Company Town

The business behind the show

« Previous Post | Company Town Home | Next Post »

Fox and Cablevision battle heading down to the wire

October 15, 2010 |  9:11 am

Who's going to blink first?

That's what the media industry and New Yorkers are wondering as the contract that allows Cablevision Systems Corp. to carry News Corp.'s Fox TV stations in the tri-state area ticks down to expiration at midnight Friday.

Both sides have a lot to lose if a new deal isn't reached. Rupert Murdoch's Fox would see its New York stations WNYW and WWOR vanish from more than 3 million Cablevision homes in Brooklyn, Queens, Long Island as well as parts of New Jersey. That would mean a ratings hit and a potential loss of advertising revenue. Cablevision, which is headed by the Dolan family, would hear from irate subscribers wondering where their programming went and, if the channels stayed off, could see consumers look for alternative programming sources.

Cablevision is arguing that Fox is being greedy. Its advertisements say that Fox wants the fees Cablevision pays for all of its channels (that would include FX, Fox News and other networks News Corp. owns whose contracts are not up right now) to go to $150 million a year from $70 million.

Fox counters that Cablevision pays itself $124 million a year for its own MSG sports channels, which typically have much smaller audiences than those of WNYW and WWOR, for which it pays nothing right now.

Both sides are playing a little fast and loose with facts. Cablevision is trying to tie what it pays for other News Corp. channels into this dispute, while Fox actually forsook money for WNYW in return for carriage of other cable channels.

These spats are becoming more common as the parent companies of broadcast networks -- including News Corp., CBS Corp. and ABC parent Walt Disney Co. -- aggressively try to create a second revenue stream through subscriber fees from distributors such as cable and satellite operators.

Congress gave broadcasters the right to negotiate for so-called retransmission fees almost 20 years ago, so this is not a new issue. However, in the past broadcasters used that leverage to launch new cable channels. ABC, for example, also owns ESPN and created ESPN2. NBC used retransmission consent to build what is now MSNBC, while Fox got FX out of the gate.

Now, though, there really is not much of an appetite for new channels, and furthermore, the broadcast industry needs a second revenue stream. Programming costs continue to rise while competition for ad dollars continue to heat up and ratings erode because of audience fragmentation. 

The cable industry fought long and hard against paying for broadcast channels, which consumers can get for free without cable. But now the industry is resigned to the fact that they'll have to pony up something to keep local stations on the air. The issue is how much.

Broadcasters have typically tried to set a benchmark of $1 per subscriber per month, which is on par with what many cable networks, including TNT, get. Of course, the cable operator also gets ad inventory from those channels to help them shoulder the costs. While the talk is loud before a deal gets done, everyone quiets down afterward. Generally, though, the fees are in the neighborhood of 50 cents per subscriber to start, then the price rises over the length of the deal. However, since these companies all own lots of channels, final terms are often hard to breakdown. When Disney struck a deal for ABC and its other networks with Cablevision earlier this year, both sides spun they had won.

Analyst Rich Greenfield thinks Fox has the leverage because it carries the NFL and the World Series (of course, if the Yankees don't make it, that might tilt the odds a little) and Cablevision won't want the heat that will come with the network going off its systems.

"News Corp. is not going to give an inch. We highly doubt the government [FCC] is going to get involved if the Fox signal gets pulled, and Cablevision cannot be without Fox programming for more than a few days," he wrote.

If the signal does go off for more than a day or so, politicians will start grumbling and the FCC may get pressured to get involved. That is bad news for both sides. As for who ultimately will pay the bill for all this -- well, you can probably figure that one out for yourself.

-- Joe Flint