Broadcasters Battling for Cable Fees

The nearly billion-dollar battle between broadcasters and cable operators over programming fees has gone public.The News Corporation is threatening to remove its Fox stations from Time Warner Cable systems at the end of this week if the cable company does not agree to pay sizable subscriber fees, the same way it does for cable channels. In negotiations, the News Corporation is pushing for about $1 for each subscriber, potentially setting a precedent for broadcasters that are seeking a new revenue stream to offset advertising declines.

Time Warner Cable is playing hardball, running an advertising campaign to prepare viewers for the prospect of a January without college bowl games or “American Idol.” The company’s so-called retransmission agreements covering Fox’s stations in New York, Los Angeles, Dallas, Orlando and other cities expire on Dec. 31.

Fights over retransmission affect every person who pays for television. Broadcasters’ demands for higher fees will “without a doubt translate to increasing costs for consumers that buy packages of programming,” said Melinda Witmer, the chief programming officer for Time Warner Cable. (The company announced annual rate increases for customers this month.)

The News Corporation is demanding the money on behalf of its 27 owned stations, but it is also pressuring about 150 affiliates for a share of their retransmission payments. The public posturing is the clearest sign yet that the owners of Fox, CBS and other over-the-air networks are demanding substantial amounts from the cable operators that carry their content into millions of homes.

For most of the last two decades, the owners of networks effectively gave away the retransmission rights for their stations in exchange for prime positions on cable systems. Now, however, beleaguered networks and their affiliates want direct payments for their programming. Cable channels like TNT and ESPN operate the same way; they make money both from advertising and from subscriber fees.

Some over-the-air stations started to wring fees out of smaller carriers several years ago. For stations, the fees normally amount to nickels, dimes and occasionally quarters for each subscriber each month. But Fox is asking for much more. People close to the Time Warner Cable negotiations said Fox’s owned and operated stations are demanding about $1 for every subscriber.

“It’s hard to argue that, when you look at the value of the programming on the network, that it isn’t worth what cable channels get,” said a Fox executive familiar with the negotiations. Like other people involved, the executive requested anonymity because the process is confidential.

The negotiations pit Glenn A. Britt, the chief executive of Time Warner Cable, against Chase Carey, the new president and chief operating officer of the News Corporation. Mr. Carey has experience on the other end of the table: he ran DirecTV, the satellite distributor, until last June. He has said publicly that Fox is worth $5 a month, given its sports programming and prime-time hits. That would make Fox even more valuable than ESPN, the most expensive cable channel, which earns about $4 for each subscriber.

“We realize this is going to be a tough challenge,” Rupert Murdoch, the chairman of the News Corporation, told investors two months ago, “but we’re determined to take a leadership position in creating an economic template for the future.”

In an assessment last week, the Miller Tabak analyst David C. Joyce said the negotiations were “precedent-setting” for Fox.

Satellite operators like the Dish Network and telecommunications companies like Verizon have generally been more willing than cable operators to compensate local stations, television executives say. But in the last year, CBS reached significant deals with Time Warner Cable and Cablevision.

“The world has acknowledged that networks deserve to get paid for their content like cable networks get paid,” said Leslie Moonves, the chief executive of the CBS Corporation, who has been the industry’s most vocal supporter of retransmission fees.

CBS reportedly receives up to 50 cents for each subscriber, although the deals vary. Because the negotiations are normally confidential, the company declined to comment on the amounts earned. But Mr. Moonves said he expected CBS’s owned stations would earn $200 million to $250 million in retransmission revenue by 2012. All the networks are talking about retransmission “in a much more pertinent manner right now,” Mr. Moonves said.

The fees paid by cable, satellite and telecommunications operators “has grown by double digits” for each of the last three years, said Justin Nielson, an analyst for the research firm SNL Kagan. He projects that stations will earn $933 million in retransmission fees next year, up from $739 million this year.

But the fees account for just 5 percent of station revenue, according to SNL Kagan — hardly a savior for broadcasters. Cable channels, meanwhile, are on track to earn almost $28 billion from fees next year.

Creating a new front in the fight, networks like CBS and Fox are insisting that their affiliates start sharing the retransmission fees they receive from carriers, too. They figure that because they provide marquee programming, they should share in the fees.

“There are certain affiliates that are totally on board and get it, and there are certain affiliates that object to it,” Mr. Moonves said. “It will come to a head as the deals with station groups come up,” a multiyear process.Between Fox and Time Warner Cable, the fight is not about whether Fox should be paid, but about how much. The cable company says that it is willing to pay for retransmission, and that it is only balking at Fox’s asking price. “There’s no question we’ve seen an increase in desperation on the broadcast side,” Ms. Witmer said.

Ahead of several renewal fights, including the one with Fox, the company introduced a campaign in late November called “Roll Over or Get Tough.” In TV commercials and print ads aimed at its customers, it claimed that networks like Fox were “demanding price increases as high as 300 percent,” and encouraged customers not to “roll over.” The TV commercials played like political ads, complete with ornaments falling off an animated Christmas tree.

Fox responded with a Web site, Keep Fox On, that said it was merely asking the carrier for “fair value compensation.” It says that TNT, a cable channel with a fraction of Fox’s budget, earns $1 per subscriber per month from some operators.

Ms. Witmer said there were crucial differences between Fox, which is available over the air, and TNT, which is a “cable product.” She said Time Warner Cable was concerned about the amount of programming that Fox puts on the Internet, undermining the cable business model. Unlike broadcasters, she added, cable channels provide carriers with advertising time.

Caught in the middle are TV viewers. Last week Senator John Kerry, Democrat of Massachusetts, called on both sides to strike a deal because, he said, “millions of football fans are depending on it.”

In a letter to Mr. Britt and Mr. Carey, he suggested that the stations remain available to cable customers if the two sides fail to reach a deal by Jan. 1. For how long? Mr. Kerry wrote, “Through the college bowl season.”

Source: http://www.nytimes.com/2009/12/29/business/media/29cable.html?pagewanted=2&ref=technology