Retrans Fees Kill Small Ops10/10/2008 8:00 PM Eastern
For more than a decade, broadcasters and programmers have steadily and systematically increased retransmission-consent fees for small cable operators for one reason — because they could.
Despite our best efforts and those of our more than 1,100 members, serving subscribers in all 50 states, widespread and flagrant price discrimination against smaller cable operators has gone virtually unnoticed in Washington — until now.
An ongoing retransmission-consent dispute between Time Warner, which serves more than 14 million subscribers nationally, and LIN TV, that owns 29 stations throughout the country, has drawn national attention to the worst-kept secret in the television industry — the retransmission-consent regime is broken. On behalf of my members and their nearly 7 million subscribers, ACA has repeatedly urged the FCC to take steps to address this problem. Predictably, content providers have countered with accusations and a steadfast defense of their market abuse and abusive tactics. Finally, that defense has been revealed as a thinly veiled excuse to exploit market power and increase revenue at the expense of millions of cable subscribers.
While retransmission revenue has increased an average of more than 70% since 2005, broadcasters and programmers have repeatedly told the FCC that price increases were a function of the free market and that prices are set by demand. The reality could not be more to the contrary.
A market devoid of competition, absent choice, and controlled by a monopolistic group of broadcasters is not a free market. The reality is that retransmission-fee increases are not driven by market forces; they happen in the absence of them, as evidenced by the shocking fact that smaller cable operators often pay 200% to 400% more per subscriber than the larger operators for identical content.
It has become common practice for the quarterly reports of broadcast-ownership groups to boast of higher retransmission-consent fees and a greater efficiency at bilking cable subscribers. Take LIN TV, which has pulled 15 channels from 2.7 million subscribers in 11 markets for nearly two weeks to force Time Warner to pay higher retrans fees. In 2007 alone, LIN TV reported — quite publicly — an increase of digital revenues, mainly from retransmission fees, of 108%. Despite these staggering increases in revenue, when the time came to sign a new agreement with Time Warner Cable, LIN TV couldn't help but ask for more. And why shouldn't they: Who was going to stop them?
In the next several months, the television and cable industry will find themselves in what some industry analyst are calling the “perfect storm.” Content providers' increased revenue has come at a price over the past 10 years. Cable costs have predictably risen to offset the added expense and keep cable operators in business, but their subscribers and the FCC have taken notice and want something done about it. That “something” may come sooner than later.
It is both truly ironic and potentially a blessing that this fall and winter will mark the end of thousands of retransmission-consent contracts between operators of every size and content providers. The negotiations that will ensue in the coming months promise to be contentious and, if history is an indicator, we can count on broadcasters pulling channels to gain the upper hand while demanding more money.
Which brings us to the final ingredient in this perfect storm: the Feb. 17, 2009, digital-TV transition. Thanks in part to the largely successful consumer education program, mass blackouts coinciding with the well-known transition date could cause a run on DTV coupons and converters by people who otherwise would not need them, i.e. cable subscribers. Since July, ACA has urged the commission to adopt a negotiations quiet period to prevent the very type of confusion that we are now seeing from Time Warner subscribers, many of whom have requested NTIA converter coupons.
The broken retransmission-consent regime is a government-created problem and demands a government solution. Regulation is not always the answer, but in the face of monopolies, market abuse and price discrimination, it is necessary. As my friends at Time Warner and 2.7 million of their subscribers now know all too well, the price of inaction is too high to pay.