Now that broadcasters are getting the upper hand in retrans negotiations, cable wants to gut broadcasters’ rights in Washington. Fortunately, broadcasters hold the high ground.
You can almost feel it.
Retrans has reached the tipping point.
All of a sudden, it seems, the leverage in retrans negotiations has shifted to broadcasters. A growing number are now able to extract fees from cable operators who want to carry their signals.
With hard-nosed broadcasters like Nexstar’s Perry Sook and Sinclair’s David Smith leading the way, TV station groups are tearing up old revenue projections and factoring in millions in new retrans dollars.
Two weeks ago, CBS CEO Les Moonves finally made good on his big retrans talk by cutting deals involving nine operators and more than one million subs. He later said the deals will yield $6 million a year—50 cents per sub per month.
Moonves senses the shift. “[Did] you noticed that these nine MSO deals were done without a whole lot of noise?” he asked security analysts last week. “The MSOs are realizing that it’s better to get along than to fight.”
LIN TV is excited because it thinks it has the upper hand and most of its retrans deals with cable are now ripe for renewal. Last week, it announced a deal with Cox involving nine stations in five markets. Nobody is talking terms, but everyone is assuming that cash was involved.
Even Gray Television, which has long had a go-along, get-along attitude on retrans, is starting to talk about getting its “fair share” from cable operators.
“We certainly see the momentum shifting,” Gray CFO Jim Ryan said at the Bear Stearns Media Conference yesterday.
The tipping point was a long time coming.
When Congress granted broadcasters retrans rights in 1992, the presumption was that they would immediately begin receiving monthly payments from operators for their signals.
For a lot of reasons, it never happened—until now.
And let me be clear: retrans is not easy. To squeeze money out of cable operators takes the right set of circumstances and a willingness to risk the short term for the long term. It’s not for everyone.
Of course, now that broadcasters are having some success, the cable operators want to change the rules. They want Congress or the FCC to shift the leverage back to cable operators by restricting broadcasters’ retrans rights.
For the most part so far, the effort to gut retrans has been led by the American Cable Association, which represents smaller, independent cable operators who were the first to feel broadcasters’ muscle.
But as TVNewsCheck’s Kim McAvoy reported last week, cable’s big lobby—the National Cable & Telecommunications Association—has now taken up the fight.
That sets up what should be a titanic contest between NCTA and the NAB this year over retrans that will be real test of their relatively new leaders, Kyle McSlarrow and David Rehr, respectively.
Nothing less than the financial health of TV broadcasting is at stake. Stations need retrans revenue to offset the loss of network comp and the inexorable decline in national spot.
Fortunately, the retrans case for broadcasters is clear and simple.
Cable operators pay monthly affiliate fees to cable networks that have a fraction of the audience. If ESPN is worth $2.50 per sub per month, surely the local CBS affiliate (NFL, The Masters, March Madness) is worth 50 cents.
Cable operators say that paying retrans fees will cause them to raise rates. Nonsense. They can find money for broadcasters simply by cutting fees that they inexplicably pay to cable networks that hardly anybody watches. Better yet, they can drop those networks and send broadcasters an even bigger check.
Broadcasters provide local public service. They have reporters on the street and anchors that show up at community events. They have satellite trucks, helicopters and weather radar that can track tornadoes. Spike TV has World’s Wildest Police Videos and Late Night Strip.
Satellite TV operators and telephone company offering the exact same service as cable are willingly paying retrans fees. No fuss. They enter a market, and the first thing they do is lock up the best programming in town—the programming they need to compete with cable. If the new entrants can pay, entrenched cable can pay.
Cable operators have always recognized the value of retrans rights, but have insisted on non-cash compensation—carriage of cable networks in which the broadcasters had an interest or committing to advertising buys on stations.
But now that broadcasters are demanding cash, the operators pretend that the rights have little or no value.
Part of cable’s anti-retrans rhetoric is that operators shouldn’t have to pay for “free TV.” Well, guess what? Local broadcasting isn’t free. In fact, it costs a lot of money to build, maintain and operate a state-of-the-art TV station, to license syndicated programs and to produce several hours of local news each day.
Right now, broadcasters are still paying the bills for digital transmission facilities and they are preparing to spend millions more so that they can produce local news in high definition and stay competitive with other broadcasters.
The only thing that’s free about broadcasting is over-the-air reception. As part of their pact with the government, broadcasters are committed to making their service available to anyone who can afford a TV set.
But at this point I would say that it is in neither broadcasting’s nor cable’s interest to encourage over-the-air reception. Instead of handing out rabbit ears in the middle of retrans fights, cable operators would be far better off paying broadcasters and making them partners in driving folks to sign up for cable.
That’s what the satellite operators and telcos have done. When a retrans fight breaks out, DirecTV and Echostar swoop in to pick off unhappy cable subscribers. Mediacom says it lost 7,000 in its recent retrans fight with Sinclair.
Cable’s call for retrans reform is really a call for more government involvement in what should be—and has been for a decade and a half—a private negotiation. Does anybody really want more regulation, more FCC meddling in their business?
The broadcasters are playing defense right now. All NAB has to do is maintain the status quo.
But perhaps it should consider offense. Here are a couple of ideas that NAB may want to push when cable comes to shove:
An antitrust exemption that allows all the stations in a market to negotiate together for retrans fees. This would balance things out in market dominated by one or two cable operators. Cable could hardly protest. Last year, ACA proposed that small cable systems be allowed to do the very same thing.
A minimum retrans fee for every TV signal. In this way, Congress could insure the future of local broadcasting—a cornerstone of its communications policy since the 1920s. To be fair, the fees could be tied to ratings. The more viewers a station has, the more money it would get. Stations could accept the minimum or negotiate for higher fees.
In the coming debate, both sides will claim that only they have the true interests of the consumer at heart and that the other side doesn’t really care about either mom or pop at all.
But, face it, this isn’t a consumer issue. This is business.
If cable operators want broadcasters’ signals, they just have to pay for them.