After a 2008 full of brinksmanship and bullying between television stations and the cable operators that carry their signals, 2009 may shape up as the jittery calm before a bigger political storm over retransmission consent.
More than 50% of the agreements that cover the retransmission of local TV stations’ signals by cable operators were set to expire on New Year’s Eve.
The negotiations picked up after Oct. 1, when many TV stations had to notify their local cable distributors whether they wanted to negotiate payment for their signals with the cable companies, or elect the must-carry option, wherein stations desperate for carriage can forgo payment but force cable companies to take their signals.
“Things are playing out pretty much as we expected,” said Dennis Wharton, executive VP of media relations and the spokesman for the National Association of Broadcasters, which represents the country’s broadcasters in Washington.
With the economy in a downward spiral and debt-bound TV stations facing double-digit advertising revenue declines, the broadcasters are increasingly counting on retransmission-consent fees to prop up financial statements. They’re increasingly seeing retrans revenue as replacement money rather than found cash.
How the battle over retransmission consent plays out, as well as the fate of a bundle of other communications issues, depends on the incoming Barack Obama administration’s still-unannounced policy preferences. Other wildcards include who is named to head the FCC and how aggressively the House and Senate commerce committees prove to be on media issues.
Most stations have increased their retransmission-consent revenues in recent years. In quarterly earnings calls, station group owners tout the year-to-year growth in their retransmission revenue.
Gray Television was among those negotiating as the end-of-year deadline approached; last week the company announced it had reached agreements in principle with all its major cable distributors.
The Atlanta-based company, which operates 36 stations in 30 markets, said all its deals are expected to bring in $11 million in 2009, up from a projected $3 million for 2008.
Gray managed to avoid turning to the ultimate weapon, signal blackouts. But a number of TV stations’ signals have disappeared from cable systems across the country this fall, sometimes for days, sometimes for weeks, as both sides played a game of chicken that inevitably caught consumers in the middle.
It’s a high-stakes battle in which the stations have begun picking up an average of 30 cents per subscriber per month over the course of the contracts. Those deals, which are hermetically sealed in confidentiality agreements, generally run three years.
By 2010, all those pennies could add up to more than $1 billion, according to research firm SNL Kagan. Much of the cost to cable companies will be passed on to their subscribers, who now represent the majority of TV homes in this country.
For broadcasters, the central principle in retransmission-consent talks has been that cable operators, who pay as much as $4 per subscriber for such signature basic-cable channels as ESPN, should have to pay reasonable fees for the signals of local TV stations.
They note that even in the age of station-audience erosion, local network affiliates tend to be among the most watched channels on cable lineups. They also note that cable operators sometimes pay more for cable TV networks that they themselves own than they pay for station signals.
The flurry of last-minute deals between stations and cable operators “demonstrates to us that the marketplace is working,” NAB’s Mr. Wharton said.
Cable operators quietly agree that they cannot be fully competitive with TV offered by satellite and phone companies without a full slate of the local broadcasters’ news and network programming.
Kyle McSlarrow, president-CEO of the National Cable & Telecommunications Association, said he’s “a little conflicted. I see the arguments. I see the marketplace realities [on both sides].”
The time may have come to redraw the communications landscape and the often outmoded rules that govern it, he said, because “I think we’ve run out the string.”
No one outside Mr. Obama’s close circle knows his position on retrans and other issues under the purview of the soon-to-be-reconfigured FCC and the Democratic-controlled Congress.
Most agree that in 2009 the economy, as well as such international trouble spots as Iraq, Afghanistan and the Palestinian-Israeli conflict, will push telecommunications issues down on the list of priorities.
Both the broadcasters and the cable operators expect to use that time to lobby the Senate Commerce Committee and the House Energy & Commerce Committee. Both congressional committees are expected to be more aggressive under their respective new bosses, Sen. Jay Rockefeller, D-W.Va., and Rep. Henry Waxman, D-Calif.
Broadcasters, who believe the cable operators want to eliminate retrans consent altogether, will continue to press their case that cable should have to pay for station signals, which are crucial to cable companies’ financial success. They bolster their case by saying local TV, with its unmatched ability to offer in-depth coverage of local issues and during local emergencies, is essential to consumers.
“One of the things we have to do is to pick our fights,” said Jack Sander, the Belo Corp. senior adviser who also serves as NAB joint board chairman.
Cable distributors are talking about a broader fight, especially in Congress. They expect legislators to resurvey the entire communications landscape, from the definition of distance signals to revision of the Satellite Home Viewer Extension & Reauthorization Act.
The cable industry will take a look at what 2008’s retransmission deals have wrought and work from there, said Matt Polka, American Cable Association president. “The first thing that has to be done is analysis of this current round and the amounts of money that are charged to consumers.”
Mr. Polka said two-thirds of his 1,100 member companies have 5,000 or fewer subscribers. The largest is Mediacom with 1.4 million.
“Broadcasters don’t talk about the rates, just that deals are getting done,” Mr. Polka said. “Some deals are getting done at higher levels than cable operators and subscribers have ever paid before. The truth is that just because deals get done doesn’t necessarily mean they’re good for the consumer. Deals get done because … our members know they’re stuck between a rock and a hard place.”
Mr. Polka said his constituency needs to translate into easy-to-understand terms the ripple effects of higher retransmission consent fees.
One term the cable industry is likely to utter when talking about retransmission consent is “transparency,” which has been a watchword used by the Obama team.
“We think it ought to apply to these agreements as well,” Mr. Polka said.
Mr. McSlarrow was diplomatic: “I think there’s room for a lot of different models to coexist and complement each other, but the moment [the balance of power] actually shifts in a big way, then the rules have to change.”