MSOs See Rough Road To Retransmission Deals

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The prospects for peace between distributors and broadcasters on the retransmission-consent front, at a critical point in the process, don't look good. Battle lines are being drawn and one conflict is already raging.

At press time last week, Sinclair Broadcast Group Inc. was threatening to pull its stations off EchoStar Communications Corp.'s Dish Network, effective Aug. 1. Both parties have been trying to nail down a retransmission-consent renewal for months now.

Meanwhile, Nexstar Broadcasting Group Inc. and two of the nation's 10 biggest cable MSOs remain locked in a rancorous dispute now in its seventh month.

Throughout much of the TV industry, three-year agreements are set to expire Dec. 31.

Under federal law and regulations, TV stations by Oct. 1 must send out so-called election letters, indicating whether they are choosing retransmission consent or must-carry. That decision will set the stage for negotiations in a media environment that is far different than during retransmission consent's last go-around.

It's no secret that a number of independent broadcast groups — facing a difficult advertising environment, seeing their earnings squeezed and eager for a new revenue stream — have essentially announced intentions to seek cash for carriage of their signals.

This time, broadcasters are armed with both analog and HDTV signals to sell.

Already, Nexstar's bitter squabbles with both Cable One Inc. and Cox Communications Inc. have kept the broadcaster's TV stations off some of both MSOs' systems.

“We're over six months into it,” said Tom Basinger, vice president of Cable One's central division. “On June 30, we had pizza parties in our systems to observe the six-month anniversary.”

Some retransmission-consent negotiations have been concluded amicably: Three such deals were announced last week. But things are expected to heat up later this year, with many conflicts in sight.

“It's just going to be a donnybrook over, 'Are we going to pay or not?'” said Matt Polka, CEO of the American Cable Association, a lobbying group for small independent cable operators, who are particularly vulnerable because of their lack of market leverage.

“We've just come to expect the worst, unfortunately, and that's why there's so much anxiety about it,” Polka said.

VALUABLE ASSETS

Broadcasters argue that their highly rated programming is valuable, and that satellite companies are already reimbursing them for it.

“We don't think it is too outrageous to suggest that broadcasters should be modestly compensated by cable operators for the high-quality, high-value programming that we provide to cable operators, particularly when you consider that EchoStar and DirecTV are paying and compensating broadcasters for our programming,” said Dennis Wharton, a spokesman for the National Association of Broadcasters.

“The reality is that about half the time, cable subscribers are watching local-broadcast programming,” he said. “It doesn't seem beyond the pale to suggest that broadcasters ought to be compensated for the Super Bowl, CSI, Desperate Housewives and other programming of high value.”

In addition to the indie station groups, Viacom Inc. co-chief operating officer Les Moonves has publicly proclaimed his company's intention to demand greenbacks for CBS-owned stations.

And while CBS would prefer cash, it is “open to other expressions of value,” said executive vice president Martin Franks.

“Cash happens to be an easy and simple way, but there are other ways, and we are always open to exploring them,” Franks said. “But what I always warn the other side is to make sure it's real value, not window dressing.”

DISNEY WANTS LAUNCHES

ABC's parent, The Walt Disney Co., will be asking operators to launch new services, such as ABC News Now, and for additional rollouts of its other cable services. In lieu of such launches, Disney will seek cash for its ABC stations — an 85-cent license fee.

Most of NBC's retransmission-consent agreements are not up this year, according to an NBC Universal Cable spokeswoman. NBC inked long-term carriage deals for channels such as CNBC and MSNBC that included not only Olympic programming, but retransmission consent for its stations.

News Corp. and the Fox Cable Networks Group declined to comment on their retransmission-consent strategy this year. But their deals with cable operators reportedly are staggered, and not all of them will expire at year's end. Fox has sewn up a number of retrans deals already, sources said.

In terms of cable operators, the nation's largest MSO, Comcast Corp., has reportedly already signed a number of retransmission-consent renewals. Comcast locked up some analog retransmission-consent deals when it was negotiating with broadcasters for digital retransmission consent for HDTV signals over the past year or so.

Last week, Cox said it completed deals with both Clear Channel Communications Inc. and Raycom Media Inc. for the two broadcasters' analog and digital signals.

Similarly, Viacom and DirecTV Inc. reached a comprehensive distribution agreement that included continued carriage for a number of MTV Networks channels; retransmission consent for Viacom's CBS and UPN stations; and rights to launch CBS HDTV programming on a local-to-local basis.

Earlier this month, Cablevision Systems Corp. secured a retransmission-consent agreement with Tribune Broadcasting to carry its HDTV signals in several markets, including New York City.

SUB-FEE INCREASES

Despite those successful negotiations, conflicts are looming. Cable operators fear that if they hand out cash to one TV station they will wind up having to pay all.

Plying broadcasters with cash for carriage across the board would push up cable rates by $2 to $5 per month, the ACA estimates.

Some cable officials claim broadcasters are just posturing when they claim they'll insist on cash compensation for their stations later this year.

But TV-station owners already have their hands out.

Nexstar's initial demand for a license fee of 30 cents from Cox and Cable One for TV stations in Texas, Louisiana and Missouri led to the stalemate that resulted in those broadcast outlets being pulled off cable systems in January.

The operators lost subscribers. But that situation is improving, Cable One claims.

“Our subscriber numbers stabilized,” Basinger said. “We are anticipating that in July we will actually see subscriber growth in Joplin [Mo.,] which in the middle of the summer, to be actually growing is a good thing, whether there was a retransmission dispute or not.”

In the markets affected by the dispute, Cable One recently got some calls when the popular NASCAR auto racing schedule shifted to NBC, according to Basinger. “But beyond that we just has sort of concluded that people aren't watching NBC very much in these markets.”

PAYMENT FOR HDTV

The Nexstar brouhaha aside, during the past year there have been several well-publicized disputes where TV stations have sought payment for their digital HDTV signals from operators.

Historically, cable companies have been loath to pay cash to broadcasters for over-the-air signals.

“To pay for that is basically ignoring 30 years of history,” said Cebridge Communications spokesman Pete Abel.

But in this round of negotiations, the broadcasters have some new leverage. Not only are the two direct-broadcast satellite providers offering an alternative to cable, telcos such as Verizon Communications Inc. and SBC Communications Inc. are getting into the video business.

The telcos are either already paying cash in exchange for retransmission consent, or are expected to do so.

“It's a game of cat-and-mouse, there's no question about it, and they dangle a very important thing to us, particularly in light of competition with DBS,” Polka said. “If we know that satellite has locked up a retrans deal for cash, that puts a lot of pressure on us.”

A number of MSOs, such as Time Warner Cable, have said they aren't wavering and will continue to refuse to pay license fees for TV stations.

“It's fundamentally wrong to charge cable customers for something that's free over the air,” Abel said. “It's like placing a special tax on cable customers just because they've chosen to be cable customers.”

In the midst of its Nexstar dispute, Cox is being circumspect. Asked about the policy on cash for carriage, a Cox spokesman said, “We negotiate, privately, on a case-by-case basis.”

DBS IS DIFFERENT

Abel and other cable officials give little weight to broadcaster arguments that if DBS companies are willing to pay for their signals, so should cable operators.

“The stations say, 'Satellite pays for it,' but satellite charges extra for broadcast channels,” Abel said. “If they say there's value in the content, we already pay copyright fees for the programming. That's essentially the right to retransmit that copyrighted programming. That makes sense. But paying for the signal doesn't.”

In prior years, MSOs have, in fact, anted up compensation to broadcasters in exchange for retransmission consent. But it hasn't been cash. In some cases, cable systems bought ad time on the stations.

“We will decline to pay cash for carriage,” Abel said. “That does not mean all forms or ways of compensation. We will negotiate in good faith. But that's not good-faith negotiation to charge for something that's free over the air.”

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