Fights between programmers and distributors heat up as 2011 nears
We've seen this movie before. The programmer says it isn't getting paid enough for its programming. The cable operator says it already pays too much and, given the tough economy, now is not the time to be asking for more money. The two sides bicker back and forth and take out ads accusing the other of negotiating in bad faith. Eventually, local and national politicians jump into the fray, and then at the last minute a deal is reached.
As the end of the year approaches, there are several skirmishes going on between programmers and distributors that will hit full boil when the clock strikes 2011. It isn't just broadcast networks and local TV stations in these feuds. Viacom, parent of cable channels MTV and Nickelodeon, is in an ugly fight with Suddenlink, a large cable operator with systems in Texas, Louisiana and West Virginia. Comcast's E! and Style Network are in danger of being dropped by satellite broadcaster Dish Network, and its Golf Channel could be dropped by DirecTV.
The battle everyone is watching is between Sinclair Broadcast Group and Time Warner Cable. Sinclair owns almost 60 television stations across the country, including 20 Fox affiliates. Its stations are carried by Time Warner Cable systems that serve 8.5 million consumers.
Both sides have stopped talking. Earlier in the week, Sinclair said Time Warner Cable rejected an offer to continue carrying its stations for an additional 10 cents per subscriber per month. Unfortunately, neither Sinclair nor Time Warner will say what the total cost of carriage on a per-subscriber basis would be with that additional 10 cents. Given all the heated rhetoric, it seems safe to say it is an increase that would put the cost over 25 cents per subscriber and perhaps even north of 50 cents, with annual increases included as well.
What makes this dispute worth paying attention to over the others is the behind-the-scenes role that News Corp.'s Fox Broadcasting Co. is playing. Earlier this year, Fox struck a deal for its own TV stations with Time Warner Cable. As part of that pact, there is a clause that allows Time Warner Cable to purchase Fox programming should the cable operator lose the rights to carry the signals of a Fox affiliate.
Fox says it agreed to the clause so consumers wouldn't lose its programming as a result of negotiations gone awry. "Our goal is to protect Fox viewers from any service interruptions, allow our affiliate partners to reap their local ad dollars and continue to negotiate a retransmission agreement without deadline pressure," Scott Grogin, a Fox spokesman has said. "We also believe that the deal provides significant incentive to both sides to come to an agreement that protects consumers."
Some affiliates think that Fox is meddling and undercutting its own partners. Barry Faber, the general counsel for Sinclair, said earlier this month that Fox's deal with Time Warner Cable "makes it more difficult to negotiate for retransmission consent if your network has provided the cable company an alternative way to receive the feed."
Fox has an interest in seeing Sinclair get as much money as it can from Time Warner Cable because it, like other broadcast networks, wants a cut of any fees their affiliate partners get from cable and satellite operators.
With that in mind, Sinclair and other Fox affiliates are wondering why the network would agree to something that could potentially take away the leverage their affiliates need to cut the best possible deal.
Given that Fox does provide prime-time programming and big sporting events too, it is not surprising that it would want some of that money.
But Fox is asking its affiliates for a big chunk of their so-called retransmission consent revenues, according to industry executives familiar with the situation. That, in turn, is putting pressure on the affiliates to squeeze the cable operators.
Of course, in the end, we all know who will get squeezed the most.
-- Joe Flint