OPEN MIKE BY BRIAN FREDERICK

NAB Breaks Out Tin Foil Hats In Retrans Fight

Porter Novelli's Brian Frederick: "The NAB's charges [that the vast majority of retrans blackouts involve DirecTV, Dish Network and Time Warner Cable] are ludicrous, as anyone with even a basic understanding of how business works can attest. There is nothing more frustrating for TV consumers than blackouts so it's absurd to think that pay TV distributors would intentionally upset their customers and risk losing them. As long as distributors are prohibited from importing a distant network signal and broadcasters can drop signals on cable and satellite, broadcasters can demand whatever they want for a local signal, knowing that most viewers primarily just care about network programming anyway."

The National Association of Broadcasters is currently trying to convince everyone that a few pay TV companies are engaged in some sort of conspiracy to cause blackouts in order to move Congress to change retransmission consent. The NAB claims that 89% of blackouts in the last two years have involved DirecTV, Dish Network and Time Warner Cable and if only those companies would work a little harder to reach resolutions with the broadcasters, there wouldn’t be any blackouts.

From TVNewsCheck: “According to NAB spokesman Dennis Wharton, TWC belongs to a tiny cabal whose members are taking turns causing blackouts so that they can convince Congress that Americans’ inalienable right to unlimited entertainment options is being threatened by greedy broadcasters and that their retrans rights have to be trimmed.”

The NAB’s charges are ludicrous, as anyone with even a basic understanding of how business works can attest. There is nothing more frustrating for TV consumers than blackouts so it’s absurd to think that pay TV distributors would intentionally upset their customers and risk losing them.

But let’s dissect that 89% figure that the NAB has been throwing around. First, those three companies make up nearly half of pay TV subscriptions. Second, DirecTV and Dish are available in virtually every home in America, so of course a higher percentage of retrans disputes are going to involve them. Third, the biggest pay TV distributor, Comcast, now owns NBCUniversal and has chosen to sit on the sidelines. (“Retransmission consent dollars is not a good thing for the cable side of Comcast, but it’s going to be a very good thing for NBCU,” NBCU chief Steve Burke told investors following the Comcast-NBCU merger.)

Fourth, and perhaps most importantly, in addition to the legitimate retransmission consent concerns raised by Time Warner Cable, DirecTV and Dish, consider what it is like for smaller cable companies that have to negotiate with today’s broadcast and network behemoths. The smaller distributors, like the members of the American Cable Association, who are also fighting to reform retrans, often have no choice but to capitulate to broadcasters’ extortionary tactics lest they lose the very lifeblood of their businesses.

TVNewsCheck says of the latest retrans dispute between CBS and TWC: “CBS was clearly the winner.” Of course they were! The broadcasters will always win as long as the rules are rigged to ensure that they don’t have to negotiate their terms in a free market.

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As long as distributors are prohibited from importing a distant network signal and broadcasters can drop signals on cable and satellite, broadcasters can demand whatever they want for a local signal, knowing that most viewers primarily just care about network programming anyway.

If viewers truly did care about local programming, the broadcasters wouldn’t need to lobby to prevent the importation of distant signals. And if the local programming was compelling enough that viewers preferred it to the distant network signal, distributors would have every incentive to give it to them lest they lose customers to competitors offering the local channel. 

By the way, can we please put an end to broadcasters’ hypocritical and false claims that the government shouldn’t intervene in “free market negotiations”? Gifted with incredibly valuable spectrum space and numerous rules and regulations, the video marketplace today is anything but a true free market.

Truth is that there aren’t just three companies that are justifiably calling for retrans reform. There are numerous cable, satellite and telecom companies. There are independent programmers, consumers groups and civil rights groups. In fact, virtually everyone other than the broadcasters is calling for retrans reform. And for good reason: blackouts continue to increase in frequency and duration and retrans fees are skyrocketing. Broadcasters will earn over $3 billion in retrans revenues in 2013 — something then-CBS CEO Laurence Tisch told Congress “certainly” would never be the case back when broadcasters were lobbying for retrans. And they are projected to hit $6 billion (if not $12 billion) by 2018.

So the NAB can float absurd conspiracy theories and try to distract everyone from the hard truth: the retrans system is truly broken and it is now simply subsidizing expensive network programming. (Perhaps Congress should ask the broadcasters to open their books as a condition of that free spectrum.)

Brian Frederick is VP of public affairs at Porter Novelli, a public relations firm retained by the American Television Alliance, which is a coalition of pay TV distributors, consumer groups and independent programmers. He can be contacted at [email protected] or at 202-973-2965.


Comments (16)

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Brett Zongker says:

September 10, 2013 at 7:35 am

Absurd to think that TWC would intentionally upset their customers? Really? http://news.yahoo.com/yet-another-survey-shows-cable-companies-america-most-174546307.html

    Wagner Pereira says:

    September 10, 2013 at 11:37 am

    And why did TWC not refund the CBS retransmission fees in August they did not pay if they are so concerned about their customers and keeping things on the up and up?

    Ellen Samrock says:

    September 10, 2013 at 11:57 am

    Right. This is an attempt by cable companies to spread the hatred. “Hey, why should we get all the haters? Let’s send a few over to broadcasters by blaming them.” “Broadcasters will earn over $3 billion in retrans revenues in 2013.” This is what really sticks in their craw. Nothing more. They wistfully long for the early days of CATV when they didn’t have to pay broadcasters a penny nor get consent to carry their programming.

    Wagner Pereira says:

    September 10, 2013 at 9:51 pm

    Broadcasters earned over $3B in retrans in 2013. As I showed in another thread, divide that up over 12 months and by the number of cable subs, then divide by 4 (for CBS, NBC, ABC and FOX) and that comes out at .65 per sub per channel per month or less- because once you consider some of that is diverted to CBS’s CW and Fox’s MNT etc that is tied into the original Main Network Broadcast.

Brad Dann says:

September 10, 2013 at 8:51 am

At the beginning of retransmission consent, Cable (as a whole) announced they were not going to pay Broadcast Stations cash and they didn’t until competition to Cable was real and people had a choice. If Broadcast stations are not as valuable as these cable companies think, they can drop the channels. Cable will tell you that if they drop any channel (even a low rated cable net) they will get complaints from customers. The problem they have is that if they drop a broadcast network (certainly the big 4), they will lose customers. I can name ten cable networks they could drop, not lose customers and pay broadcast, but that is never held out as an option. Wait, TWC CEO Glen Britt did say this spring he was going to force low rated nets that they either had to get ratings or he was taking payment away in their next negotiation? Viacom and other pure play cable nets also have blackouts, where’s the outrage there? ESPN get over $5 per month per sub, 2.5 times what CBS is rumored to have gotten to at the end of the new deal? Does ESPN have 2.5 times the audience of CBS? Why don’t we all agree that the way to fix this is to peg carriage fees to audience and be done? Oh wait, Broadcasters have an unfair advantage because they don’t need cable.

Cable used Broadcast for free for decades to subsidize their funding of cable nets that built competitive programming and schedules, plus caused the migration of sports from Broadcast to Cable, where consumers are forced to pay if they want to see what was previously available to them for free. All that’s happening is a re-balancing of where carriage fees should be according to audience. Plus, I’m sure stockholders in all the other MVPDs are thrilled to know that their management are capitulating to broadcasters demands. Someday, I really want to attend the Law School class where they teach new lawyers to lie with conviction.

Joel Ordesky says:

September 10, 2013 at 10:46 am

MVPD’s could end this problem once and for all by putting ATSC receivers (back) into their set-top boxes, as DirecTV is exploring. With OTA integrated into the program guide, the viewer experience would be unaffected by a blackout.

    Wagner Pereira says:

    September 10, 2013 at 11:35 am

    Let’s remember that most DirecTV units had tuners up to and including the H20 HD IRD and the HR20 HD DVR. DirecTV discontinued tuners in the HR21 and forward (as well as the H21 forward). DirecTV has an add on AM21 for at least 5 years now which is an external ATSC tuner that plugs into the USB port. Clearly they have not seen a need to put an ATSC tuner back in the units themselves, yet. However, the problem is an ATSC tuner does no good without a good, clean signal (which is easier said than done in most of America). While it makes sense in theory for MVPDs to put in ATSC tuners, the reality is getting the signal will cause much greater issues and headaches than retransmission fees are now causing them.

    Joel Ordesky says:

    September 10, 2013 at 1:43 pm

    Granted OTA would be a problem system-wide. But MVPD’s have large blocks of “low hanging OTA fruit” that could easily work with a dish-mounted antenna, or a small outside wall mounted antenna near the cable drop. With tiny retrans fees, I agree that it’s probably not worth it. If fees rise significantly it’s a different story. And, having a large installed OTA base with MVPD-owned antennas opens up some interesting opportunities especially with cord-cutters. The MVPD cord cutter would continue to pay for internet and a small Aereo-like fee for the DVR and rental of his own roof-top antenna.

    Wagner Pereira says:

    September 10, 2013 at 9:54 pm

    Its not as easy as you posted. MVPDs do not have dish mounted antenna…only DBS companies USED to. They do not any longer as the dishes are so low, they really do not work with ATSC. Cable/Telephone Providers became in vogue for the wife acceptance factor of not wanting an Antenna on the roof. If you tell them an antenna is going up, the WAF goes way down. And besides, ATSC, especially in VHF, is not the easiest thing to pick up.

Gene Johnson says:

September 10, 2013 at 10:57 am

1) In the case of the recent CBS-TWC dispute, it was not CBS that forced the blackout, but rather TWC that chose to blackout its customers (based on news reports that CBS was willing to extend the existing agreement during further negotiations, but TWC opted to say no). Mr. Frederick is wrong when he says it’s the broadcasters that are causing all the blackouts.

2) Comcast did not always own NBC. How many blackouts occurred on Comcast systems before it acquired NBC? If none, its ownership of NBC is not the reason why blackouts have not occurred on Comcast systems. Or how about other cable operators that have not had blackouts?

3) Smaller cable operators, like smaller operators in any business, are going to be at a disadvantage compared to larger operators. That’s just a fact of capitalism. Would Mr. Frederick propose to impose regulatory requirements on any industry where smaller companies were at a competitive disadvantage?

4) Why should there be a different set of rules for negotiating broadcast retransmission than for all the other program services a cable system offers? Should a cable operator be allowed to continue carrying MTV if there is a negotiation impasse for its continued carriage? Why is it any different if a cable operator is precluded from carrying a cable only program service, rather than a broadcast station, because of a negotiating impasse on carriage rights? At least for a broadcast station most subscribers do have an alternate way of receiving the service (an antenna). If it’s really the consumers interest that is paramount, why should there be different rules for negotiations between MVPD’s and any of the program services they carry?

5) If MVPD are so concerned about the interests of their subscribers, why don’t they make decision about what fees they are willing to pay for program services based on how many of their subscribers watch a particular program service? Why are fees paid for programming not tied to viewership levels which is the most direct evidence of demand for such service?

Maria Black says:

September 10, 2013 at 12:02 pm

“If viewers truly did care about local programming, the broadcasters wouldn’t need to lobby to prevent the importation of distant signals. And if the local programming was compelling enough that viewers preferred it to the distant network signal, distributors would have every incentive to give it to them lest they lose customers to competitors offering the local channel. ” and “Gifted with incredibly valuable spectrum space and numerous rules and regulations, the video marketplace today is anything but a true free market.” Sounds a bit like a contradiction. If the programming isn’t compelling, etc, then it is NOT valuable. But seriously, mr. cable guy, it boils down to this: Broadcasters make a product. They incur the cost of the product. They then sell the product. Cable does NOT have to buy the product. Cable wants to buy the product to resell. Broadcasters are spending more money on the said product, what with upgrades, mobile stuff, meeting requirements, etc. So the price goes up for everyone buying the product. That happens to be cable retransmission. Ask advertisers how much it costs to air a commercial during top rated shows. And I’m also playing the world’s smallest violin for cable companies, mourning their loss of their profit margin.

Brian Bussey says:

September 10, 2013 at 12:14 pm

I have worked on one or the other side of these businesses for the past 25 years. The cable companies would have a leg to stand on if they were not taking billions of dollars in advertising revenue from local and national advertisers. The Cable companies tend not to bring up this revenue stream and it equals several hundred times the retrans costs. Anybody remember when we were told that we were buying commercial free TV.? How is it that a 90 minute movie running on TNT in prime takes 3 hours to air?. Its called commercial breaks. The cable companies are trying to take all the ad revenue and the viewers to create their delusional dream of a TV entertainment caste system. Look at the number of paid program half hours on broadcast stations. The cable companies have bid up the cost of everything from lower profile college sports like track and field to old movies. The cable companies have made their bed and now its time for them to fall out of it….

Eric McCaffery says:

September 10, 2013 at 12:22 pm

“The smaller distributors . . . often have no choice but to capitulate to broadcasters’ extortionary tactics lest they lose the very lifeblood of their businesses.”

The “very lifeblood of their business.” Kind of says it all, doesn’t it? Carriage of broadcast signals is the “lifeblood” of cable operators business, but they’re crying and whining because they have to negotiate for carriage of those signals, just like they do for cable networks like ESPN, MSG (owned by Cablevision and blacked out by Time Warner Cable at the height of Linsanity), USA, MTV and so on. And they still pay more for those channels than for broadcast network affiliates that have many times their audience!

Mr. Frederick, if one of your clients can’t reach a deal with ESPN, can it import a “distant signal”? Are you aware that the only reason cable operators can import distant signals at will is a government-granted compulsory copyright license, which prevents TV stations from negotiating with their program suppliers for what otherwise would be standard territorial exclusivity provisions? You don’t mind that departure from free-market negotiations, do you?

Oh yes, broadcasters get free use of the “public airwaves.” That’s true, but the programming broadcast over those “public airwaves” is not free — it costs hundreds of millions of dollars to produce or acquire. Can you give ANY reason why your clients ought to be able to make a business of reselling that programming to subscribers without paying for it?

And by the way, Mr. Frederick, there’s a reason your clients are so eager for “binding arbitration” of retransmission disputes. It’s because arbitrators tend to split the difference, and you know damn well that broadcasters are still underpaid by cable for their programming. So “binding arbitration” is just another way for your clients to perpetuate the sweetheart deal cable operators have historically gotten for their most popular programming. Lobby for your clients’ business self-interests if you will, but please, don’t try to dress it up as concern for the consumer. Your concern is your profit margins.

Grace PARK says:

September 10, 2013 at 3:38 pm

This entertaining battle is taking place while the future of all one-to-many models is on the table. In the end, neither of these two sides will win, because neither gives a rat’s ass about the consumers of video. It’s just one hilariously greedy statement or event after the other, and it has reached levels of absurdity not known before in the history of humankind. Did you know, for example, that some video-to-digital companies will make DVDs of your home movies for you that include copy restrictions, so that you must return to them and them only to have other copies of your own videos made? This is the end produced by foolishness disguised as clever manipulation in the hands of lawyers. There is none righteous, no not one.

Wagner Pereira says:

September 10, 2013 at 10:09 pm

Mr. Congressman, allow me to remind you that you force OTA Broadcasters to sell you ad time at their absolute lowest unit rate. If you allow, say, the CBS station in Tulsa to air the CBS Affilliate in Dallas, you realize that those watching CBS do not see your local ad for your re-election. In fact, you would have to buy time in Tulsa as well as the station in Dallas, which does not have to sell you time at the lowest unit rate (in fact, they do not have to take any ads for political races – especially any outside their coverage area). And the ad rates for Dallas are astronomical compared to Tulsa anyway. Now what if Cox carries the CBS Dallas station, but Directv carries the CBS St. Louis Station and Dish carries the CBS Houston Station. Guess, what, are you ready to spend about 4x, scratch that as all those have higher rates, 25x the amount for your re-election on TV as you have in the past? Didn’t think so. Have a nice day and get back to doing something about the National Debt.

David Adams says:

September 11, 2013 at 7:33 pm

Mr. Frederick does a nice job for his client — he repeats the ACA’s simplistic and false position that retrans fees drive higher rates. Sure, it sounds good if you don’t think about it. But let’s think about it, because it matters.

The biggest cost of television is programming. If the government policy is “you can charge MVPDs anything you want for programming UNLESS you also give the programming away for free to non-subscribers” then guess what? All of the programming is going to be bought by and distributed on pay-only channels. Non-subscribers lose the programming altogether. Pay subscribers, on the other hand, are still going to pay, because the programming comes on a pay-only channel.

In fact, the pay subcribers are going to pay MORE than they would if the same program was on broadcast television. Why? Because the net cost-per-viewing-hour for a program that appears on FTA television is a fraction of the cost-per-viewing-hour of a program that appears on a pay-only network.

This isn’t spin or policy advocacy. It’s economics, and I challenge anyone to find an impartial economist who would materially diagaree. An impartial economist would probably say that when FTA TV acquires programming that otherwise would have gone to a pay-only network, the pay TV consumer pays materially less to see that program. And of course the FTA-only consumer (whom everone seems to have forgotten in this contrived debate) still gets the program for free.

I am persistenly surprised that the so-called “public interest” groups don’t understand this.

Yes, I represent broadcasters. But geesh, this stuff is really basic economics. Kudos to ACA, TWC and their advocates for persuading many people, including the “public interest” groups, to support a poilcy change that any honest economicst would tell you would drive up the cost to subsribers and make FTA TV a less viable option for consumers who don’t want to pay. (And yes, the MVPDs have a huge stake in eliminating a free option. When penetration is stuck in the high 80s and falling (after decades of growth), what’s the plan? Make the FTA option unattractive.,

If you set aside your biases and just think about it, all of this is obvious. But you have to really think honestly and look at the whole market, not isolated slices.

“A great many people think they are thinking when they are only re-arranging their prejudices.”


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