High definition television images can be breathtaking, but negotiations regarding the consent to transmit those images are going to continue to get ugly over the next few years.
The 1992 Cable Act gave local broadcasters two choices when dealing with cable franchises. The first, must-carry, makes it easy—no negotiations necessary. The station elects must-carry and gets a prime location on the basic service tier. Of course, that also means the broadcaster gets no additional revenue.
As of late, however, it seems that more and more station owners are opting for retransmission consent, standing firm in their negotiations and requiring cash. Some, including Sinclair Broadcast Group and Belo Corp., have even played hardball with carriage shutdowns.
Last month, CBS announced retransmission consent agreements (including HD and multicast) with nine cable operators that affect more than 1 million subscribers. While terms were not disclosed, comments from Leslie Moonves, CBS president and CEO, demonstrated that the network was in these negotiations for the money. “Clearly there is a new paradigm in the marketplace,” he said, “one that recognizes the value of the content that we bring to our various audiences.”
The majority of U.S. households get their programming through cable, and broadcasters have decided that it’s time cable companies start paying for the most popular content on their lineups. With HD programming as a bargaining chip, stations and networks are eyeing retransmission fees as revenue streams. In fact, last month Kagan Research forecasted that fees would be bringing in billions in new revenue for broadcasters within a few years.
You can reduce the case for retransmission fees made by the National Association of Broadcasters to two simple points. First, broadcast programming is the cornerstone of cable program packages. “In an era of fragmented audiences and exploding TV choice, cable subscribers still devote about half their viewing time to programming offered by broadcasters,” argued Dennis Wharton, NAB spokesperson.
Second, the idea of paying a retransmission fee isn’t without precedent. As Wharton noted, “DirecTV and DISH Network pay modest retransmission consent fees to broadcasters, as do telephone companies who are entering the video distribution business.” Plus, cable companies already pay cable networks for carriage.
As you’d expect, cable companies don’t want to be cornered into paying retransmission fees for broadcast channels. Their logic is simple: Cable franchises shouldn’t have to pay to retransmit signals that customers can receive over the air for free. Sorry, but that argument just isn’t going to work anymore.
It would be foolish for the cable industry to underestimate the importance of broadcast network programming to its lineup. Talk about audience fragmentation all you want, but broadcast networks still attract the majority of U.S. viewers. Remember the ratings from last month’s Super Bowl? Can’t recall that far back? Then just look to last week’s American Idol. Think you’re going to attract that many subscribers with the Origami Channel?
The reality is that broadcasters are delivering the top-rated television content. They are the kings of the channel lineup jungle, and, after 15 years, are finally learning how to roar. The time of cable franchises declaring no fees for retransmission consent is over. As it should be.
Mark J. Pescatore is the host of the Television Broadcast Two-Minute Drill and the interim editor of Television Broadcast. Contact him at mpescatore@nbmedia.com.
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