Shining Some Sunlight on Retrans

By Tom Gleason -- Multichannel News, 4/5/2010 3:12:46 AM

I want to compliment reporters Mike Farrell and John Eggerton on their fine article on ways to break the tension between broadcasters and cable operators for the benefit of all pay TV consumers. (“5 Ways to ‘Fix’ Retransmission Consent,” March 15, 2010, page 8.)

Here, I would like to propose fix No. 6: Sunshine.

Consumers need to understand what the broadcaster is asking, but confidentiality agreements all run in the broadcasters’ favor. In such a secretive environment, cable always comes out looking like the bad guy.

Each cable customer knows exactly what we charge, yet none of them knows what the broadcasters are charging us because they hide behind their confidentiality agreements. The broadcasters are not like cable channels because we as cable operators (or telcos) are required by law to carry their signals on our lowest level of service. I would also point out that the satellite companies (DirecTV and Dish Network) get to “tier” their signals and charge extra. Another disadvantage for cable is that we are unable to off - set retransmission-consent fees with ad avails.

We are essentially just collection agencies for the broadcasters. For the most part, we have carried free or very-low-cost cable programming in our “basic” tier, along with those broadcast signals. Consequently, the customer rates for this service have remained low and relatively stable over the years. Now, with retransmission- consent prices on the rise, the basic rate is going up to cover these costs.

Unless you know what’s in the contract, prices paid for retransmission consent are just a guessing game for outsiders. Also hidden is the fact that broadcasters use their market power to make small cable providers pay more for retransmission consent than larger competitors serving the same market.

Believe me, small operators — which typically serve a low percentage of the households in a local market — pay much more per subscriber than the dominant operator in the same market.

If cable can’t charge the customer that lives out at the edge of its system more than the customer that lives in the heart of town, why should the broadcaster be able to charge a rural cable operator more than it charges an operator with a headend next door to the broadcast tower?

Today, small cable operators have very little leverage because we can’t tell our customers what an individual broadcaster is demanding even when it runs crawls on the air that tell people it just wants to get paid a “reasonable” fee.

My solution, again, is more sunshine. When a broadcaster wants fees that we consider excessive, we as operators, at our discretion, should be allowed to pass along that higher charge to the customer a la carte.

If we make that determination, then we would be prohibited from marking up the cost but we would not be prohibited from selling that individual channel for the price the broadcaster wants. Every customer would have the right to decide whether to pay the broadcaster’s rate hike.

In the end, the customer would then know exactly what the broadcaster is charging for its “free” over-the-air service. We would simply collect the money and send it along. If we do think the broadcaster is reasonable, we can continue carriage just as we do now. This would give us small operators some leverage with the broadcaster that we don’t have now.

Broadcasters would have to decide if they want the consumers to know what they are demanding of them, and we could keep our “basic” service cost low for the primarily lower-income folks who buy just that service. If the broadcaster is right that “everybody” wants its programming, then our entire customer base would buy it. If not, that might tell broadcasters something. Some customers could also decide to forgo the charge and put up an antenna to get that channel over the air if they are close enough to the transmitter. They would at least have a choice.

At the very least, get rid of the confidentiality clauses in these agreements. Let smaller operators’ customers see the difference between what they pay and what a customer that lives in the primary city of that market pays.

That, at least, would put some small amount of pressure on the broadcasters’ side of the ledger. If the broadcaster thinks it is being reasonable , then it should not care if the customers know what it is extracting from them. They publish their advertising rates — why not their retransmission consent rates?

The point here is to let the consumers know how retransmission consent is impacting their particular video provider’s charges to them. I’ll just bet the broadcasters would be more willing to negotiate if they, just like us, have to tell their consumers what they charge.