Here’s a scenario that could make Comcast execs toss at night: The cable operator rejects Disney’s demands for bloated increases in ESPN’s license fees and calls a halt to negotiations.
Disney then pulls its ABC-owned TV stations from Comcast’s cable systems in 23 of the top-26 markets, shutting out subscribers from shows like “The Bachelor,” “8 Simple Rules for Dating My Teenage Daughter” and “Alias.”
That’s an extreme projection, but with cable and satellite distributors ballooning to record size, the conflict over retransmission of TV stations is about to get a lot bloodier.
Dozens of carriage deals are in the works; cable networks with TV-station siblings are facing off against the giant operators, and each side is spoiling for a fight.
“You’ve really got big superpowers sitting down on both sides of the table,” says Michael Wolf, managing partner of McKinsey & Co.’s media practice.
The bone of contention is carriage. Cable systems refuse to pay cash for picking up the signals of TV stations owned by Viacom-CBS, Disney-ABC, News Corp.-Fox and NBC. But the federal government says that cable operators have to give these congloms something of value for retransmitting the stations’ popular programming.
The retrans law has always pissed off cable operators because in their view each of the four media goliaths gets its TV station signals from the government for free. Goliath then blackjacks the operators by forcing them to pay inflated prices for one or more of its cable networks as the price of carriage.
“Retransmission is a powerful weapon, and for broadcasters it’s like a club that can be wielded at the negotiating table,” says Mike Egan, a cable consultant and partner in Renaissance Media.
In a recent filing with the SEC, Comcast publicly sounded the alarm about retrans, prompting industry mavens to conclude that a whopping subscriber base may prove as much a detriment as an advantage.
For instance, the proposed script for the Comcast/ESPN faceoff may not be so farfetched.
Larry Gerbrandt, chief content officer for Kagan World Media, says ESPN — already more than twice as expensive as any other nationally distributed cable network in the U.S. — wants to raise its rates from a monthly fee of $2.25 a subscriber to $10 a subscriber by the end of the decade.
A spokeswoman for ESPN pooh-poohs Gerbrandt’s prediction, saying that the network can’t forecast its rates so far in advance.
But whatever ESPN’s designs, Gerbrandt says the disappearance of popular ABC shows from Comcast’s systems for any length of time could result in a mass exodus as customers cancel their cable subscriptions and buy satellite dishes linked up to DirecTV or Echostar.
“It’ll be awfully difficult for a cable operator to win the PR battle if his subscribers tune in to see the NBA championship on ABC and don’t find it,” says Terry Denson, head of programming for Insight Communications, a top-10 multi-system cable operator, adding:
“You won’t see these angry customers tearing up their tickets to Disney World — they’ll pin the blame on the cable operator.”
Operators don’t deny that useful cable networks have emerged from the retrans trade-off: FX, ESPN2 and MSNBC.
But, for example, when NBC used retrans four years ago to slap a surcharge for the Olympics on the operators worth tens of millions a year in extra money to the network, operators grumbled, sputtering words like extortion and blackmail.
Broadcasters, however, smell a whiff of hypocrisy in the distributors’ complaints.
As broadcasters see it, operators give proof every day of the value of the over-the-air TV stations by charging about $12 a month for the “lifeline” tier of programming.
That tier consists mainly of the local TV stations, plus C-SPAN and a couple of local-origination cable channels.
Satellite distributors dun their customers $5.99 a month for a package of TV stations affiliated with ABC, CBS, NBC, Fox, WB, UPN, PBS and Pax and pocket the revenue.
But Roxanne Austin, president and COO of DirecTV, says she’s going to hold the line against soaring cable-network license fees.
“Networks earn far more from advertising than they do from our license fee,” she says. “Clearly they can’t afford to lose” DirecTV’s 11.2 million subscribers.