Dish, Media General Drawing Battle Lines

Retrans Dispute Would Involve 16 Markets
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Dish Network and broadcaster Media General appear to be the latest combatants in the retransmission-consent wars, gearing up for a battle that would involve about 18 television stations in 16 markets in the South and Southeast and set the stage for a more spirited confrontation with The Walt Disney Co.’s ESPN juggernaut.

The satellite-TV provider’s retransmission-consent agreement with Media General was initially scheduled to expire on June 30, but the broadcaster agreed to extend its existing deal with the company for 90 days. As the Sept. 30 deadline nears, though, Dish said the broadcaster has rejected a second request for an extension.

MERGER CONCERNS

The extension would give time for Media General’s pending merger with Young Broadcasting to close; Dish and Young already have a current retrans deal in place.

Media General owns eight NBC affiliates, eight CBS affiliates, one ABC affiliate and one The CW affiliate in midsized markets like Raleigh-Durham, N.C., Columbia, Ga., Columbus, Ohio, and Providence, R.I.. Back in June, the broadcast giant agreed to merge with privately held Young Broadcasting, which has about 12 affiliated stations.

That deal is expected to close late in the third quarter or early in the fourth quarter. The combined company would retain the Media General name, but be 68.3% owned by Young shareholders.

It would seem that extending the retrans deal past the merger closure would give Dish at least a temporary reprieve on any rate increases for the stations — at least until the Young deal expires, sometime after the end of the year. But Dish insists its prime motivation is to avoid a potential disruption of service for its customers.

Dish director of programming Sruta Vootukuru said in an interview last week that while she could not disclose terms of the Young deal, the price Dish is paying Young currently is in line with market rates. Dish had said that the rate Media General is proposing is about five times higher than its earlier rate.

“The rate we are proposing to pay [Young] is in trend with where the markets are at that size,” Vootukuru said.

Young currently operates stations in about 10 markets including San Francisco (KRON); Nashville, Tenn. (WKRN); Albany, N.Y., (WTEN); Knoxville, Tenn. (WATE); Richmond, Va. (WRIC); Green Bay, Wis. (WBAY); Davenport, Iowa (KWQC); Lansing, Mich. (WLNS); Sioux Falls, S.D. (KELO); and Lafayette, La. (KLFY).

Media General counters that it is only trying to obtain fair value for its content. “Our television stations are an important part of the communities we serve. It is unfortunate that Dish does not recognize their fair market value, Media General spokeswoman Lou Anne Nabhan said in a statement, adding that the broadcaster has reached successful retrans deals with most of the other cable and satellite operators. “We have and will continue to negotiate with Dish to reach a fair, market-based deal before our contract expires.”

At the same time, Dish said the Media General dispute is another example of the need for regulatory reform, and used the dispute to reiterate its stance that distributors should be allowed to import distant broadcast signals during retrans-related blackouts.

“Media General’s threats against customers in its markets confirm the need for retransmission-consent reform,” Dish executive vice president and chief commercial officer Dave Shull said in a statement. “Broadcasters like Media General put profits ahead of the public they are supposed to serve. It is ironic that Media General is threatening its customers as Dish recently sat before Congress to discuss meaningful retransmission-consent reform.”

DISNEY DEAL LOOMS

The Media General negotiation isn’t the only one on Dish’s plate — its carriage deal with Disney, which includes a handful of ABC broadcast stations and cable networks ESPN, Disney Channel, ABC Family and others, also expires on Sept. 30.

While those talks continue — Dish said in a statement that it has been talking with Disney on a regular basis and its No. 1 priority is to reach a deal that makes sense for its customers — Dish chairman Charlie Ergen has said in the past that ESPN is one of the main culprits in the current climate of out-of-control programming costs.

ESPN is the priciest cable network, charging an average of $5.54 per subscriber per month, according to SNL Kagan estimates. Most analysts expect ESPN to continue to collect robust carriage fees.

Morgan Stanley media analyst Ben Swinburne has estimated ESPN affiliate-fee revenue could rise 9% to 10% per year in the current renewal cycle, and anticipates that most agreements would involve percentage increases in the mid-teens in the first year, followed by escalators in the mid to high single digits. At that rate, a three-year ESPN deal could end up costing a distributor more than $7 per month per subscriber by the end of the agreement.

Those high fees have made ESPN the poster child for regulatory reform — operators claim it is watched by only about one-third of cable subscribers, while ESPN counters that its viewers are coveted most by advertisers. On a conference call with analysts in August, Ergen added to the debate, hinting that perhaps the only way to curb rising costs is for a major operator to refuse to carry the channel.

TOUGH TALK

Whether Dish Network, which has struggled with subscriber losses in the past two quarters, would be willing to be that operator isn’t clear. Ergen has said that if he could not reach a reasonable deal with ESPN he would “part ways” with the network, but last week Dish said it was optimistic it could reach a Disney deal.

“Disney has been a good partner with Dish for a long time,” Dish said in the statement. “We have been talking on a regular basis with Dish’s No. 1 priority to reach a deal with Disney that makes sense for our customers. Dish works around the clock and has reached many agreements with big broadcasters and we are optimistic that we will get a deal done to continue to carry Disney’s programming.” 

TAKEAWAY

Dish Network and broadcaster Media General are spoiling for a retransmission-consent battle — one that could set the stage for a bigger skirmish between the satellite-TV provider and ESPN.

Dish Network and broadcaster Media General appear to be the latest combatants in the retransmission-consent wars, gearing up for a battle that would involve about 18 television stations in 16 markets in the South and Southeast and set the stage for a more spirited confrontation with The Walt Disney Co.’s ESPN juggernaut.

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