News

Shining Some Sunlight on Retrans

4/05/2010 3:13 AM Eastern

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.

September