Retransmission consent and affiliate/network conflict
Alexander Russo / The Catholic University of America
Retransmission seldom enters the public eye except at moments of conflict, when audiences lose access to the programs they hold dear. In the past several years, as broadcasters have searched for increased revenue, these kinds of conflicts have become more heated and more public. A consideration of these conflicts opens up comparisons with an earlier model of the network/affiliate relationship, those between radio networks and their affiliates in the 1930s and the 1940s. This model used the local station as a source of revenue for the national network and represents a more combative relationship between program distributors and program suppliers than has recently been the case. As the television industry seeks to reinvent itself in the age of digital convergence, it benefits media studies to be mindful of the parallels between our present moment and earlier ones.
Retransmission consent dates from the 1992 Cable Television Consumer Protection and Competition Act. Following a decade where cable companies saw significant increases in subscribes, the FCC sought to rebalance what it saw as a situation where stations were essentially subsidizing cable operators by providing content for free. ((Cable Television Protection and Competition Act of 1992 http://transition.fcc.gov/Bureaus/OSEC/library/legislative_histories/1439.pdf)) The existing cable regulations had “must carry provisions” that required cable companies to air local stations. This gave stations somewhat larger audiences but no other payment from the cable company. The new law allowed stations to retain the existing model or negotiate with the cable company for compensation by granting, “retransmission consent.” ((Federal Communications Commission, “Cable Television Information Bulletin,” June 2000. http://transition.fcc.gov/mb/facts/csgen.html)) This started a period of intense negotiations between stations and cable operators. Because the act also limited cable company rate increases, in many cases, the negotiated payments tended to be “in kind” agreements of various sorts, including specified advertising buys or channel carriage on the cable systems. This allowed broadcast networks or large station groups to create their own cable channels, for example, Fox’s FX or Scripps’ HGTV but, in so doing, largely served the interests of broadcast networks or large station groups, rather than smaller operations. This established a period of relative peace between stations and affiliates for the next decade. ((Indicative of both relative peace and the non-monetary nature of the agreements, in one of the few instances of a conflict between a cable and station group was over Fox’s demand that Cox cable carry and additional two Fox cable channels. Joe Flint, Battle Over Retransmission Blocks Fox TV Stations From Cox Cable, The Wall Street Journal, January 3, 2000, A12 http://online.wsj.com/article/SB946854879714968384.html))
In the mid 2000s, both stations and networks changed their negotiation practices and ushered in a new era of conflict. As broadcast networks and station owners eyed the raising fees cable companies paid to carry cable networks, the compromise agreements began to fray. For example, major market cable operators pay over $4.00 per month per subscriber for ESPN and smaller amounts for other cable networks. ((Robert Marich, “Broadcast’s $1 Billion Pot of Gold,” Broadcasting &Cable, July 6, 2008. http://www.broadcastingcable.com/article/114424-Broadcast_s_1_Billion_Pot_of_Gold.php. Brian Stelter, “News Corp.’s Deal With Time Warner Precedes More Cable Fees – NYTimes.com”, January 3, 2010, http://www.nytimes.com/2010/01/04/business/media/04cable.html?hp.)) In 2005, the Nexstar Television demanded higher retransmission consent rates from Cox Cable. When Cox refused, Nexstar pulled its stations from Cox for ten months, but ultimately it succeeded in becoming the first local station group to receive direct compensation for signal retransmission. ((John M. Higgins, “TV Grudge Match Reignites; Stations and cable brace for new retransmission-consent talks,” Broadcasting & Cable, October 3, 2005, http://www.lexisnexis.com.proxycu.wrlc.org/lnacui2api/results/docview/docview.do?docLinkInd=true&risb=21_T12909538384&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKey=29_T12909538388&cisb=22_T12909538387&treeMax=true&treeWidth=0&selRCNodeID=19&nodeStateId=411en_US,1,4,58&docsInCategory=2&csi=241806&docNo=2; “Perry Sook: Some retrans deals already over $1 per sub,” November 10, 2010. http://www.rbr.com/tv-cable/sook-some-retrans-deals-already-over-1-per-sub.html)) Shortly thereafter, broadcast networks and some of the larger station groups began using their Owned and Operated stations to demand significant fees from cable operators. ((Brian Stelter, “Broadcasters Battling for Cable Fees,” The New York Times, December 12, 2009. http://www.nytimes.com/2009/12/29/business/media/29cable.html?pagewanted=all)) These fights, such as Fall 2010’s conflict between Fox and Cablevision brought retransmission into the open. ((Lacey Rose, “The Retransmission War,” Forbes, December 30, 2009. http://www.forbes.com/2009/12/30/time-warner-cable-business-entertainment-fox-retransmission.html. Mike Farrell, “Smith Media Time Warner Reach Retrans Deal,” January 9. 2011. http://www.multichannel.com/article/462165-Smith_Media_Time_Warner_Reach_Retrans_Deal.php. Andrew Denny, KOMU Returns to Mediacom Lineup,” January 7, 2011. http://www.columbiatribune.com/news/2011/jan/07/mediacom-says-komu-returning-lineup/. Nellie Andeeva, “War Is Over: Fox & Cablevision Reach Deal – Deadline.com”, October 30, 2010, http://www.deadline.com/2010/10/war-is-over-fox-cablevision-reach-deal/)) As a result of these new tactics, the fees levied on cable and satellite operators by local stations have increased exponentially, from 500 million in 2008 to $1.14 billion in 2010 to and estimated $3.6 billion by 2017. ((Brian Stelter, “Networks Wants Slices of a New Pie,” The New York Times, July, 4, 2011, B1.)) However, as in the 1990s, this windfall has largely benefited the networks over smaller operations with them projected to receive over half of the total retransmission revenues via agreements concerning Owned and Operated Stations in 2012. ((Tore Nordahl, “The New Dynamics of Retransmission Fees?,” JVC ProHD Executive Report, July 19, 2011, http://usjvc.com/blog/?p=196))
In the last two years, broadcast networks have extended their retransmission demands and hardball tactics to their affiliates. As networks demand of cut of affiliates retransmission revenue, it alters their relationships with these stations from one of cooperation to one conflict and coercion. CBS and ABC decline to reveal how much of their affiliates’ retransmission revenue they believe they are entitled to, only specifying that it is “not 100 percent.” Still, both networks report significant increases in retransmission revenue. ((http://www.tvnewscheck.com/article/2009/11/03/36935/belo-abc-seeking-cut-of-retrans-dollars There are four ABC stations in the Belo group and it claims that the Disney/ABC cut would be $10.6 million for the quarter or 7.5% of their total revenue. Harry Jessell, “ABC, CBS Getting Reverse Comp from Belo,” February, 8, 2011. http://www.tvnewscheck.com/article/2011/02/08/48979/abc-cbs-getting-reverse-comp-from-belo. “Les Moonves says CBS is getting a cut of some affiliates retrains,” March 1, 2010, http://www.rbr.com/tv-cable/21802.html. Mark Miller, “Moonves: Reverse Comp Could Hit $450M,” August 2, 2011. http://www.tvnewscheck.com/article/2011/08/02/52958/moonves-reverse-comp-could-hit-450m.)) NBC, for its part, is proposing that it negotiate with cable and satellite networks on behalf of its affiliates and then divide any revenue equally. ((Joe Flint, “NBCUniversal’s Steve Burke Anticipates Big Bucks in Retrans Fees,” September 14, 2011. http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/09/nbcuniveral-steve-burke-retransmission-fees.html)) The network claims that this would garner greater revenue from stations than if they had to negotiate individually. Doing this would, as NBC’s Brian Lawlor claims, “completely changes the network-affiliate model” and is a “thoughtful and beneficial way of way of working together.” ((Steve Burke, NBC, “Affiliates Iron Out Blanket Retrans Deal,” Broadcasting & Cable, May 15, 2011 http://www.broadcastingcable.com/article/468357-NBC_Affiliates_Iron_Out_Blanket_Retrans_Deal.php)) It is not clear that its affiliates would agree. Belo Group president Donna Shive describes network demands for a share of station retransmission revenue as “really a mechanism for having the affiliates share in the cost of programming.” ((Harry Jessell, http://www.tvnewscheck.com/article/2009/11/03/36935/belo-abc-seeking-cut-of-retrans-dollars)) Others, like Robert Prather, President of the Gray Television group ruefully contends that retransmission revenue is, “based on our work and no one else’s…I think we ought to keep 100 percent of it.” ((Holly Sanders Ware, “Poor reception: Affiliates cool to networks’ plan to charge fees,” November 12, 2009. http://www.nypost.com/p/news/business/item_rd7p88ycaZIfEZfHtfiX4M#ixzz1bKsA0B00))
Fox has publically taken a hard-line position with its affiliates. While NBC was able to secure a blanket agreement by leveraging its own strong negotiating position and cross ownership, Fox did not. Seeking what has been estimated as much as $300 million dollars a year, it demanded that its affiliated stations pay it fees start started at 15 to 25 cents a month per subscriber and that increased over the next three years networks. This requires stations to use the same hardball strategy against cable operators that the network had used with when negotiating on behalf of its Owned and Operated stations. ((This analysis assumed 50 cents a subscriber for Fox-owned stations and 25 cents a subscriber for affiliates. http://latimesblogs.latimes.com/entertainmentnewsbuzz/2009/11/networks-preparing-to-battle-cable-and-maybe-their-own-affiliates-over-retransmission-consent.html)) Many stations contend they cannot pay – although large market stations can generate up to $1 per subscriber, the affiliate average is only 26 cents. ((Harry Jessell, “Fox, Affils, Exchange Fire over Retrans,” Tvnewscheck, February, 9, 2011, http://www.tvnewscheck.com/article/2011/02/09/48992/fox-affils-exchange-fire-over-retrans. Joe Flint, “Fox TV demands share of stations’ retransmission fees,” Los Angeles Times, February 12, 2011 http://articles.latimes.com/2011/feb/12/business/la-fi-ct-fox-affiliates-20110212)) Fox affiliates were upset by this tactic, viewing it as a threat to their affiliation with one affiliate noting to a trade website, “It’s not like it used to be…It’s not a partnership between the network and the affiliates.” ((The new policy also raises the per subscriber fee to 50 cents in four years for stations in the top 125 markets and from 15 to 25 cents for stations in smaller markets. P.J. Bednarski, “Fox Gives no Ground on Retrans Sharing,” TVNewscheck, http://www.tvnewscheck.com/article/2011/04/12/50547/fox-gives-no-ground-on-retrans-sharing Joe Flint, “Fox playing hardball with its affiliates in dispute over money – latimes.com”, February 10, 2011, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/02/fox-and-its-affiliates-throw-punches-in-fight-over-money.html. Michael Malone, “Fox, Nexstar Cut Ties in Springfield, Mo. and Ft. Wayne,” Broadcasting & Cable, June 6, 2011, http://www.broadcastingcable.com/article/470015-Fox_Nexstar_Cut_Ties_in_Springfield_Mo_and_Ft_Wayne.php.)) One further point of contention was that Fox had undercut the negotiating power of its affiliates by allowing cable operators to air Fox network programming even if individual stations were blacked out during a retransmission dispute. ((David Goetzl, “MediaPost Publications TWC, Sinclair Wrangle Over Retrans, Threaten Blackouts”, December 17, 2010, http://www.mediapost.com/publications/article/141484/. Joe Flint, “Fox clause is focal point of fight between Time Warner Cable and Sinclair Broadcast Group”, December 6, 2010, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/12/fox-clause-is-focal-point-of-fight-between-time-warner-cable-and-sinclair-broadcast-group.html.)) Moreover, Fox revoked the affiliation of two Nexstar-owned stations when they challenged the new contractual terms. ((Michael Malone, “Fox, Nexstar Cut Ties in Springfield, Mo. and Ft. Wayne – 2011-06-20 17:26:10 | Broadcasting & Cable”, June 6, 2011, http://www.broadcastingcable.com/article/470015-Fox_Nexstar_Cut_Ties_in_Springfield_Mo_and_Ft_Wayne.php.))
As various parties jockey for position, some historical perspective is worth noting. Disputes between broadcast networks and their affiliates over revenue are nothing new. Indeed, these fights evoke similar battles between radio networks and their affiliates in the 1930s. Then, networks wanted to control as much of the affiliates’ schedules as they could in order to maximize the number of network sponsored shows (as opposed to locally sponsored programs) as possible. They contended that it was the national programming that caused audiences to tune in and used “option time” clauses to guarantee carriage. In contrast, affiliates, which depended on local shows for the bulk of their revenue, shared a position with today’s television affiliates, who depend on local news for the lion’s share of their revenue. The use of affiliates to generate revenue meant that, in the 1938, for example, NBC and CBS and their stations accounted for over half of the total radio advertising. NBC and CBS paid stations they owned far more per station than they paid independent affiliates — nearly $5 million to its 23 Owned and Operated stations and $9.6 million to the other 327 affiliates. ((Federal Communications Commission, Report on Chain Broadcasting, (Washington, DC: Government Printing Office, 1941) 32-33.)) Likewise, networks retained effective control over station rates, effectively controlling their compensation. ((Ibid. 43)) However, as I have addressed elsewhere, a few owners of larger stations and station groups, such as Powel Crosley, Jr. and John Shepard III, effectively challenged the networks and established viable, independent operations but most did not. ((See Alexander Russo, Points on the Dial: Golden Age Radio beyond the Networks. (Durham, NC: Duke University Press, 2010).)) The few restrictions placed on network/affiliate contracts, in part, led an activist FCC headed by James Fly to break up the two NBC networks, institute limits on the networks’ ability to control their affiliates’ schedules, and promote the licensing of more, smaller stations. ((Michael Socolow, “Questioning Advertising’s Influence Over American Radio: The Blue Book Controversy of 1945-1947.” Journal of Radio Studies 9, no. 2 (2002): 282-302.)) These actions granted stations somewhat more autonomy but the situation did not fully resolve itself until recorded programming became a viable alternative programming source.
The issues are similar then as now: what is it that attracts audiences; how much is an affiliation worth; how powerful is an affiliate’s owner. Then, as now, affiliates claim that local news, community outreach, and promotional efforts attract audiences and networks claim that it is their programming. ((Holly Sanders Ware, “Poor reception: Affiliates cool to networks’ plan to charge fees,” November 12, 2009. http://www.nypost.com/p/news/business/item_rd7p88ycaZIfEZfHtfiX4M#ixzz1bKpi8TC3http://www.nypost.com/p/news/business/item_rd7p88ycaZIfEZfHtfiX4M. “Les Moonves insists that retrans cash is network driven,” http://www.rbr.com/tv-cable/les-moonves-insists-that-retrans-cash-is-network-driven.html.)) Then, as now, networks use Owned and Operated stations to establish patterns that then are applied to all affiliates. Then, as now, a few powerful affiliate owners are able to force a space between their own interests and those of the network that they affiliate with but smaller groups or independent owners are forced into line.
In the 1940s the issues were eased somewhat by an interventionist FCC that implemented stricter affiliate-network relations but the issue did not truly end until stations shifted to recorded programming and network radio program distribution collapsed in the 1950s. The FCC is revising its retransmission consent regulations, but this is a far different and enfeebled body than its 1940s incarnation. (( Joe Flint, “FCC Votes to Reexamine Its Rules on How Broadcasters and Cable Operators Negotiate,” March 3, 2011. http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/03/fcc-votes-to-reexamine-its-rules-on-how-broadcasters-and-cable-operators-negotiate.html?cid=6a00d8341c630a53ef014e867f1eaa970d; Joe Flint, “Broadcasters and Distributors Debate Retransmission Consent Rules,” May 26, 2011. http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/05/broadcasters-and-distributors-debate-retransmission-consent-rules-at-fcc.html. Joe Flint, “Time Warner Cable and DirecTV team up to lobby FCC”, September 22, 2011, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/09/time-warner-cable-and-directv-lobby-fcc.html.)) On January 1, 2012, over half of the existing retransmission consent contracts will expire and we can expect further conflicts as that deadline approaches. Indeed, as I write this, DirectTV is threatening to pull Fox Networks if they can’t come to an agreement by November 1. ((Kimberly Nordyke, “DirecTV Threatens to Pull Fox Networks Amid Carriage Dispute – The Hollywood Reporter”, October 20, 2011, http://www.hollywoodreporter.com/news/directv-threatens-pull-fox-networks-251568.)) It remains to be seen if this kind of conflict will remain the new norm.
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