As many as many as 80% of all retransmission consent contracts were up for renewal by Dec. 31. Most have been ironed out, but there are still some holdouts. And while year-end scrambling is nothing new, this year is different. Rates by stations have increased due, in part, to the broadcast networks’ growing demands for reverse compensation. And some pay TV providers are taking hard lines and asserting their willingness to go without broadcast signals.
Retrans Parleys Go Down To The Wire
All I want for Christmas is a retrans deal — that’s the carol a lot of broadcasters are singing this holiday season.
By some estimates, as many as 80% of all retransmission consent contracts encompassing roughly 40% of all pay TV subscribers expire at the end of this year.
Most have been successfully renegotiated, but many are still subject to intense discussions and could lead to cable and satellite subscribers waking up on New Year’s Day without some of their favorite broadcast programming.
The periodic year-end jousting between broadcasters and cable and satellite operators is nothing new. But this cycle is marked by a sea change.
“This is the year when the needle has really moved,” says John Hane of the law firm Pillsbury Winthrop Shaw Whitman. “There’s been an appreciable increase in [retrans] rates from what I would consider almost nominal to rates that are economically meaningful. After this year, rates will be at a level where they can meaningfully impact the programming market.
“I don’t think we’re at the end of the adjustment. But this is the watershed.”
And some pay TV providers are taking hard lines and asserting their willingness to go without broadcast signals.
“Most of the truly difficult conversations involve very small operators,” says Kevin Latek, a broadcast attorney. “They’re taking more time than the big operators are. They want special terms and deals no one else gets and they want Congress and the FCC to get involved. Those are the ones that require more time, effort and energy than ones with 500,000 to 1 million subs and big operators.”
However, Latek says, the pace of deal closings has accelerated markedly as Dec. 31 approaches.
“It would certainly send a message to Congress if every broadcast station came off every MPVD on Dec. 31,” Latek said. “But the parties have been coming to terms in substantial numbers in the last week or two.”
So how many stations could actually go dark on pay TV systems at year-end?
“If you had asked me on Monday,” Latek said on Wednesday, “I would have guessed maybe 10 million homes across all broadcast markets. But given the tremendous amount of progress, I would estimate that we’re down to a few million. There’s going to be disruption at the end of the year, but probably limited to handful of small numbers at just a few MPVDs.”
For folks on the pay TV side, there’s understanding, if not empathy, that station groups are being driven by the broadcast networks’ demands for reverse compensation — payments that are designed to give the networks a fat share of stations’ retrans revenue.
“The broadcasters are being held hostage by the networks,” said a source familiar with one round of talks. “It’s such a broken system.”
The retrans issue rose to the top of the broadcast agenda earlier this year when Fox Networks issued a non-negotiable dictate to its affiliates: Pay us 24 cents per sub in the first year, ratcheting up to 50 cents in year four or we’ll drop you as an affiliate. Fox has done exactly that with several stations.
“All station groups are seeking materially more,” Hane notes. “If you even want to tread water, you have to go up, in some cases 100% or 200% or more …. That gets to be meaningful.”
For the guys in the trenches, that translates into rancorous negotiations.
A source on the broadcasting side of the table thinks some pay TV providers are being unusually difficult in hopes that Congress or the FCC steps in when negotiations break down.
“Usually when a station is taken off of a [pay TV] distributor’s lineup, the last thing the distributor wants is a second channel from a different owner to also come off the same system,” he said.
“To keep this from happening, rates are usually increased to entice the second content provider to close the deal. If that is not happening in a market where the first station is taken down, then that is a good indicator that something is rotten in Denmark.”
Some pay providers appear to be balking at good faith efforts to resolve differences, another broadcast source says.
“They don’t even talk in weeks leading up to a deadline, then give us a take-it-or-leave-it offer,” the source said.
If the idea is to send a message to Congress and the FCC, it appears to be working.
Last week, Rep. Steve Scalise (R-La.) and Sen. Jim DeMint (R-S.C.) introduced legislation in the House and Senate, respectively, that would upend years of broadcast and cable regulation.
The Next Generation Television Marketplace Act would repeal broadcasters’ retransmission consent rights as well as local broadcast ownership limits.
While the American Television Alliance called the proposed legislation a “constructive step forward,” the carrot of relaxing local broadcast ownership limits — something broadcasters have long pushed for — wasn’t big enough to offset the downside in the NAB’s view.
On the bright side, some big contracts have been successfully negotiated.
Nexstar Broadcasting wrapped up a multi-year deal with Dish Network, while cable operator Mediacom and LIN Media worked out their differences in mid-October.
In the past few days, Local TV LLC’s KFOR, the NBC affiliate in Oklahoma City (DMA 44), and Cable One reached an agreement. So did Heritage Broadcasting’s WWTV (CBS) and WWUP (NBC) in Traverse City, Mich. (DMA 120), with Dish Network.
But for many others, the brinkmanship continues. Some hot spots:
- Allbritton Communications’ flagship station WJLA, the ABC affiliate in Washington (DMA 8), versus Cox Cable and RCN.
- Sinclair Broadcast Group’s Pittsburgh (DMA 23) duopoly, WPMY (MNT) and WPGH (Fox), as well as its Baltimore (DMA 27) stations WBFF (Fox) and WNUV (CW) versus FiOS.
- Sarkes Tarzian’s WRCB, the NBC affiliate in Chattanooga (DMA 86), versus Dish Network.
- Cordillera Communications’ KRIS, the NBC affiliate in Corpus Christi, Texas (DMA 129) versus Time Warner Cable.
From his perspective, NAB spokesman Dennis Wharton says the retrans negotiations are looking a lot like other 11th hour retrans negotiations from Christmases past.
“Generally, there’s a lot of bombast, hullabaloo and playing chicken until the last minute,” he said. “Generally, stations get a short extension or resolve the issue before the contract expires.”
Wharton also said that it doesn’t help the process when the FCC’s suggests that it might be willing to change some of the rules of the game as it did when it launched a review of them last March.
“Government has been sending signs they might get involved in retrans,” he said. “Once you send that message, there’s no motivation for the pay TV providers to engage in serious negotiations.”