Retrans Feuds Ease Up
Era of Feuding May Be Over, Analysts Say — At Least for Big MSOs
by Mike Farrell -- Multichannel News, 6/22/2009 2:00:00 AM
Broadcasters and pay TV service providers may have informally turned down the retransmission-consent volume over the past several months, as the nation moved through some potentially dicey regulatory periods — the analog-to-digital transition and the new presidential administration.
And though it is likely that a few heated discussions will pop up over the next few years, some analysts believe that, at least for now, the old days of bitter, drawn-out fights between cable operators and station groups may be over.
That theory could get its litmus test as early as this December, when both Mediacom Communications’ and Time Warner Cable’s retrans agreements with Sinclair Broadcast Group are set to expire.
In talking to analysts and small cable operators, however, there seems to be a clear line of distinction — while analysts believe that the larger MSOs have, for the most part, accepted the inevitability of paying stations for retransmission consent, smaller operators, who have had to swallow big increases in retrans payments over the years, are not expecting many changes in their relationship with broadcasters.
Larger cable operators completed many of their major retrains deals late last year, in particular Time Warner Cable’s pact with CBS that extends deal to 2013 and Univision Communications’ long-awaited retrans deal with Comcast.
“I don’t think you are going to see any more big battles,” Collins Stewart media analyst Tom Eagan said. “Cable operators have a reason to pay them [broadcasters] now.”
Eagan added that future negotiations will likely include provisions for authentication, the concept of allowing subscribers to subscription TV to access all of the programming they see on their TV sets online. The idea is that content that cable, satellite and telco distributors pay for would not be available to nonsubscribers for free.
“I think there will be incentives for broadcasters not to put their freshest stuff online,” Eagan said.
Miller Tabak media analyst David Joyce said that he doesn’t expect the old retrans battles to resurface any time soon for a couple of reasons: most of the big deals have been done already for the current cycle and increases for future deals will likely mirror those for programming costs.
Joyce estimated that for most larger operators, retrans fees are expected to rise between 5% and 10% in future negotiations.
“I think retrans fees are going to be growing in the same ballpark as regular programming increases,” Joyce said.
But for smaller operators, the retrans picture is a bit different.
According to an American Cable Association survey, retrans fees for small cable companies rose 271% so far this year. The survey, conducted by Clarus Research Group and including responses from about 25% of ACA members, also found that retrans is a growing component of total programming costs, representing 8.03% of total programming costs in 2009 vs. 2.4% in 2008.
And with retrans becoming even more important to broadcasters as the advertising market shrinks, that isn’t expected to ease up anytime soon.
“Given the reliance the broadcast industry has had on these fees to keep them afloat, we see no reason to believe they will ask for a cost of living increase next time,” ACA CEO Matt Polka said in an interview.
Mediacom vice president of legal and public affairs Thomas Larsen said that future negotiations with broadcasters will depend upon the leverage wielded by each side. Mediacom, which had a long and bloody battle with Sinclair in 2006 — it reached a deal in January 2007 — was obviously disadvantaged in negotiations because Sinclair covered more than half of Mediacom’s subscriber base.
And while it appeared there were fewer disputes in 2008, Larsen said that may have been due to a conscious effort to confine those spats to the local markets they were in rather than making a national issue of the matter.
“We were out there screaming for help,” Larsen said of Mediacom’s last Sinclair battle. “I think there are fights out there. If the ACA isn’t out there banging the drum or we aren’t, then people don’t necessarily make it as public as they could.”
And so far this year, a few deals have quietly been reached. Sinclair last month said it had successfully negotiated retrans extensions with Dish Network and DirecTV. Dish also reached a multiyear agreement with Fisher Communications — regarding nine stations in Washington, Oregon, Idaho and California — on June 11.
Overall, retransmission-consent fees continue to rise substantially. According to SNL Kagan, the first quarter of 2009 was the first three-month financial period ever where retransmission consent revenue from top publicly traded television station groups exceeded $100 million (see chart).
Suddenlink Communications senior vice president of corporate communications Pete Abel said that while the midsized operator (1.2 million subscribers) doesn’t have any major retrans deals up until late 2011 — there are some smaller deals up in 2009 and 2010 — it’s still too early to call détente. Abel said that Suddenlink expects to successfully negotiate those deals as it has others in the past.
“We think it’s too soon to make predictions about the impact of the last round on the next round,” Abel said. “Regardless, we continue to believe retrans is a subject that deserves a fresh look; the law is 17 years old and much has changed in those 17 years.”
RETRANS RISING
Q1 of this year was the first that retransmission-consent revenue for 16 major broadcasters topped $100 million in a single three-month period, according to SNL Kagan. A snapshot of some of the larger broadcast groups and their retrans hauls for the period:
($ millions)
| Company | Q109 | Q108 |
| SOURCE: Company reports and SNL Kagan estimates *SNL Kagan estimate |
||
| Sinclair | $21.1 | $19.6 |
| Nexstar | $6.6 | $4.6 |
| Gannett | $14 | n/a |
| Hearst-Argyle | $12.4 | $6.3 |
| CBS* | $20.4 | $10.2 |
| Belo* | $9.7 | $8.8 |
| Gray TV | $3.6 | $0.646 |
| Lin TV* | $6.8 | $3.1 |
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Response to John Hite:
HITE: As an industry outsider, I have been confused as to why the FCC even permits retransmission fees charged by local stations.
RESPONSE: The FCC didn't make the decision to permit "retransmission consent. Congress did it in 1992, when it enacted of the "Cable Television Consumer Protection and Competition Act of 1992" overriding President George H. W. Bush's veto. This act allows a broadcast station licensee to choose between mandatory carriage (the "must carry" rule: every cable system in the station's designated market area MUST carry the station's signal under technical rules specified by the FCC) or retransmission consent (every cable system in the station's DMA must obtain the station licensee's consent). Major regional independent stations and stations affiliated with major networks usually elect retransmission consent, and demand financial or other forms of compensation. Less popular stations usually elect must-carry.
HITE: These broadcasters have been given free broadcast spectrum to provide free content to the public with requirements to provide news, children's programming, entertainment programming, educational programming & public affairs programming.
RESPONSE: Free broadcast spectrum isn't the only goodie that Congress has bestowed upon the broadcast industry. The entire country is divided into Designated Market Areas (DMA). DMA boundaries are defined by Nielsen Media Research based on viewer surveys of non-cable homes. DMA boundaries generally follow county lines, although some large counties are split between two or more DMAs.
Within its DMA, every network-affiliate station is the exclusive vendor for the network programming. Cable TV, satellite TV, and telco TV companies are required, by federal law, to obtain network programming from the one and only affiliate within the DMA, and they are prohibited from obtaining the identical programming from any other affiliate of the same network.
In any other industry, this arrangement would be a called a monopoly. But in the case of the broadcast industry, it's called "consumer protection."
HITE: The public was never to be charged for the availability of broadcast signals because the public owned the airwaves. With all the new stations created since CBS-NBC-ABC-NET(PBS) were the only options in most middle sized cities, the FCC has abdicated its broadcast regulatory responsibilities.
RESPONSE: Don't blame the FCC. Congress makes the laws; the FCC just tries to make sense of them so it can enforce them in the real world.
HITE: In my opinion, as long as broadcast licenses are granted without a substantial fee, broadcasters have a responsibility to serve the public. Likewise, the cable, telco and satellite industry, should have a must carry requirement with no retransmission fees in order that the public gets their free over-the-air television.
RESPONSE: That's the way things were before the Cable Act of 1992.
Neal McLain - 6/23/2009 7:10:21 PM EDT -
Response to Julius Powell.
POWELL: 1) The Cable/Sat/Telco providers have been charging customers for the local "free" over the air television channels for years. They often termed this back-office or admin costs. Their free ride is over and this greatly reduces their profit margins.
RESPONSE: If cable/sat/telco providers are getting a "free ride" from broadcasters, then why are the broadcasters trying to get Congress to mandate must-carry for secondary DTV signals? Who's trying to get a "free ride" from whom?
POWELL: 2) Without retransmission consent fees the free over the air television as we know it today will cease to exist thus harming consumers with cable/sat/telco and those who receive television for free with an antenna (30% of population).
RESPONSE: That doesn't make sense. I agree that if broadcast stations cease over-the-are transmissions, it would harm the 30% of the population that receives TV via air broadcast. But I don't understand why that would harm cable/sat/telco subscribers. To the extent that retrans fees support broadcasters, cable/sat/telco subscribers are being forced to subsidize that 30%. If cable/sat/telco subscribers no longer have to support that subsidy, why would that harm them?
POWELL: 3) If the retransmission consent laws are rescinded the Big 4 Networks will take their programming straight to cable and charge the cable/sat/telco operators many times what the local affiliates charge them. This will drastically increase cable prices.
RESPONSE: Please provide a citation to support those statements.
POWELL: The FCC and Gov are well aware of all the info stated above.
RESPONSE: Citation?
POWELL: The saying of "Be careful what you wish for, as it may come true" is very relevant in this matter. If small minded people like Matt Polka and the rural cable operators are somehow successful in getting the retransmission consent process overturned, their programming fees will skyrocket when the Big 4 Networks take their programming [via] the cable channel route. These fees will surpass ESPN's fees.
RESPONSE: So let me get this straight. You're saying that if retransmission fees are eliminated, the Big 4 networks would cease to be broadcast networks (presumably by abrogating all of their affiliation agreements), and turn themselves into non-broadcast advertising-supported networks similar to ESPN. If that's what you're saying, let me point out a few things that you apparently haven't thought through. (a) If broadcast stations lose their network affiliations the Big 4 networks, they certainly aren't going to just sign off and go away. They'll quickly find new networks to affiliate with. Furthermore, each station would retain the rights to whatever programming it produces itself or carries under syndication agreements with program suppliers. (b) Less-than-Big-4 broadcast networks (CW, ION, Mynetworktv, TBN, Telemundo etc.) will jump at the chance to affiliate with the former Big 4 stations. If you don't believe that, you should study the story of how Fox broke the lock of the Big 3 and turned it into the Big 4. For a fascinating account, see "Three Blind Mice: How the TV Networks Lost Their Way" by Ken Auletta (Random House, 1991). (c) Retransmission consent agreements are contracts between the cable/sat/telco companies and the broadcast station licensees. Except in the case of O&Os, the networks themselves are not parties to the agreements. If any Big 4 network went the cable-only route, it would no longer have the clout provided by its affiliates' retrans agreements; instead, it would become just one more advertising-supported non-broadcast channel in an already-crowded field. It would have to start from scratch and negotiate carriage agreements with every cable/sat/telco company. (d) New program channels inevitably have a difficult time getting carriage agreements with cable and satellite companies, so I have to wonder what kind of programming the old Big 4 would be able to offer to distinguish themselves from the hundreds of competing channels. Surely you're aware of the problems that NFL network faced when it tried to get carriage (Dish Network still refuses to carry it and even uses that fact in its advertising). (e) As non-broadcast programmers, the former Big 4s would no longer have mandatory carriage rights on the basic tier. As with other non-broadcast programmers, they would have to negotiate channel placement in carriage agreements.
Neal McLain
Neal McLain - 6/23/2009 4:06:29 PM EDT -
Retransmission is necessary for several reasons:
1) The Cable/Sat/Telco providers have been charging customers for the local "free" over the air television channels for years. They often termed this back-office or admin costs. Their free ride is over and this greatly reduces their profit margins.
2) Without retransmission consent fees the free over the air television as we know it today will cease to exist thus harming consumers with cable/sat/telco and those who receive television for free with an antenna (30% of population).
3) If the retransmission consent laws are rescinded the Big 4 Networks will take their programming straight to cable and charge the cable/sat/telco operators many times what the local affiliates charge them. This will drastically increase cable prices.
The FCC and Gov are well aware of all the info stated above.
The saying of "Be careful what you wish for, as it may come true" is very relevent in this matter. If small minded people like Matt Polka and the rural cable operators are somehow successful in getting the retransmission consent process overturned, their programming fees will skyrocket when the Big 4 Networks take their programming the cable channel route. These fees will surpass ESPN's fees.
Julius Powell - 6/22/2009 10:01:16 AM EDT -
As an industry outsider, I have been confused as to why the FCC even permits retransmission fees charged by local stations. These broadcasters have been given free broadcast spectrum to provide free content to the public with requirements to provide news, children's programming, entertainment programming, educational programming & public affairs programming. The public was never to be charged for the availability of broadcast signals because the public owned the airwaves.
With all the new stations created since CBS-NBC-ABC-NET(PBS) were the only options in most middle sized cities, the FCC has abdicated its broadcast regulatory responsibilities. In my opinion, as long as broadcast licenses are granted without a substantial fee, broadcasters have a responsibility to serve the public. Likewise, the cable, telco and satellite industry, should have a must carry requirement with no retransmission fees in order that the public gets their free over-the-air television.
John Hite, retired, Oklahoma City
John Hite - 6/21/2009 11:51:38 PM EDT
