Retrans Feuds Ease Up

6/20/2009 2:05 AM Eastern

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.”

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
Gray TV$3.6$0.646
Lin TV*$6.8$3.1
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