Retrans Reality

Why Cable-Broadcast Carriage Battles Will Continue to Get Nastier
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The smoke has finally cleared from the monthlong retransmission consent battle between CBS and Time Warner Cable, a skirmish in which both sides hurled increasingly nasty barbs as they headed toward an ultimate deal.

Analysts hailed the deal as a victory for CBS. While it probably didn’t get the $2 per subscriber per month retrans fee it initially asked for, the increase is still significant enough to embolden other broadcasters, and CBS made major progress in retaining digital rights for its programming.

Time Warner Cable’s benefits may be harder to see with the naked eye. In a brief statement after the deal was reached on Sept. 2, TWC chairman and CEO Glenn Britt said the MSO didn’t get everything it wanted, but it left the negotiations in “a better place” than where it started.

Perhaps more telling was the back half of Britt’s statement: “We are also encouraged by the 50-plus consumer organizations and legislators that supported our call for Congress and the [Federal Communications Commission] to reassess the 1992 retransmission-consent rules.”

Time Warner Cable has long voiced its distaste for current retransmission-consent laws, and some have said its prime motivation during the blackout was to place the retrans issue more squarely in the spotlight. The National Association of Broadcasters even went so far as to suggest that TWC purposefully created a “manufactured crisis” to force a blackout that would draw the federal government into the negotiations.

But if that was the case, then the strategy failed. While the FCC expressed some early interest in helping to resolve the impasse, it did not step in.

And though TWC likely lost customers during the dispute — CBS had been running on-air, print and online ads encouraging customers to switch providers — early indications are that the impact wasn’t that severe. That could encourage other distributors to dig in their heels during future negotiations.

Even as both sides declare victory, consumers are acutely aware they lost in a high-stakes game between two very profitable media companies. And the fight isn’t over — at press time, TWC remained at odds with Journal Communications over its stations in Wisconsin, Nebraska and California. Indeed, until a rewrite of the 1992 Cable Act comes, viewers should prepare for four inconvenient truths.

Prices will rise, both for future retransmission consent and for pay TV service. CBS bargained for a monthly increase from its prior fee of 75 to 80 cents per Time Warner Cable subscriber to about $2 in total. According to analysts, the broadcaster received a rate that starts at about $1.50 and taps out at $1.90 per subscriber per month at the end of the multiyear deal. TWC hasn’t said whether that will result in a rate increase, but as other broadcasters are emboldened by CBS’s success, customers will likely pay more.

In a video blog post made while the CBS dispute was still going on, Time Warner Cable executive vice president and chief video and content officer Melinda Witmer noted that if she had agreed to every first proposal from a programmer like CBS, “your cable bill would be more than $200 per month.”

Expanded basic charges vary for Time Warner Cable customers, but the MSO’s second-quarter monthly average revenue per unit was $75.32.

While TWC is still a long way from that dubious $200 benchmark, other analysts said they fear escalating prices for programming may force consumers to look for lower-cost alternatives.

“These price increases are going to force [distributors] to push rates ever higher, which is going to push consumers off of multichannel for cheaper [over-the-top] alternatives, including over the air,” Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said. “At this point, it is an inevitability.”

Digital rights will dominate carriage negotiations. Digital rights have been an important part of carriage discussions for several years, but until the CBS/TWC dispute, most of the disagreements had centered on pricing. While pricing is still an issue, this fight showed the debate is going deeper into the minutiae of digital rights contracts. Concerns over specific windows for certain content and which shows can be accessed via different devices inside and outside the home are taking increasingly greater precedence.

Time Warner Cable picked its specific content battles carefully, according to people with knowledge of the CBS discussions. It insisted on retaining access to popular online content app Showtime Anytime, for example, but conceded TV Everywhere rights for some CBS programming outside the home — which it deemed less critical — and retaining in-home TV Everywhere access.

That could set the tone for future retrans negotiations with other broadcasters, as well as with cable networks. And that future may arrive fairly soon.

Blackouts will continue. The next big carriage negotiation is expected to involve satellite-TV provider Dish Network and The Walt Disney Co., parent to ABC and cable sports juggernaut ESPN. Their current deal is set to expire Sept. 30.

Dish chairman Charlie Ergen has said the two sides were in talks, adding he understands Disney’s goal is to get a higher price for its content. One way to get there would be through additional digital rights, he said, but he added that he wouldn’t shy away from a fight, either.

“Disney’s not going to go out of business without the Dish Network and vice versa,” Ergen said on an August conference call with analysts. “There could be a day when strategically, companies just can’t get together, where they go opposite directions and they both have strategies that work for them, and we’re prepared to go either way.”

The expiration of TWC’s carriage deal with Viacom as the end of this year could potentially involve more fi reworks. Viacom, the parent of MTV, Comedy Central and Nickelodeon, also carries less-watched channels like VH1 Classic and Palladia. Time Warner Cable has said in the past it would seek to weed out smaller, less-viewed channels in contract negotiations.

Time Warner Cable also faces potentially harsh negotiations in January when its carriage deal with regional sports channel YES Network, co-owned by Major League Baseball’s New York Yankees, expires. With that deal, Twenty- First Century Fox, which now owns 49% of YES, is likely to try to renegotiate the terms for its new national sports network, Fox Sports 1, which TWC currently carries.

The government won’t get involved (at least not now). If Time Warner Cable was hoping the high-profi le fi ght with CBS would inspire some calls for reforming retransmission consent, it missed the mark.

Despite its constant cries for reform — complemented by a torrent of press releases on the issue from the American Television Alliance, a lobbying group representing multichannel-video providers and cable networks — there were no clarion calls to the FCC from indignant Congress members, nor was there a drumbeat for FCC action from the Hill, perhaps in part because the blackout occurred during the August congressional recess.

Key analysts that follow the companies said they felt the same way. “TWC helped raise the profile of the issue with policymakers, and that was probably high on the list of reasons they took the blackout,” MoffettNathanson LLC principal and senior analyst Craig Moffett said. “But the response from D.C. was a bit underwhelming. Even the jawboning wasn’t very enthusiastic. If they hoped for a serious policy response, that wasn’t it.”

Acting FCC chairwoman Mignon Clyburn repeatedly expressed displeasure with both sides, suggesting there were plenty of black hats to go around and consumers were in the crosshairs.

“At the end of the day, media companies should accept shared responsibility for putting their audience’s interests above other interests,” Clyburn said after the deal was done.

The arrival of former National Cable & Telecommunications Association chairman Tom Wheeler atop the FCC is not expected to transform the agency into a retrans-reform activist. Once installed, the new chairman will likely tread carefully unless pushed to action by a blackout that does prompt a big Hill backlash. And Wheeler’s attention may be better focused on a broadcast-spectrum incentive auction proceeding that is the FCC’s top priority and could be heating up just as he takes over, possibly by mid- October.

In the short term, Congress is unlikely to weigh in beyond publicly upbraiding both cable operators and broadcasters and pushing the FCC to do more.

The reauthorization of The Satellite Television Extension and Localism Act (STELA), which provides the blanket copyright license allowing for importation of distant broadcast-TV signals, appears to be the earliest venue for Congress to take any real action on retrans reform, such as potentially waiving syndicated exclusivity and network non-duplication rules during impasses. The requirement that retransmission talks be “good-faith negotiations” is also up for renewal.

A STELA bill is not likely to happen until the end of 2014, though, when the law must be renewed or it expires. Congress also has more pressing immediate problems, like deciding whether to strike at Syria or to keep the government from going broke next month.

John Eggerton contributed to this report.

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