I have often discussed the issue of cable/DBS subscriber fees, noting that there is little information available to the public about the fees that they are paying each month for "Free TV," or to be more accurate, fees for channels that are ALSO advertiser supported.
The following article provides some real numbers:
Time Warner Cable disclosed in a regulatory filing that the carriage fees for all types of basic channels in 2007 averaged $22.07 per subscriber per month, up 7.6% from the prior year.
Using that number as an average, the nation's 93.5 million homes that subscribe to extended basic cable are paying about $2 BILLION per month to watch TV programming filled with ads...
Regards Craig http://www.broadcastingcable.com/article/CA6575703.html Broadcast's $1 Billion Pot of GoldWith Jan. 1 deadline approaching, Cable Retransmission Deals could be lucrative-or contentious
By Robert Marich -- Broadcasting & Cable, 7/7/2008On Feb. 1, viewers in Spokane, Wash.'s Time Warner Cable system got back something they'd been without for more than a year: their Fox affiliate. KAYU owner Northwest Broadcasting had yanked its signal off the local cable system in the country's No. 77 market on Dec. 14, 2006, returning it finally two days before Super Bowl XLII. The agreement between cable operator and broadcaster marked the end of what may have been the longest carriage-fee dispute in history.
Such fees have been something of a burning issue in the industry in recent years. Increasingly assertive broadcasters-whose stations get bigger audiences than basic cable networks that routinely reap big carriage fees-want cash from cable operators to carry their signals. Failure to come to an agreement hurts cable operators, whose customers are sometimes angry enough (or encouraged) to switch to satellite. And it hurts stations, which lose viewers. Cable operators aren't shy about pointing that out to advertisers.
Granted, brush-fire battles that lead to channel blackouts are rare. But on Jan. 1, 2009, better than 50% of retransmission consent contracts-which routinely last three years-will expire. Among the big group broadcasters scheduled for contract renewals are CBS, Hearst-Argyle Television, Nexstar Broadcasting Group and Sinclair Broadcast Group. Given the millions of dollars at stake, it wouldn't be especially surprising for a new batch of fires to ignite.
"I wouldn't say negotiations are a love-fest these days by any stretch of the imagination," says Brian Brady, president of Northwest Broadcasting. "Cable operators now realize they will have to pay real value."
And that value is growing bigger fast. For broadcasters, retransmission consent deals are found money, with a better economic profile than a station's Website or multicast digital channels, both of which require extra investment. While Wall Street is downbeat on TV broadcasters because of stagnating ad revenue, the retrans boom is a potential bright spot for industry economics.
BIA Financial, a Chantilly, Va.-based financial and strategic consultant to the broadcast communications industry, estimates that retransmission now accounts for 1.5% of station revenue; it expects that number to grow to 4% by 2011-2012. Forecasts from other sources tab that number going as high as 10% by 2012, though that may be a stretch. But researcher SNL Kagan believes retransmission fees could top the $1 billion mark by 2010.
While talks for Jan. 1 deals typically start in October, Mike Ruggiero, who heads industry consulting firm ATV Broadcast, predicts, "A lot of negotiations may go right down to the wire this year," because of escalating fees. "There may be some extensions granted beyond Jan. 1. It seems like cooler heads prevail these days to try to avoid the train wreck of pulling a channel." That doesn't mean negotiations are without brinkmanship. "You can't negotiate without wielding that threat of pulling your channels," says one major broadcaster. "If you don't communicate that effectively, you'll never get a fair deal."
TALKING CENTS THAT MAKE SENSEThese days, retransmission deals average around 20 cents per subscriber per month across the industry, but that distills a wide range that stretches between 10 and 50 cents per sub, investment sources say. In comparison, the most popular basic cable networks receive 25 cents or more per subscriber per month for carriage (see chart, opposite page).
But some stations are climbing down from extreme positions-for example, substituting video-on-demand deals that give them new opportunities instead of cash.
"Not all deals are 50 cents" per subscriber per month, CBS chief Leslie Moonves recently told an investor's conference, after CBS aggressively talked up its revenue prospects on Wall Street. "We've never really come out and said that's the number it's going to be. Obviously with each cable operator, depending on the number of subs and what other businesses we have with them and where we're stronger or not, we will determine an appropriate rate."
SNL Kagan estimates that broadcasters collected about $340 million in cash last year from such fees. That's not huge but it's impressive given that carriage was mostly given away for free or non-cash consideration earlier in the decade. Kagan forecasts that mark will triple over the next two years, and could keep sprouting thereafter. "There's been a shift in psychology because retrans is more accepted than three or four years ago," says Robin Flynn, senior analyst at SNL Kagan.
The industry has Irving, Texas-based Nexstar Broadcasting to thank for that. The company famously kicked the door open on escalating retrans fees by brinkmanship in 2005, when it yanked several channels during an impasse in negotiations. Nexstar CEO Perry Sook says the catalyst for broadcasters digging in their heels at mid-decade was a realization that cable systems, challenged by satellite providers and the nascent threat of Verizon and AT&T entering the TV distribution business, couldn't withstand channel blackouts indefinitely anymore.
"Nobody wants their competitor to have a de facto monopoly of our signal," Sook says. "Nobody wants that impairment to their business," which for cable could also mean losing cable modem and cable voice revenue when subscribers defect.
The right of broadcasters to seek payment-in essence recognizing their property rights-dates back only as far as the 1992 Cable Act. For years, broadcasters mostly opted instead for "must-carry" status, which compelled operators to carry their channels at no charge. Stations were satisfied simply to get circulation.
But since Nexstar, broadcasters have been getting more assertive. At Hearst-Argyle Television, retrans revenue jumped from $236,000 in 2000 to $21.6 million in 2007. With its 26 stations, the station group is thought to have made above-market price deals by virtue of the negotiating clout of Hearst, the majority owner that is also a shareholder in Lifetime and other basic cable networks. Analysts say the Big Four network affiliates are in the best position to negotiate sizable fees, given that they have highly watched network programs and also tend to have strong local news.
Broadcasters with popular local sports also have leverage, as do those with basic cable networks as corporate siblings. And NBC affiliates have a strong hand because their network telecasts get to air Super Bowl XLIII in 2009.
Spanish-language Univision, hugely dominant in Hispanic households, believes it's in a good spot, too. Last month, it declared that it will switch from must-carry to retransmission consent for its stations effective next year. Its contracts also come due in January.
OPENING NUMBERSAn increase in asking price has become a good bellwether for broadcaster assertiveness in negotiations. According to industry sources, TV stations in recent past might have begun talks by asking for 25-50 cents; that opening number is now more like $1-$1.65, though deals are often reached for far less. Because all TV markets are different, especially in terms of penetration of cable and other multichannel platforms, it's impossible to make generalizations about financial terms.
"There really wasn't any prevailing price," says Mark Fratrik, VP at BIA Financial. "The stations that first negotiated three or four years ago tended to set the price."
These ever-growing fees will no doubt add to program costs, which multichannel platforms can be expected to pass on to consumers with a markup to cover overhead. Time Warner Cable disclosed in a regulatory filing that the carriage fees for all types of basic channels in 2007 averaged $22.07 per subscriber per month, up 7.6% from the prior year. Comcast in its own regulatory filing stated, "We also expect to be subject to increasing demands by broadcasters in exchange for their required consent for the retransmission of broadcast programming to our subscribers." Neither would estimate how much more they'll pay this year or next.
Sometimes, stations are "paid" with non-cash considerations, in particular contractually specified increases in ad buys made by local cable TV. In a conference call with analysts, David Amy, Sinclair's chief financial officer, said, "Yes, there's part of the retrans included in our time sales.?Part of it is advertising that is being purchased by the [cable operator] and the other part is the whole grouping of [other] categories, [such as] video-on-demand."
Other non-cash retransmission compensation can include choice channel positions on a subscription TV platform or marketing benefits for broadcaster multicast digital channels. For TV stations, common strategies are to arrange end dates of carriage deals on a staggered basis, so a blackout brawl with one subscription TV platform leaves its channel carried on all others. While most retrans deals are three years in length, some are longer.
Perhaps reflecting the current realpolitik, LIN TV, which owns 26 stations, and Charter Communications reached a deal on July 1 for carriage, just weeks after LIN TV issued a press release announcing that talks had broken down and threatened to yank its channels' carriage on June 30.
LIN pursued one of the most aggressive tactics by agreeing to steer viewers of any multichannel platform that dropped its signal to DISH Network. On-air ads gave LIN viewers a toll-free number to call in advance of being pulled off cable, and DISH offered a credit card with $50 as an incentive. TV broadcasters involved in other blackouts have made ad hoc deals to steer cable subs to DISH or DirecTV to view their channels.
A blackout covering several months can cost a local cable system as much as 10% of its subscribers, who bolt to a satellite TV platform to get a highly viewed local TV station that is off cable.
When retrans fever first erupted several years ago, broadcasters targeted small cable operators, satellite TV and new entrants such as Verizon FiOS with the first wave of deals. These newer companies lacked clout, either nationally or with heft of concentration in any one local market, so they pay the highest per capita fees.
Conspicuously absent in many first rounds of deals a few years ago were the giant cable operators such as Comcast and Time Warner Cable, which control 24.7 million and 13.3 million basic video subs, respectively, many of them clustered in and around large cities. Gradually, the big cablers are paying more cash on a per capita basis, analysts say, but at the lower end of the 10-50-cent range. LIN TV announced June 12 that it concluded a deal for 15 markets with Comcast.
"Exact figures for the fees that the largest cable operators are paying are more difficult to come by, but there is a strong consensus that the fees are certainly no higher than those paid by the DBS providers [10-25 cents] and may, in fact, be substantially lower," says William P. Rogerson, a consultant for the American Cable Association (ACA), which represents smaller cable companies.
The specter of a sharply uneven playing field and broadcast channels being pulled or tossed off smaller subscription TV platforms has also caught the eye of Washington. The FCC has an open rulemaking on whether to allow cable systems to offer distant broadcast affiliates, and separately on program access and price discrimination.
ACA president Matt Polka, who is lobbying regulatory relief, argues, "There is no competition in retransmission of broadcasters because we as cable operators are not allowed to look outside the local market for alternatives."
A spokesman for the National Association of Broadcasters, Dennis Wharton, disagrees, saying regulators should take a hands-off approach because "the process is working as Congress intended." And he notes that satellite providers often "offer more channels than cable and generally charge less to their subscribers. So that raises the question of whether [big] cable is being too greedy here."
All such factors-market size, uneven payments and recent history-will no doubt be among considerations as negotiations begin for the Jan. 1 contract dates. The digital transition deadline comes a month and a half later. Time will tell, but there's a chance that in some homes, the lack of a converter box won't be the only reason a homeowner's not receiving a signal.
---------------------------------------------------------------------- You can UNSUBSCRIBE from the OpenDTV list in two ways:- Using the UNSUBSCRIBE command in your user configuration settings at FreeLists.org
- By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word unsubscribe in the subject line.