Retransmission issues nab spotlight

Fox, TW drama suggests more conflict to come

The drama of the New Year’s Eve showdown between Fox and Time Warner Cable has thrust the arcane biz issue of retransmission consent rights into the spotlight for consumers and lawmakers.

The political pressure applied by Sen. John Kerry (D-Mass.) and FCC chairman Julius Genachowski as the midnight deadline loomed Thursday likely influenced Fox’s decision to grant a series of temporary three-hour contract extensions that prevented the channels from going dark while the sides kept negotiating. Fox and Time Warner reached an agreement about midday Friday after a marathon two-day negotiating session in conference rooms on the 20th Century Fox lot.

Both sides refused to comment on financial terms of the deal per the terms of what were described as ironclad nondisclosure agreements inked by execs from both camps.

Agreement is believed to run for at least three years, and the fees Time Warner pays Fox will escalate over the term of the deal. Fox had been seeking $1 a month per subscriber for retransmission rights to 14 of its owned stations in nine key markets served by Time Warner Cable. Time Warner’s offer as of Thursday was around 30¢ per sub. Both sides played hardball during many months of negotiations. It was only as the clock ticked down on Thursday that there was real give and take at the bargaining table, insiders said.

A source familiar with the deal said the fee structure would rise to the 50¢-60¢ range by the final year of the contract, but that could not be confirmed by company insiders. Time Warner is the nation’s second-largest cable operator, with 14.6 million subscribers, including those of Bright House Networks.

Also wrapped up in the retrans negotiations were new carriage deals for a number of Fox-owned cablers including FX, Speed TV, Fuel and 10 regional sports cablers, and industry sources said that some of the retrans coin Time Warner will pay also could incorporate compensation and other consideration (such as marketing and promo support) for those cable outlets. Time Warner structured such a deal last February in a complex retrans pact with CBS Corp. for its 29 TV stations plus cablers Showtime and College Sports TV. CBS hasn’t been shy in telling Wall Street and others that it secured a retrans fee of about 50¢ per sub per month from Time Warner.

The high public profile of the Fox-Time Warner brawl — complete with dueling newspaper and TV ads and websites — during the past six weeks drew the attention of Kerry, who waded into the situation in his capacity as chairman of the communications-focused subcommittee of the Senate Commerce Committee. He proposed in a Dec. 22 letter to News Corp. chief operating officer Chase Carey and Time Warner Cable CEO Glenn Britt that the sides submit to arbitration before the FCC and sign temporary agreements.

When Fox nixed that suggestion, Kerry said Wednesday that he would ask the FCC to intervene if the channels went dark. FCC chairman Genachowski stayed on the sidelines until the following day, when he issued a statement in the afternoon urging Fox and Time Warner to strike a temporary extension to keep the channels on.

“Companies shouldn’t force cable-watching football fans to scramble for other means of TV delivery on New Year’s weekend,” Genachowski said.

Although the Fox-Time Warner drama ended without a blackout, the intensity of that fight is a sign of more brawling to come.

One ongoing fight is between Sinclair Broadcast Group and cabler Mediacom, which threatens Sinclair stations in 11 states and markets including St. Louis, Milwaukee, Nashville and Tallahassee, Fla. Sinclair and Mediacom’s retrans talks, which also faced a Dec. 31 deadline, have been so rough that Mediacom filed a complaint against the Baltimore-based Sinclair at the FCC last month, accusing the company of failing to negotiate in good faith. Sinclair and Mediacom signed an eight-day extension on Thursday amid the same kind of political pressure Time Warner and Fox were facing.

Broadcasters, especially Big Four network affils, are focused on wringing far more coin out of cable operators for the right to carry their stations signals, which remain among the most-watched channels on the cable dial. The Big Four maintain that they deserve to be paid fees commensurate with those commanded by top cablers at a time when the traditional network TV business model is under pressure on many fronts.

Cable operators, not surprisingly, are alarmed by the prospect of a triple-digit increase in programming costs and have every incentive to play hardball with station owners. The Fox-Time Warner deal is seen as setting an important benchmark for what the cable market will bear for retrans deals.

The threat of more showdowns to come may prompt lawmakers and the FCC to take steps to implement some kind of mandatory extension or cooling-off period for negotiations that go down to the wire in an effort to spare consumers the hassle of losing services.

But Genachowski has indicated he’s not eager to have the FCC serve as a referee in negotiations between private business interests, per the terms of the 1992 legislation that established the retrans/must-carry rules for broadcasters and cable operators.

“The governing statute contemplates that retransmission terms should be and will be resolved by agreement between private companies, and broadcast and cable companies must accept shared responsibility for any failure to reach a timely deal,” Genachowski said.

In a sign of the urgency of the issue for broadcasters, Disney took the unusual step of going on the record Wednesday with a statement of support for Fox in its retrans battle. Disney had its own retrans war with Time Warner in May 2000. ABC’s most recent retrans pact with Time Warner is believed to be up at the end of this year.

“The hit programming on the ABC Television Network in tandem with the preeminent local news and community affairs efforts of our 10 local ABC stations has tremendous value and is worthy of fair compensation,” a Disney spokesman said. “Overall, cable operators pay only about $25 a month for all of the programming on the basic and expanded basic tiers, and they sell this to consumers for some $60-$70. Considering these numbers and the fact that operators use these video offerings to upsell even higher margin broadband and phone services, blaming programmers for cable price increases is just plain wrong.”

There is no doubt that cable operators have gradually been forced to pay higher fees to broadcasters. According to a report by research firm SNL Kagan, TV stations will earn a projected $933 million in retrans fees in 2010 compared with a projected $739 million in 2009. CBS Corp. CEO Leslie Moonves told a Wall Street confab last month that he expects CBS’ 29 stations will bring in $200 million-$250 million in retrans fees by 2012.

In the end, what broke the Fox-Time Warner impasse was the face-to-face huddle and the threat of a political firestorm erupting if they didn’t come to terms.

Fox Networks Group chairman Tony Vinciquerra and distribution chief Mike Hopkins led the talks on the Fox side, while Melinda Witmer, Time Warner Cable’s exec veep-chief programming officer, led the Time Warner contingent that flew to L.A. early last week. In a note to Fox Network Group employees, Vinciquerra emphasized it was an all-hands-on deck effort for the division, and led to an agreement that helps “Fox continue as the industry leader.”

Chase Carey, News Corp. chief operating officer, said in a statement that the “fair agreement … recognizes the value of our programming.”

Time Warner Cable chairman Britt said the company was gratified to have “reached a reasonable deal with no disruption in programming for our customers.”

Overshadowed by the Fox-Time Warner headlines was another cable contract renewal fight that went down to the wire on New Year’s Eve. Scripps Networks pulled Food Network and HGTV from Cablevision systems serving areas of New York, New Jersey and Connecticut.

Scripps said that Cablevision pays less than 25¢ per m
onth per subscriber for both channels and that it was asking for less than $1 per sub for Food and less than 73¢ per sub for HGTV. Scripps has launched websites and IloveHGTV in an effort to ramp up viewer pressure on Cablevision, which has more than 3 million subs.

Cablevision said flatly that the company had “no expectation of carrying (Scripps) programming again,” and it pulled no punches in offering its perspective on why Scripps was seeking higher fees for the channels.

“We are sorry that Scripps’ current financial difficulties are making it impossible for them to continue our relationship on terms that are reasonable for Cablevision and our customers,” the statement said.

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