Broadcasters are opening up a Pandora's box when they seek cash payment from cable operators in exchange for retransmission consent, according to several Wall Street analysts.
TV stations that want to be paid license fees like cable networks — that insist on cash for carriage — may have to give up valuable ad avails on their stations as part of those deals, Bear, Stearns & Co. analysts Ray Katz and Victor Miller said in a recent report on retransmission-consent issues.
That's the risk broadcasters face if they "attempt to change the very nature of their 'free' over-the-air status," according to the report, which they titled On the Radar Screen: The Coming Retransmission Wars?
"You lose your luster when you're no longer free," Katz said during a phone interview on his report. "A cable operator can say, 'You want to be like a cable network? Fine, give me some of your ad inventory. I'd love some of those avails during your local news.'"
In his report, Katz wrote, "We believe that once the Pandora's box of cash payments is opened, everything could be subject to negotiation, including channel placement, launch fees, as well as advertising inventory."
That won't sit well with TV stations who want to be compensated like cable networks, but "do not want to make advertising inventory available to potential cable distributors, as do the cable networks," according to the report.
Katz said that TV stations — in this round of retransmission-consent talks for deals that expired Dec. 31 — have been much more aggressive seeking cash for carriage.
This time out, as in the past, MSOs have resisted compensating TV stations with cash payments.
Katz doesn't think network-owned or affiliate TV stations will have much luck actually getting straight cash compensation on a grand scale until the next round of retransmission-consent talks, in 2006.
Media conglomerates, such as News Corp. and The Walt Disney Co., in the past have leveraged retransmission-consent for their owned-and-operated TV stations to launch cable networks such as FX and ESPN2, among others.
But "it's hard to imagine that there is a bottomless pit of new networks," said Katz, so that "avenue for payment" — the launch of analog services — has been played out.
"We may be approaching a stasis point at which the O&O parents find getting paid for their local TV stations as appealing as the prospects of adding another cable network," the Bear Stearns report said. "This, coupled with most cable networks approaching full distribution, may make the O&O potentially more attractive as a repository of value rather than as just an asset that is used for leverage."
Stronger local TV stations can "piggyback" on this trend and perhaps also finally succeed in getting cash-for-carriage, according to Katz. Non-network broadcasters such as LIN TV Corp., Emmis Communications Corp., Cox Broadcasting and Sinclair Broadcast Group Inc. were vocal late in 2002 and this year about their desire for license fees in exchange for retransmission consent.
In fact, Emmis chairman Jeff Smulyan and News Corp. president Peter Chernin are co-chairmen of an ad hoc committee studying how stations can get greater consideration from cable operators for carriage, according to the Bear Stearns report.
The report also suggests that going forward, Comcast Corp. — following its merger with AT&T Broadband — will be a force to be reckoned with in terms of broadcasters and retransmission consent, altering "whatever broadcast/cable equilibrium existed before."
That has American Cable Association president Matt Polka a little concerned. He doesn't see Comcast's interests and agenda regarding retransmission consent as necessarily the same as that of the small cable operators for which he lobbies.
Polka said he hopes the issue will be moot by 2006. He expressed optimism that federal legislators will have changed retransmission-consent laws by then.
In Comcast's top 10 markets, the MSO is in contact with nine CBS-owned stations, six UPN stations owned by CBS parent Viacom Inc., seven NBC-owned stations, five ABC-owned stations and nine Fox-owned stations.