Policy

TWC Gets Tough On Retrans

12/12/2009 2:00 AM Eastern

Time Warner Cable continued its effort to attack rising programming costs last week, building on its grassroots “Roll Over or Get Tough” campaign to rein in cable-network affiliate fees to include broadcast networks seeking retransmission-consent cash.

The latest salvo was housed in the form of a comment to the Federal Communications Commission in support of the action in that agency initiated by Mediacom Communications against Sinclair Broadcast Group. In the ex parte comment filed on Dec. 8, Time Warner claimed that Fox Broadcasting, the broadcasting arm of media giant News Corp., “has brazenly sought to hijack the retransmission-consent process by threatening to exercise veto power over any station negotiation of a retransmission deal that does not extract a satisfactory kickback for the network.”

Fox has reportedly been seeking as much as $1 per subscriber, per month from operators for retransmission consent. Of Sinclair’s 58 television stations, 20 are Fox affiliates and 17 are affiliates of MyNetworkTV, another Fox-owned network.

Fox Cable Networks called the Time Warner Cable filing an “extension of its desperate campaign to mask its impressive profits and instead malign its program suppliers’ efforts to receive fair compensation.” The content giant added that Time Warner Cable would be better served by acknowledging the tremendous value provided by its content partners.

In the FCC comment, TWC complained that Fox’s interference forced it to settle for a one-year deal with Sinclair. “A one-year agreement is not industry standard, and only postpones for a brief time the prospect of more brinksmanship by Fox and Sinclair with corresponding threats to subscribers’ continuity of service,” Time Warner wrote.

The harsh words dovetail with the stance the MSO began to formulate last month with its “Roll Over or Get Tough” campaign. The MSO launched the campaign on Nov. 25, a Web site (www.rolloverorgettough.com) that educates consumers on the high cost of programming and how it affects rates. Last week, the MSO said that nearly 400,000 consumers have visited the Web site and more than 150,000 have left comments. According to Time Warner Cable, 95% of those comments called for the network to “get tough” on programmers.

That move was reminiscent of an earlier campaign to combat rising programming rates — Cox Communications’ 2003 “Make Them Play Fair” initiative to combat 20% annual rate increases from ESPN. That sometimes contentious battle ended with Cox landing a multiyear deal with the sports network with an average annual rate increase of about 7%.

The largest cable operator in the country — Comcast — has decided to stay squarely on the fence concerning the retrans issue, leaving Time Warner Cable to pick up the gauntlet. After the announcement of its joint venture with NBC Universal, which owns 26 TV stations and has been seeking its own cut of the retrans pie, Comcast execs noted that retrans will probably become an even bigger part of the business and that the cable giant is in a unique position to help find constructive solutions to the issue.

Miller Tabak media analyst David Joyce said there are similarities between the TWC and Cox campaigns, because the timing of the expiration of carriage contracts coincides with strong recent growth in News Corp.’s cable networks and its Fox Broadcasting network and stations. 

“Basically, the fight is because cable wants to set the initial retrans bar as low as possible (from which future contractual growth will compound), while News Corp. needs to capitalize on its strong broadcast ratings by having retrans revenue offset the weak advertising environment,” Joyce said.

Time Warner also appears to be taking a proactive stance, getting out in front of programming battles before they escalate. The MSO endured a bloody battle with Viacom last year, where the cable network giant peppered markets with ads of a crying Dora the Explorer, one of its Nickelodeon children’s channel most popular characters. TWC also appears to be emboldened in part by its refusal to carry the NFL Network (which has not resulted in a public hew and cry from consumers) as well as its desire to keep programming increases in check.

According to a report by Citigroup media analyst Jason Bazinet last week, programming costs will rise by about 7% in 2009 for Time Warner, but the MSO is bracing for a significant increase in 2010, as many of its deals come up for renewal, including those with MLB Network and Big Ten Network.

Time Warner Cable chairman and CEO Glenn Britt also appears to be more willing to become the public face of the retrans battle, mirroring earlier efforts to take a stand on free online programming.

Britt caused a bit of stir when he said at the 2008 Cable Show in New Orleans that he would have a problem with networks putting content he pays for online for free, but it also started the debate which eventually led to TV Everywhere. Britt used last week’s UBS Global Media and Communications conference to state his case on retrans.

“This industry needs to be sensitive to consumers and not just say we need money to protect our other businesses, so let’s raise prices 10 or 20 times the rate of inflation,” he said.

Broadcast networks asking for retransmission consent money is nothing new — CBS, ABC and NBC all have reportedly began asking their affiliate stations for a cut of that cash for months. And it had been speculated that Fox has been pressuring its affiliates to allow it to conduct retrans negotiations collectively.

At the UBS conference last week, top executives at all four broadcasters agreed that they would seek retrans compensation not only for their owned and operated stations, but for their network as well.

News Corp. chief operating officer Chase Carey, said last Monday — before the Time Warner FCC comment came to light — that News will approach each retrans agreement on a case by case basis, but that the intention is to collectively bargain.

“We are looking to go at it together,” Carey said at the conference. “It’s not a one size fits all.”

The Walt Disney Co. CEO Robert Iger said last Wednesday at the conference that most of his deals don’t expire until 2010, but when they do come up for renewal, Disney will ask for compensation from affiliates and distributors. “We derive huge value from our stations and they [distributors] derive huge value from our stations,” Iger said. “Ours [stations] are market leaders, particularly in big markets [like] New York, L.A., Chicago and Philadelphia, for instance. We believe that ultimately we should get paid for the value we deliver.”

That value, or the perception of value, will likely be the deciding factor in the debate as it moves forward. And at least for the moment, Time Warner appears to see the most value in resistance.

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