On The Money

A War Where No One’s Winning

9/25/2013 11:30 AM

 

Sifting through the rhetoric on both sides of the retransmission-consent issue isn’t an easy task, but over the past few weeks, it has seemed as if the tide and the tone are beginning to shift.

Retrans negotiations are rarely cordial, but in the past there seemed to be a few lines that both sides informally agreed not to cross. Those lines are becoming increasingly blurred.

In almost every case, it seems like each succeeding retrans fight lowers the bar another inch. Take the recently resolved CBS and Time Warner Cable dispute. It started like any other — with Time Warner Cable claiming it wouldn’t accept huge rate-increase demands and CBS saying it only wanted to be paid fairly for its content. But then CBS blocked TWC broadband subscribers’ online access to its programming, a tactic that Viacom tried briefly in 2012 during its carriage spat with DirecTV. This one lasted for almost four weeks. Expect the next one to go on even longer.

Cable isn’t blameless here either — at one point early in the negotiations, Time Warner Cable chief content officer Melinda Witmer sat in on a low-level conference call and undid several points concerning cable network Showtime the two sides had tentatively agreed upon, according to articles in The Wall Street Journal. Later, Witmer joked to the Journal that she might leave a copy of the CBS contract on a park bench for all to see.

In the end, what came of the continuous volley of insults and accusations from both sides? Pretty much nothing. Time Warner Cable, according to analysts, will probably end up paying $1.90 per month per subscriber for CBS, pretty close to the $2 fee the broadcaster was reportedly demanding. TWC did get a solid month to state its case for retrans regulatory reform in the top media markets, but anyone who believes Congress — which has yet to deal with more pressing issues on the economy and international relations — will drop everything to address this problem is deluding themselves.

Bottom line, what can you take from all of this? Retrans fights will get nastier and they will never cease. Stop the presses.

But over the past few weeks, there seems to be a change in attitude at least on the part of the distributors. They really, really want the government to get involved in this. And it’s not because they have an undying love for government intervention — remember, this industry was founded by libertarians, or at least libertarian sympathizers. Simply put, they have reached the end of their respective ropes. One distribution executive I spoke with last week even dismissed the old notion that the issue could be resolved by a large MSO digging in its heels and refusing to carry a channel — th executive believes it would only mean prices would rise for everyone else.

In smaller markets, it’s even worse, although it gets little attention. Did anybody outside Milwaukee and Green Bay, Wis.; Omaha, Neb.; and Palm Springs, Calif., really care that six Journal Communications stations were dark to Time Warner Cable customers in those areas for nearly two months?

That is a shame because in the long run, it is the smaller markets that are most affected by retrans blackouts. Customers in major markets have other outlets to get their news and entertainment, but for smaller areas, oftentimes the local broadcast station is the only source of local news. Sure there are other broadcast affiliates, but taking away a voice in a market that has a limited number of them can never be good.

Increasing evidence also suggests that blackouts are having an effect on stock prices, but again, it seems that the smaller guys are bearing the brunt of that.

For example, Journal Communications’ stock has been down 20% since it went dark on July 25, according to SNL Kagan. TWC stock is down 4%, and most of that is a residual effect of the CBS battle. CBS it lost some ground early but finished the fight with its stock up about 4% as of Sept. 18.

Unfortunately, I’m old enough to remember when retrans negotiations only meant that a distributor had to carry a new cable channel, so I’m not arguing that the notion of broadcasters getting paid for their content should be dismissed. Nor am I saying that a content provider is entitled to be paid unrealistic prices for its programming. But it is obvious that something is broken here, and sending nasty letters to regulators and calling your competitors’ names in the local newspaper has already proven to solve absolutely nothing. Maybe what this industry needs to do is sit down in a dark room with broadcasters, away from the press and the bright lights and all the hoopla, and really discuss what needs to happen.

Maybe it’s a la carte, as some distributors have suggested, or unbundling networks, or simply agreeing to accept a low double-digit rate increase, or something else no one has thought of yet.

Something needs to give, though. The fate of pay TV depends on it.

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