TV stations counting on retransmission consent to generate a cash bonanza from cable operators may be in for a rude awakening.
The cable giant Tele-Communications Inc. already has said publicly, via chairman John Malone, that its systems have no intention of honoring a clause in the pending cable legislation that requires operators to pay local-market TV stations for retransmission of their signals.
And that has some stations bracing for the worst. “We don’t expect to get a nickel from cable operators for our local signals,” says Deb Zeyen, VP of the five major-market TV stations owned by Group W.
Alan Bell, president of the broadcast division of Freedom Newspapers, which encompasses network affiliates in five markets, says, “It’s a pie-in-the-sky dream that huge amounts of revenue are about to flow into the coffers of TV stations from cable operators.”
Part of the problem, says TCI’s Bob Thomson, VP of government affairs, is the added expense that cable operators would be forced to pass on to consumers (assuming the government allows operators to boost subscriber bills).
“There’s no way we could explain to our customers or to local city councils that we’d have to jack up the monthly rates to our subscribers for TV stations they could get for free over the air if they didn’t subscribe to cable,” he says.
But Bell and other broadcasters expect TV stations that schedule high-rated series and specials will be able to extract some cash from cable systems–not to mention other considerations, such as:
o Improved channel position for stations stuck in the cable Siberia beyond channel 13.
o The promise of giving stations a second channel (for repeats in different time periods) when compression technology allows cable systems to double or triple their channel capacity.
o Cooperative arrangements in which TV stations and cable systems share advertising revenues from jointly produced channels, such as an all-news service. TV stations could use the co-op channel as a farm system to groom anchors and reporters.
o Promotional spots for TV stations’ programming during commercial breaks on the cable networks carried by the operator. (Most cable nets set aside two minutes per hour for sale by local cable systems.)
As Bell puts it, “The negotiations between the stations and the cable systems will result in a Chinese menu of choices.”
Bell’s rationale for the funneling of such largess from cable to broadcasting is that “just about 60% of all viewing on the typical cable system goes to the affiliated TV stations of the Big Three networks.”
But Dan Cavallo, senior VP of program development for the Newhouse cable operation, a top-10 MSO, says if a TV station wants to be treated like a basic-cable network, which pockets a monthly per-subscriber license fee from each cable system, that station “will have to give me two minutes an hour in advertising time. I’d love to pick up two minutes in the Super Bowl to sell against the local network affiliate.”
For every concession the TV station demands of a cable operator, Cavallo says the operator should be just as aggressive in demanding equal concessions from the broadcaster. “I’m fully prepared to negotiate with the local broadcasters,” he adds, “because, who knows, I might come out ahead in the deal.”
But the pressures on stations to squeeze cash out of cable systems will be enormous, says Jim Sefert, chairman/CEO of Cosmos Broadcasting, which owns seven TV stations in the South and Midwest.
“Once the bill passes, the broadcasters will get some money out of cable systems,” says Gus Hauser, chairman and CEO of Hauser Communications, a top-40 MSO. “TV stations are out for blood.”
Sefert cites the broadcast networks, which would love to see their affiliates tap into a new revenue stream because such a cash windfall would give the webs an excuse to continue drastically cutting back on the compensation money they fork over to the affils.
He also points to the Hollywood TV distributors, particularly the major studios, which are writing clauses into contracts for syndicated shows that, in effect, cut the distributor in on any cash a TV station rakes in through retransmission consent. Sefert says his Cosmos stations refuse to accept such clauses.
Sources say that stations agreeing to such deal points may have a strong incentive to steer clear of cash payments, opting instead for in-kind services such as free promo spots.
Other broadcasters have no intention of even trying to extract cash from cable systems.
“My primary thrust is getting our stations on every cable system in the coverage area through must-carry,” says Bob O’Connor, president of Combined Broadcasting, which owns relatively weak UHF independent TV stations in Chicago, Philadelphia and Miami.
According to sources, must-carry–another provision of the cable bill–would lock in carriage of the station’s signal for three years on systems already transmitting it. It also would require carriage on systems that don’t transmit the signal despite the fact that they serve viewers in the station’s area, like the Pennsylvania cable systems that decline to carry Combined’s WGBS Philadelphia.
But once a station invokes must-carry, it relinquishes the right to try to negotiate cash payments from cable systems, these sources say. The opposite is true for stations going the cash-payment route.
For the stations that elect to negotiate, “cable operators will fight them tooth and nail,” says Hauser.
The crunch will come when the parties reach an impasse and the TV station faces the prospect of having its signal removed from the cable system. The betting is that the TV station would probably end up settling for small, not big , bucks rather than suffering the loss of as much as 60% of its audience.