Battling Time Warner for retrans fees in Spokane, Wash., the small-market broadcaster believes he will eventually triumph and other broadcasters could too if they could learn to support each other.
Most small broadcasters believe that can’t win a head-to-head retrans battle with a deep-pocketed cable operator.
But not Brian Brady.
The pugnacious owner of four Fox affiliates and two CBS affiliates in small markets has taken on the cable Goliath of Time Warner in Spokane, Wash. (DMA 77).
The issue is simple. Brady wants Time Warner to pay him a monthly, per-sub fee for the right to carry his Fox affiliate KAYU to 25,000 subscribers. Time Warner is saying no way.
After granting a series of extensions last summer and fall, Brady finally ordered Time Warner to drop KAYU from its lineup on Dec. 14.
And that’s where things stand two months later. Neither side appears ready to budge.
As chairman of the Fox affiliate board last year, Brady emerged as an industry leader, negotiating deals that make Fox affiliates full partners in the distribution of Fox’s primetime programming over the Web.
In this edited interview with TVNewsCheck Editor Harry A. Jessell, Brady joins the vanguard of broadcasters’ growing retrans fight with cable. “This is the most important battle we’re going to fight over the next couple of years,’ he says. “We need to stick together.”
So what’s going to happen next?
They’re going to continue to lose subscribers. From the best we can determine, they’ve lost as many as 3,500 subscribers. Now, if you ask them, they’re going to tell you that is not true, but we’re talking to installers and we see the numbers from Direct TV and EchoStar and what their ads are. We’re pretty confident in that number.
What has the battle cost you? Can you quantify that yet—the loss of that carriage?
I would tell you that we have hit our budget for January and I expect that we’re going to hit our budgets for the first quarter and beyond.
Where is your leverage coming from in this standoff?
Well, let’s see. We had the BCS games, we had NFL Football, we’ve got American Idol, we’ve got 24, we’ve got Prison Break. We’ve got quality programming. We spend millions of dollars on programming. We’ve spent millions of dollars upgrading the station to HD and providing programming in HD to the market.
Do you think this thing is going to be settled soon? Or is it going to go on for awhile?
Well, I mean, there are 3,500 cable subscribers there. We answer each and every e-mail. We return each and every phone call that comes into the station. Most of the time people who call are very heated, very upset. But by the time we’re done explaining our position, they get it and they go back to the cable company and demand answers from them.
We’ve had a number of people tell us they’d be happy to pay a dollar for our television station because they don’t want to miss American Idol or 24 or football or anything else and Time Warner just doesn’t seem to care.
So, you think you’re winning the public relations battle?
You know, I would tell you that we take our viewers very seriously and that one-on-one we feel good about the way we’re handling it. Are we winning the public relations battle? I don’t know if I would characterize it quite that way, but we certainly are doing our level best to explain our position to people.
What is that basic position?
As a viewer, you can get the station over the air and we’re very proud to be over-the-air broadcasters, but the cable company seems to think that because the viewers can get it for free over the air, they should be allowed to take our signal, repackage it and sell it to you. We say, no you can’t.
It’s not unlike getting stuff off a radio for free. If you record music off the radio and then build a compilation CD and then sell it on eBay, you’re going to get shut down. You can’t do that. There are copyright issues. It’s the same way with the cable guys. You can’t take our signal and then sell it to the advertiser or sell it to the subscribers, which is exactly what they’ve done over the last four retrans cycles.
They’ve made billions and billions of dollars doing it and now we’re saying, you can’t do that anymore. You’re going to have to pay us for our signal. There’s a law that’s been in place for 15 years. We didn’t choose must carry so we bear the risk that we’re not going to be able to put together a deal with the cable company. We’re comfortable with that risk.
And what do you want as part of a deal?
I’m not sure I want to get into how much money we’re asking for, but I will tell you that we think we’re asking for a very reasonable sum of money. What is a television station worth to a cable company? A cable company will tell you that a television station really isn’t worth anything because you can get it free over the air.
I find that quite interesting. They get $50 a month or $600 a year for their service. So, if a Fox station goes off the cable system and they lose a thousand subscribers, it costs them $600,000 in revenue per year. What does that make my television station worth to them? Is it worth 50 cents [per sub per month]? Is it worth a dollar?
Now, we’re not even talking about equity value or about reacquisition costs. I would also ask you, do you really think that if the History Channel came off the cable system that they would lose the number of subscribers that they’ve lost in the amount of time that we’ve been off?
What about your other markets? What’s going to happen there?
We have contracts in all the other markets through ’09. When those contracts are up, we will be in the same position as we are in Spokane. We’ll be asking for retrans money.
The other network affiliates in Spokane are owned by Cowles, Morgan Murphy and Belo. Are they supporting you? Or are they taking advantage of the situation?
Oh, I think they’ve been very supportive. I mean the Cowles family has the NBC station and they have sold us advertising, which we’ve used to let the viewers know that if you’re not receiving your Fox station that you can go and get it either on EchoStar or DirectTV.
At NATPE, you gave a speech in which you urged your fellow Fox affiliates to take a harder line on retrans. Why?
The cable industry is very united on this issue. They do a very good job of getting together and saying look, we are not going to pay broadcasters any money, and they’ve managed to do it for years. They prey on the fact that broadcasters have a tendency to eat their young and don’t stand together very well. My point to my fellow broadcasters is simple: This is the most important battle we’re going to fight over the next couple of years and we need to stick together.
I’m not talking about colluding against the cable company, but I’m talking about being supportive of each other. I have made it very clear that in my markets, if somebody goes off a cable system, we will not use that against them in selling advertising and if they want to buy advertising on our station to let their viewers know that they can be gotten on either EchoStar or Direct TV, we will happily sell them time.
Speaking of selling advertising, what’s wrong with these retrans deals in which the cable operators promise to buy a certain amount of advertising on your station? Isn’t that a good idea?
Not in my book. Certainly that is what has been sort of standard practice over the last number of retrans cycles, but the day has come where they need to pay cash. I mean if they’re going to buy a dollar’s worth of advertising from me, I’m giving them a dollar’s worth of value.
What they’re asking for is my signal as a value-add to their advertising schedule and that just doesn’t make any sense to me. Why would I give them my signal for nothing? Either they’re valuing my advertising at nothing or they’re valuing my signal at nothing. On top of that, they’re taking up inventory that I can sell to somebody else.
What kind of reaction did you get from your Fox brethren?
I would say that it was overwhelmingly positive.
Do you see much leadership from the Fox network on this?
I think Fox is very much behind the retrans issue.
They haven’t made that evident. I mean CBS has been out there, but Fox has quiet because it’s got all the cable networks. They use retrans for leverage in negotiating for carriage of their cable networks.
Everybody has to determine what value they’re going to get for their retrans. Frankly, people are going to do different things to get that value out of the cable companies.
Let’s fact it, the networks have been doing it for years and it’s really one of the reasons why the broadcasters haven’t got money prior to this. The networks were able to cut deals to launch cable networks and they’ve built great equity out of that.
I know you have been watching events on retrans in Washington. Cable operators are agitating for legislation that would gut broadcasters’ retrans rights. Any comment?
You know what? The law has been around for 15 years and the law has worked wonderfully. There’s been four retrans cycles where the cable guys really haven’t had to pay anything. Satellite came along with local in local. They negotiated retrans agreements with broadcasters from coast to coast and not a peep. They didn’t go to Congress and say you need to change the law. They didn’t go to Congress and say this isn’t fair. They went out and they negotiated retrans with stations across the country.
Now stations are saying that they want to be paid by cable and what does cable do? The first thing they do is run to Congress and say this is unfair. They say the broadcasters want to be paid and that they’re going to have to raise the rates to advertisers and subscribers.
What they’re really saying isn’t that they have to raise the rates. What they’re really saying is, hey, we’ve been getting this for free for years, we’ve been making a killing on it and this is going to eat into our profits. That’s what they’re really saying and Congress needs to understand that cable is out there trying to hoodwink them.