super Bowl XL in vivid, high-definition detail: “He subscribes to Comcast and sends them money every month. Why should he have to spend extra cash to watch the biggest sporting event in the world in HD?
“I hate Comcast,” Parker said.
Six months later, the dispute between Comcast and KRQE still has not been resolved. The carriage fight pits two companies that have been stubbornly opposed on principle.
“We don’t pay cash for carriage,” Comcast senior director of communications Jennifer Moyer said.
CBS CEO Les Moonves, meanwhile, has been equally adamant in demanding it. In a conference call with investors July 31, Moonves reported his company now has digital carriage agreements for cash with eight of the top 25 MSOs. “But the big ones aren’t up until 2010 and 2011,” he added, referring to Comcast and Time Warner Cable.
By then, HD will be firmly entrenched as the gold standard in television viewing.
| Where HD’s On Hold | |||
|---|---|---|---|
| Retransmission negotiations pending for high-definition channels in pockets around the country: | |||
| Market | Cable Operator | TV Station | Network Affiliation |
| SOURCE: Multichannel News research |
|||
| Albuquerque, N.M. | Comcast | KRQE (LIN TV) | CBS |
| Fort Worth, Texas | Charter Communications | WFAA (Belo) | ABC |
| Lexington, Ky. | Time Warner Cable | WLEX (Evening Post Publishing Co.) | NBC |
| Spokane, Wash. | Time Warner Cable | KAYU (Mountain Broadcasting) | Fox |
SHINY NEW HDTVs
The Albuquerque dustup foreshadows a much bigger fight looming just around the corner for the cable industry.
Cable operators are eager to carry HD programming so their services can appeal to a growing viewership with shiny new high-resolution televisions. In 2007, manufacturers will ship 21 million HDTVs to dealers, according to a forecast by the Consumer Electronics Association — bringing the total number of high-definition sets shipped in the U.S. to 56.5 million since 2003.
Historically, cable providers retransmitted signals from local broadcast stations for free. Now, those stations want cash payment for carriage of their standard and HD signals, with high-definition shaping up as the next front in the battle over distribution rights.
Cases have already cropped up across the country. Charter Communications, for one, is still wrangling with media conglomerate Belo Corp., and the operator’s customers in Fort Worth, Texas, remain unable to receive HD signals from WFAA-TV, channel 8.
For its part, Time Warner Cable has been reluctant to put any green into HD carriage agreements. Its customers in certain markets remain without access to high-definition signals from local stations. The company has been in negotiations for months with WLEX in Lexington, Ky., and KAYU in Spokane, Wash., for example.
Those involved say the discussions have been cordial, but so far unproductive.
“We feel like we’re getting closer [to a deal] all the time,” said KAYU general manager Jon Rand, who said he is holding out for a cash-per-subscriber arrangement. Time Warner Cable declined to comment on the specifics of the negotiations.
While some cable operators continue to haggle with broadcasters over HD retransmission, others have reached agreements — and not always to their liking.
In early June, Cox Communications and Sinclair Broadcast Group reached a four-year deal for HD feeds in six markets serving 1.25 million Cox viewers: Las Vegas; Oklahoma City; Pensacola, Fla., and Mobile, Ala.; Norfolk, Va.; Richmond, Va.; and Springfield, Mass.
The terms of the deal were not disclosed, but it included “mutually acceptable economic arrangements and an exchange of value,” Sinclair CEO David Smith said in a statement.
Most industry watchers think the agreement with the hard-nosed Sinclair included cash. The company won a bruising retransmission fight with Mediacom in early February for an undisclosed amount of money per subscriber. Sinclair has also closed similar deals with Comcast and Charter. The Charter contract covers 28 broadcast stations in 19 markets, serving a total of 1.9 million cable subscribers.
Cable players are loath to talk about any specifics of HD retransmission agreements. Their silence, coupled with boasting by Sinclair and other broadcasters, has led some industry onlookers to conclude that cash deals are probably winning the day more often than cable operators would like to admit.
| Stocking Shelves | |
|---|---|
| U.S. HDTV set sales to dealers: | |
| *Projected SOURCE: Consumer Electronics Association |
|
| 2003 | 3.7 million |
| 2004 | 6.0 million |
| 2005 | 8.8 million |
| 2006 | 17.3 million |
| 2007* | 20.7 million |
CLIMATE CHANGE
The HD fights are taking place in a changing market climate. Most notably, satellite-TV providers are gaining subscribers as cable players lose them. According to Nielsen Media Research, 26% of television households currently subscribe to satellite services. That figure is up 73% since 2002.
Meanwhile, cable subscription rates have sagged to 61% of households, down 12% since 2002. The shift has given some broadcasters unexpected leverage and put many cable operators on the defensive as they enter into negotiations over HD and standard digital retransmission.
Nexstar Broadcasting Group, which owns about 50 TV stations, was one of the first broadcasters to apply pressure when it demanded cash retransmission deals from all of the operators in its broadcast regions in 2005.
“Take a market like Springfield, Missouri, where there are more satellite customers than cable customers,” Nexstar CEO Perry Sook said. “We continue to take the position that without our local signals — and, more importantly, without our local content — any [cable company] will have a decidedly inferior consumer offering versus those who make a deal with us.”
The strategy has paid off for Nexstar, which received $13.7 million in retransmission royalties in 2006. Sinclair, for its part, predicts its 2007 digital retransmission revenues will reach $61 million, up 138% from last year. The good fortune of these two companies has prompted other local broadcast players to play more aggressively.
“Every week, broadcasters are seeing an impetus from the Nexstars and Sinclairs of the world,” KAYU’s Rand said. “We’re getting wise — and bold.”
Broadcasters have something cable operators want badly: HD programming, which is becoming vital as HDTV penetration climbs to more than one-third of all households.
“If people spend $3,000 to $4,000 on an HD set … they want to watch high-definition programming,” said Gary Arlen, president of research firm Arlen Communications and a Multichannel News contributor.
DirecTV has made “a future of 150 HD channels” a keystone in its aggressive marketing campaigns, and cable operators have been compelled to respond.
In June, Cox announced it would have the capacity to handle 50 HD channels by the end of this year and perhaps 100 by 2009, while Cablevision Systems outbid everybody in touting that it would soon have the capacity for 500 HD channels.
Telephone companies are also playing the HD card, with Verizon Communications and AT&T playing up the high-definition lineups of their fledgling video services.
Video distributors’ appetite for such programming has kept many cable companies at the bargaining table with broadcasters longer than they would probably like. “For the most part, everyone concurs that HD is good for both sides,” said one cable-industry executive.
THE NEXT WAVE
A number of retransmission deals are set to expire on Dec. 31, 2008. Some broadcast executives feel the fight will truly be joined then, as the perfect storm of satellite TV, swift HDTV sales and operator desire for high-definition programming reaches its zenith. And the Feb. 17, 2009, “hard date” for all local TV broadcasting to turn into digits looms.
“This is child’s play compared to what is going to occur going into 2009,” said Tim Gilbert, general manager of Lexington, Ky.’s WLEX. “What we are trying to do in anticipation is to strike a deal that is a template” for the industry.
Operators are trying their best to avoid such a nettlesome blueprint but doing so may prove more difficult as broadcasting conglomerates continue to merge, allowing disparate local stations in far-flung markets to compare notes on their digital-retransmission deals.
Adding yet another wrinkle is Feb. 17, 2009, when all broadcasters’ signals must be sent over the air in digital form. In the past, analog retransmission negotiations were largely invisible to an indifferent public.
But the Big Switchover portends to focus even more TV viewer attention on the HD battle. At that point, many local TV stations will likely be sending out their signal only in high-definition formats, according to Dennis Wharton, executive vice president of media relations for the National Association of Broadcasters.
As Leichtman Research Group president Bruce Leichtman noted, “HD is pretty much all that the broadcasters have in their arsenal now.”
The National Telecommunications and Information Administration plans to spend $5 million on consumer education on the transition to digital transmission, while the National Association of Broadcasters expects to plunk down $100 million on a digital-TV public-awareness campaign.
Still, critics say the federal government and the broadcast industry have done too little to inform the public as deadline looms. Under congressional pressure, the Federal Communications Commission in late July proposed new DTV education initiatives that would include broadcaster public service announcements, notices from electronics manufacturers and notices in cable TV bills.
Cable players are unlikely to get any help from the FCC in retransmission battles. Under the agency’s rules, broadcasters can choose to follow “must-carry” regulations that give them guaranteed carriage by cable operators, or they can choose to negotiate for retransmission on a free-market basis. The latter is by far the more popular option but it offers fewer explicit protections for both parties.
In January, the FCC refused to come to Mediacom’s aid as Sinclair twisted the cable operator’s arm for cash. Mediacom charged that Sinclair was refusing to bargain in good faith.
The FCC concluded that the problem was simpler than that: “What Mediacom seems to protest is the price Sinclair seeks for retransmission of its signal on Mediacom’s systems and its failure to justify this price,” the agency said in its final order on the matter.
Cable companies will likely face emboldened broadcast players demanding their due. Said Nexstar’s Sook: “I think the vast majority of broadcasters intend to seek cash compensation for retransmission in their next negotiating cycle.”
Still, while HD programming may be the stick broadcasters wave to try to get it, there’s leverage on both sides of the table, said Leichtman.
“Clearly, the broadcasters think they have the upper hand,” the research group president said. “But it’s just as important for them to get cable distribution. These deals are not always as cut and dried as they appear.”
Ops, Broadcasters Give Peace A Chance
01/10/2009
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