Networks Feel Pressure Points

Independent Programmers Face More Challenges Than Ever
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Cable networks that aren’t part of highly leveraged media conglomerates have never had an easy go of it, and the pressures they face trying to get carriage are ramping up.

First, the whole distribution landscape is seeing a surge of consolidation, with cable giant Comcast’s $45 billion proposed merger with Time Warner Cable and telco AT&T looking to acquire satellite behemoth DirecTV for $48.5 billion.

It’s a prospect that has some independent programmers worried.

“Access to 54 million homes is going to be controlled by just a couple of program executives in major cities. That’s what concerns us,” said Patrick Gottsch, founder and chairman of Rural Media Group, which owns RFD-TV and FamilyNet (called Rural TV on Dish Network), independents that both target rural audiences.

In reaction to what’s happening on the distribution side, programming fiefdoms are looking to get even bigger. Witness 21st Century Fox chairman Rupert Murdoch taking a run at Time Warner Inc. Larger TV-content kingdoms mean more clout, creating an even more uneven playing field for virtually leverage- less independents.

And in a sea change in the TV industry, distributors large and small now have to pay retransmission-consent fees to broadcasters to carry their TV stations. Those payments are eating into the margins of cable companies and satellite providers alike.

“That puts immense pressure on the business and the model,” Jennifer Dangar, The Weather Co.’s president of distribution and business development, said. “That creates a lot of pressure for independents as well. That certainly is part of the environment that we’re up against.”

The battle for bandwidth is so fierce that independent networks are increasingly willing to pay for carriage. Startups Newsmax TV and Back9Network secured launches on DirecTV by forking over a big fee for channel slots, according to several sources. Officials at DirecTV and Back9Network declined to comment, citing confidentiality clauses in their contracts. Newsmax TV couldn’t be reached for comment.

The steady growth that the traditional cable and satellite industries once enjoyed has slowed, creating a situation where even independent networks that have carriage can’t assume they will be allowed to keep their channel slots.

“The days of networks coasting along and riding the wave of the industry’s growth are pretty much over,” Brad Samuels, executive vice president of content distribution for the arts network Ovation, said. “There’s kind of a scrutiny on every part of the lineup and the value of the content and what it costs, and you really have to deliver much more than ever.”

Ovation experienced that scenario first-hand when it was exiled from Time Warner Cable’s channel roster for nearly a year. The network was restored in January after committing to beef up its original fare.

It was also a sign of the tough times when The Weather Channel and RFD-TV, which caters to rural and older audiences, suffered major drops of their networks for pretty much the first time in their decadeslong histories. The Weather Channel went dark on DirecTV for three months, and RFD-TV remains pulled off Comcast systems in Colorado and New Mexico.

RFD-TV was dropped nearly a year ago, which erased almost half of its distribution on the nation’s largest MSO, Gottsch said. The network performed well in ratings in markets such as Denver, he said, and charges inexpensive license fees. But Comcast officials in the two Western states said that they needed to reclaim bandwidth, and kept RFD-TV off even though the network had more than 4,000 letters asking that it be put back on.

In light of what happened following Comcast’s purchase of NBCU, Gottsch said he is wary about what the impact of the Comcast-TWC merger will have on networks such as RFD-TV. “There are some loopholes in that last merger that need to be addressed in this one,” he said.

He even testified about his concerns May 8 before the U.S. House Judiciary Committee, talking about Comcast taking down RFD-TV on some systems.

U.S. lawmakers and regulators should look to Canada for guidance on how to create a more level playing field for independent networks, said Leonard Asper, president of Anthem Media Group, which owns Fight Network and FNTSY Sports Network, both recently launched on Cablevision Systems-owned Optimum TV.

For vertically integrated companies that are both distributors and programmers, Canada has set minimum requirements, a ratio, for the number of independent networks that must be carried versus owned or related services. It’s to protect independent networks from vertical companies favoring their affiliated services.

There is also a dispute procedure for independent networks who allege that a distributor has given “undue preference” to a channel it owns or has a stake in, Asper said.

He acknowledged that independent networks face difficult challenges.

“This is not for the faint of heart,” Asper said. “It’s not like the old days where revenues were going up 7% at every company so they didn’t mind adding costs. You better hit it right in the bull’s-eye in terms of what they want.”

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