By demanding upfront payment on top of monthly fees, Sinclair could be setting precedent that will benefit all broadcasters.
You’ve got to admire the audacity of it.
Sinclair wants Suddenlink, the cable operator serving Charleston, W.Va., to pay $40 million upfront for the right to continue carrying its two network affiliated stations in the market. And, oh yeah, on top of that, it wants monthly payments of $200,000 (50 cents per sub per station) for the next three years.
Now, that’s the kind of retrans deal that broadcasters have been dreaming about. Two bits a sub just isn’t going to cut it the New World that Sinclair envisions.
In the end, Sinclair is not going to get a $40 million signing bonus. But it has a good chance of getting something south of that and, if it does, it will have set a precedent that should encourage broadcasters everywhere to think again about what they’ve got and what it’s worth and to act more boldly in demanding cash money from cable operators. Imagine plugging a big fat number into your P&L the next time you renew your retransmission consent deal.
Of course, few broadcasters will have the kind of leverage that Sinclair now believes it has in Charleston. “This is as strong a position as a broadcaster can be in,” says Sinclair General Counsel Barry Faber, who is taking point in the retrans battle.
Suddenlink appears to be in an unusually weak position. It just bought the system from Charter; the market is satellite friendly (30% of the homes already have a dish); and it’s facing a broadcaster with not one, but two, Big Four affiliates. Sinclair owns WCHS, the ABC affiliate, and, through an LMA, virtually owns WVAH, the Fox affiliate. That means Sinclair holds the key to NFL football, American Idol, Desperate Housewives and Grey’s Anatomy.
Plus, Suddenlink is not a large operator that can squeeze Sinclair in other markets where it doesn’t have the one-two punch of ABC-Fox.
Talking to Faber, you get the feeling that Sinclair is absolutely determined. It’s done all the arithmetic and figures that Suddenlink needs it far more than it needs Suddenlink.
Here’s how Faber sees it: Although the Suddenlink system counts around 200,000 subscribers, only about half of them are in the Charleston DMA and of consequence to Sinclair. So, worse case: Sinclair loses access to about 22% of the market’s 450,000 homes if Suddenlink walks. But, best case: 50,000 of the lost homes come back to Sinclair either by signing up for satellite or by getting the signals off the air.
Sinclair says it can survive the loss of tens of thousands of homes and Suddenlink can’t. Assuming that Suddenlink paid Charter $3,200 per sub for the system, losing just 10% of its 200,000 subs would amount to a loss in value of $64 million, Faber says. “If they lose 20%, two in 10, they lose $128 million.
“We are prepared to come off and stay off for however long it takes, until they are willing the pay the right amount,” Faber says. “We will watch their business crater. I think they will destroy their business.”
Sinclair has told Suddenlink to cease carrying its signals, but the cable system continues to do so by citing a prohibition against operators dropping broadcast signals during a sweeps period. The prohibition was designed to protect broadcasters, but Suddenlink has twisted it around to its momentary advantage.
Sinclair is protesting the continued carriage at the FCC, but doesn’t really seem to mind. Right now, the stations are broadcasting crawls warning viewers that Suddenlink may soon drop them and urging them to sign up for satellite. Both DirecTV and Echostar carry the Sinclair signals and, I suspect, are paying retrans fees.
The owners of the other two Big Four network affiliates in the market are rooting for Sinclair, and it’s not just because they’re fellow members of the broadcasting fraternity. Both claim to have “most favored nation”Ãƒâ€šÃ‚Â clauses in their retrans agreements with Suddenlink. In other works, what Sinclair gets, they get. So, that $40 million upfront payment suddenly translates to a $120 million payment.
“Good luck to them,ÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â says Bob Prather, president of Gray Television, the owner of WSAZ, the NBC affiliate in Charleston. “I hope they get it. The cable guys have been getting a free ride for a long time.”
The upfront fee “changes the dynamic,” says Bray Cary, president of West Virginia Media Holdings, the owner of Charleston’s CBS affiliate, WOWK. “If Sinclair wins that, that changes everything. That’s a big deal.”
Faber is certainly right about one thing: Suddenlink should have renewed its retrans deal with Sinclair before it went to closing. You wonder who was in charge of the due diligence.
While all broadcasters ought to be rooting for Sinclair, there is a downside for the industry. Sinclair’s aggressive posture will undoubtedly have repercussions in Washington. Cable made a move to gut broadcasters’ retrans rights earlier this year. It will be back next year and you can bet that it will use this as its poster child for broadcasters’ unmitigated greed. And, if cable gets to tell the story of Charleston, it could have real impact on the debate. Congress legislates more by anecdote than by reasoned analysis.
But it’s up to David Rehr and the NAB to preserve retrans, and it’s up to broadcasters to get what they can for their signals.
Going forward, broadcasters need major new revenue from one of three sources: Web sites, digital multicasting or retrans. None is assured, so they need to work hard to develop all three.
“There has been a wall up, stopping broadcasters from getting paid,” Faber says. “If you are going to chip away at that wall, you are going to take your best shot, not your weakest shot, first.”
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