[opendtv] News: In Retrans, Stations Are Fighting for Lives
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Wed, 5 Nov 2008 04:41:46 -0500
http://www.tvnewsday.com/articles/2008/11/04/daily.9/
GUEST COMMENTARY BY GREG SCHMIDT
In Retrans, Stations Are Fighting for Lives
By Greg Schmidt
TVNEWSDAY, Nov 4 2008, 3:34 PM ET
Fifteen years after its adoption by Congress, broadcast
retransmission consent remains a highly charged topic. Why? Because,
at long last, broadcasters, as Congress intended, are succeeding in
getting cable operators to compensate them for carrying broadcast
signals. This has prompted significant elements of the cable industry
to respond by threatening to seek relief from the next FCC and the
next Congress.
There was no screaming by cable, by the way, when the satellite
companies started paying cash to broadcasters 10 years ago. Nor did
they even whimper three years ago when the telcos entered the video
market and joined the ranks of paying broadcast customers. But now
cable itself is being asked to pay and faces the prospect that its
unjustified competitive advantage is going away. Most cable
companies, including many of the most powerful, have quietly
recognized that the jig is up and have agreed to reasonable terms. A
few holdouts continue to wage quixotic rear-guard actions, allegedly,
of course, on behalf of the consumer, and the smaller operators are
complaining that retransmission consent is going to ruin them.
Whenever a fight like this breaks out, regulators and consumers
almost always react by throwing up their hands and declaring both
sides to be evil and greedy. What regulators and consumers need to
know is just this: broadcasters are fighting not for a few
incremental dollars but for their very lives.
Without retransmission consent revenues to fuel competitive
programming payments, all premier sports and entertainment
programming will migrate exclusively to pay television. If you doubt
that statement, think Monday Night Football. ABC literally invented
Monday Night Football in 1970 and carried the show for 36 years. But
for the last decade or so of its life, despite marquee ratings, MNF
was a loss leader for the network, hemorrhaging as much as $150
million a year. In 2006, MNF moved to ESPN, where it became instantly
and wildly profitable. And this despite the fact that ESPN paid
double - double - what ABC had been paying and saw advertising
revenues decline as the result of a 25 percent loss in audience in
its first season.
Voodoo economics? Sort of. ESPN, unlike ABC, not only gets
advertising revenues but a pay TV subsidy in the form of outsized
subscriber fees that now total well in excess of $3 billion a year.
That is a massive second revenue stream that ABC cannot match through
advertising revenues alone.
What happened to MNF will eventually happen to all marquee
programming-sports and otherwise-if the broadcast system does not get
its share of the pay TV revenues. Already, numerous cable networks
with infinitesimal ratings and inferior household penetration have
outbid local stations and networks for first-run entertainment and
sports programs and for dozens of original and off-network syndicated
programs.
They can do this not because more people watch their channels, but
because those that do are paying for them. Unless that same subsidy
for cable networks is extended to broadcasters, neither local
stations nor the broadcast networks will be able to compete for the
best programming. And that means, among other things, that the 13
percent of American households who receive TV off the air, many of
whom are unable to afford pay television, will be denied access to
the best programming.
It might be different if this competitive advantage were fair or
deserved. It was neither. It was simply a relic of a regulatory
regime, the cable compulsory copyright license that failed to adapt
to the underlying changes in the industry. Before the ink was even
dry on the 1976 Copyright Act, which gave cable mandatory free
broadcast carriage, cable morphed from being a simple
repeater/extender of broadcast signals to a full-fledged competitor.
And by the time Congress dealt with the problem 16 years later, the
MSOs had consolidated their market power and defeated the intent of
Congress. Only the breakout of true competition in the home video
market, first in the form of the satellite carriers and then the
telcos, made untenable the MSO mantra that they wouldn't pay for
"free" television.
All this is not to say that the system has worked optimally. No one
is happy with the abruptness with which the game changed, a sizeable
exogenous shock to the system which made it more difficult for cable
operators to budget sensibly. All that can really be said is that
broadcasters, too, would have preferred a longer phase-in period and
tried to get the process started many years ago.
The satellite carriers and telcos have adapted quite nicely to making
broadcast payments a significant part of their programming budgets,
strong evidence that cable, too, can make the adjustment.
Cable must also shoulder much of the blame for the fact that the
networks have used their station retransmission consent clout to
secure the launch of and higher subscriber fees for a passel of cable
networks. This development was the genius of John Malone, who
insisted at the outset that cable would pay only for "added value" in
the form of additional cable networks. Whether or not the resulting
package deals are "tying arrangements," they are not in the interest
of non-network broadcasters either.
For reasons known only to experts in institutional behavior, the
networks seem incapable of making a proper internal allocation which
recognizes that most, if not all, of the subscriber revenues
generated by these cable network progeny actually should be credited
to their broadcast network parents. And without a proper internal
revenue allocation, the networks all spend far too much on their
cable programming and too little on their broadcast networks.
Having spent a decade working for a modest-sized broadcast company
negotiating with giant cable MSOs, giant networks and giant
syndicators, I have considerable sympathy, too, for the plight of the
small cable operator. But let's face it, the telco bohemoths and
nationwide satellite carriers, not to mention multi-network pure play
cable programmers, present a far bigger problem for small operators
than broadcasters, many of whom are even smaller than they are.
I doubt very much that when this still evolving market gets to
something approaching its natural equilibrium, the retransmission
price disparity between the large and small operators will differ
significantly from the cable network price disparity the small ops
already face.
That said, broadcasters still need to be smart as well as courageous.
The unavoidable reality is that the top 10 MSOs control 90 percent of
the cable market. Broadcasters cannot move the needle substantially
without getting reasonable compensation from those companies. It is
far more important to craft a systematic plan for doing that than
spending time and political capital extracting a few additional cents
from those who, because of size or timing, are already paying.
Under the direction of the 1992 Cable Act's visionary godfather,
Marty Franks of CBS, I was involved in the passage of the Act. In one
capacity or another, I have labored in the retrans vineyard ever
since. It is gratifying, as I move on to other endeavors, to see the
Act's potential finally being realized. It is not a moment too soon.
The result, I hope, will be a new, mutually beneficial and
sustainable cable and broadcast relationship that will provide the
foundation for true local partnerships going forward.
In August, 2008, Greg Schmidt became the CEO of Speech Conversion
Technologies Inc. Prior to that he was EVP, digital media, LIN
Television. At the time of the 1992 Cable Act, he was counsel to the
CBS Affiliates Association and a number of broadcast group station
owners. He can be reached at gregs@xxxxxxxxxxxxxxxxx
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