The TV consulting company, The Carmel Group, with which I have been affiliated these past 20 years, conducted a study about a year ago — whose data remains relevant and still generally accurate today.
The study showed the relative value of cable channels versus broadcast channels in a hypothetical, big time, retransmission consent negotiation. This 10-page study of contained a good number of enumerative charts (as appendices). The Carmel Group has been looking into the issue of retransmission consent for a number of years, and now that the topic is in the news again, below are our observations. I was surprised by the study results. You will be, as well.
Retrans Study Findings
The study contained a handful of key findings: First, there are a lot retransmission-consent negotiations every three years (which is the typical length of a retransmission consent agreement). In fact, the actual number is over 15,000 negotiations every three years. Second, of those, very close to 100% are completed without public fanfare (meaning the retrans rules appear to work, and when they do not, and there is a disruption in service, it’s typically temporary, in the form of a few days). Third, among the key players - i.e., the cable TV content providers, the pay TV distributors, and the broadcasters - the broadcasters remain at the low end of the current value totem pole (see below). And fourth, the value of the broadcasters’ content to consumers and pay TV operators, relatively speaking, suggests those broadcasters are in a very solid position to seek out higher retransmission-consent fees, and thus more value for their product.
Note that for the uninitiated (one should never feel bad for not completely understanding “retransmission consent,” because it’s an arcane name for an arcane topic and an arcane process), the topic deals very basically with negotiations that typically involve two components. First, is the requirement that a broadcaster or other content provider chose to be carried on the local pay TV service automatically, but without compensation, which is called “must carry.” The content provider’s alternative choice is that it get paid, but if the so-called “retransmission consent negotiation” for that content-for-compensation fails, then the TV program provider risks having to remove its shows from (or getting its content removed from) the pay TV provider’s system.
In The Carmel Group study, a look at reliable data proved that the rise in cable TV rates comes not as a result of content providers receiving ever-greater fees; rather it comes from pay TV operators raising their rates (and margins). Indeed, the U.S. government, in the form of the FCC, revealed these data points.
What was also fascinating was to compare the core value of the broadcast TV shows, to those of the so-called cable TV programming. As the “relative value” chart above indicates, considering the audience interest of one versus the other, and considering the prices paid for each, broadcast content providers are in a unique position to seek more per-viewer compensation from pay TV operators in the future. An additional point included the fact that when an outage occurs, consumers can still access broadcast TV via an over-the-air antenna.
Viacom’s current dispute with DirecTV, like that of Dish Network’s current spat over AMC Networks’ channels, reflects most (or the most significant) publicly-aired past retransmission consent disagreements: it is a pay TV programmer versus a pay TV distributor. As such, both are reminiscent of the earlier Dish-Lifetime and the DirecTV-Versus (now, NBC Sports Network) retrans disputes of the past several years. And because these pay TV operators are often the ones who bemoan the results of outcomes involving broadcasters, it is ironic that those same pay TV operators would seek governmental involvement in the retransmission consent process involving them and their own pay TV programming.
In the case of Dish removing the core AMC Networks programming recently, Dish claims that it is doing so because viewer interest in the programs is low. AMC Networks responds that Dish is only doing so in order to acquire leverage against it stemming from an ongoing litigation over the DBS provider’s removal of Voom HD (which operated under AMC predecessor, Rainbow Media Holdings) in 2008. And both are probably right.
In the case of Dish’s low ratings claim, that is part of the negotiation process, but not likely enough to cause the entire removal of the channels in a “normal” retrans bargaining process. In the case of AMC, Dish cannot help but gain litigation leverage when it unilaterally removes the networks at will from millions of Dish viewers, and thus costs the programmer’s those ad and subscription dollars. (But, importantly, Dish also risks upsetting its loyal AMC programming viewers, and perhaps thus losing its own Dish customers).
In short, the lay of the land suggests “Advantage broadcasters…at least for now.” As for cable TV content provider vs. pay TV operator (a la Dish vs. AMC, and Viacom vs. DirecTV), those require a whole lot more finessing, and a whole lot more viewer patience. Go figure?
Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea, Calif.-based consultancy The Carmel Group (www.carmelgroup.com).