Retrans on Ops' Minds

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With a new deal for ESPN struck, and even Rupert Murdoch putting a brake on spending for sports rights, retransmission consent is looming as the next big flashpoint between cable operators and programmers.

During last week's annual meetings of two small-MSO groups — the National Cable Television Cooperative and the American Cable Association — operators were told to brace for the next round of retransmission-consent negotiations, which kick off in 14 months.

And small operators aren't the only ones already concerned about the issue. In a recent interview Jim Robbins — CEO of Cox Communications Inc., which led the charge against ESPN last year — said he anticipates “some ugly retransmission stuff” on the horizon.

The ACA, a lobbying group for small operators, warned its members that broadcasters will press for “cash for carriage” during upcoming retransmission-consent talks, with The Walt Disney Co. already claiming its ABC stations would essentially be a bargain at a 75-cent monthly license fee.

Small operators are already looking for ways to sidestep local broadcasters who seek cash compensation by carrying out-of-market TV stations that aren't seeking money — a tactic that Disney blasted last week.

This year's NCTC annual meeting, the group's 20th, attracted a record-breaking 1,000 attendees. Last year, the hot topic at the confab was Disney's ESPN, with its 20% annual rate hikes.

Earlier this year, that battle ended when the NCTC and several MSOs struck new ESPN deals with smaller rate increases.

Last week, retransmission-consent issues came to the fore at gatherings for both the NCTC, a buying cooperative for small systems representing 15 million subscribers, and the ACA.

ACA counsel Chris Cinnamon on Aug. 2 told small cable operators to be poised for the battle ahead.

“We have a lot of signals that the next round could be a lot about cash,” he said. “We're seeing an increasing amount of positioning for cash for carriage.”

PYNE TESTIMONY

Cinnamon cited testimony by Ben Pyne, executive vice president of ESPN and Disney Networks affiliate sales and marketing, who spoke before a House Telecommunications Subcommittee hearing on programming last month and was also a panelist at the NCTC's programmers' forum last Tuesday.

Pyne had testified that Disney always provides cable operators a cash alternative, in the range of license fees of 70 to 80 cents a month for ABC stations, Cinnamon said.

Disney had a study done showing that the market value of ABC's broadcast signal was more in the range of $2 per month per subscriber, Pyne testified, adding “but we'll let them [operators] have it for 75 cents a month if they don't want to carry our affiliated programming,” according to the account Cinnamon gave at the ACA meeting.

If all of the Big Four broadcasters were to seek cash license fees of 75 cents for their TV stations on 10 million subscribers, that would amount to $30 million a month, or $1.1 billion, during the span of a three-year retransmission-consent pact, for example.

“That's $1.1 billion that the networks are looking to extract from the small-cable sector,” Cinnamon said. “That scares me.”

The ACA “is working on some answers both at the [Federal Communications Commission] and Capitol Hill,” according to Cinnamon.

During the ACA session Terry Reynolds, president of 700-subscriber Reynolds Cable Inc. just north of Macon, Ga., described how WMAZ, a CBS affiliate, came to him and several other small systems asking for a $1-per-month license fee.

Reynolds said he wrote his subscribers a letter and asked if they wanted to pay that $1, even though over-the-air TV viewers and Cox's nearby 70,000-subscriber system charged for the station.

“Most of my customers wrote back and said, 'Hey, we're with you. Tell WMAZ to stick it, we don't need their signal,' ” Reynolds said.

So Reynolds Cable and two other tiny operators in that market pulled the plug on WMAZ on Jan. 1, 2003, and started carrying the out-of-market CBS station from Atlanta. Reynolds added that WMAZ did back down on its $1 fee demand, but that he didn't put it back on his lineup until July of that year.

COMPARISON SHOPPING

“It pays to shop,” Cinnamon said, referring to operators going to out-of-market when and where they can, in markets that have exceptions to network non-duplication rules.

Broadcasters, though, aren't happy about this kind of comparison “shopping.” During the NCTC's programmers' forum, Pyne was asked if Disney would block its affiliates from providing distant signals to cable operators who don't want to pay the ABC owned-and-operated station in their own market for retransmission consent.

After the session, a Disney ESPN spokeswoman issued a statement on the company's position.

“Carrying an out-of-market station instead of the local ABC station is a disservice to consumers who would be deprived of valuable local news and public-interest programming,” she said. “In all but a handful of circumstances, the network programming on the distant station would be blacked out pursuant to the non-duplication rights of the local affiliate.

“The ACA simply refuses to recognize the substantial investment the local ABC stations make in their programming and the value the operators receive in selling it to their subscribers,” the spokeswoman said.

ACA president Matt Polka later shot back, saying: “This is not about localism. This is about revenue for Disney.”

NBC STRUCK BACK

The Mouse House isn't the only broadcaster against the practice of cable systems bringing out-of-market signals into their DMAs.

Cinnamon cited a recent FCC case regarding a small operator who refused to pay cash to a Gannett Co. station in Georgia, and signed a retransmission-consent agreement with an out-of-market NBC affiliate instead.

That out-of-market station then claimed NBC tried to put the kibosh on that arrangement, saying it violated that affiliate's agreement with the Peacock Network by granting retransmission consent outside its DMA, according to Cinnamon.

Ultimately, in that case, the FCC said the operator could continue to carry that particular out-of-market signal, Cinnamon said.

Peter Smith, senior vice president of programming and product development for Millennium Digital Media in St. Louis, told the group that local broadcasters were trying to coordinate their efforts “to not allow us to carry out-of-market signals, they're bringing a lot of pressure on one another, they're also bringing pressure on networks … they're trying to close that door.”

Cinnamon added, “Rest assured, the broadcasters and network owners are going to be looking to work even harder to restrict out-of-market carriage.”

HD RETRANS TOO

Retransmission consent even came up during the NCTC's panel on HDTV. Bob Gessner, president of 46,000-subscriber Massillon Cable TV in Ohio, said that Gannett Co. hasn't given him retransmission consent to carry its station's HDTV signal in his market.

“My NBC affiliate absolutely refuses to give me retransmission consent for their HD signal,” Gessner said. “That's leftover from a really nasty analog retransmission-consent battle. But fortunately, our local PBS launched their HD signal, so we told the NBC guys we were fine without their signal.”

During the programmers' forum, Fox Cable Networks Group executive vice president of affiliate sales and marketing Lindsay Gardner said his company hasn't formulated its plan for retransmission consent in 2005.

He added that Fox will no longer shell out huge increases for sports rights.

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