TV blackouts in the U.S. have reached the highest level in a decade and may climb as pay-TV operators fight higher fees sought by content providers. Disputes over fees have caused five blackouts this year, the most since 2000–affecting some 19 million pay-TV subscribers and leaving some viewers without access to such content as the Oscars and NY Knicks games. Dish Network, Cablevision Systems and AT&T all lost programming while haggling over costs.
Feuds will escalate as pay-TV companies resist the increased fees they typically try to pass on to subscribers in the form of higher cable bills, Rich Greenfield, an analyst at BTIG LLC in New York told Bloomberg in a report: “There is increasing pressure for distributors to push back on rate hikes in a tough economy where the consumer is struggling. As programming costs continue to rise, these battles are becoming bigger and higher profile.”
Content expenses, which total about half of pay-TV companies’ operating costs, have increased about 10 percent in the past year, putting pressure on profit margins. Cable bills climbed about 8 percent on average for the year ended in June, according to researcher SNL Kagan.
Cablevision and Dish Network are currently negotiating with News Corp. over fees for Fox. Cablevision’s contract with News Corp. ends 10/15, and Dish’s expires on 11/1. If agreements can’t be made by then, Fox could go dark on both carriers.
“It would be terrible business practice to allow any distributor to secure a signal without a valid contract,” Fox said in a statement. “If a provider were to decide to pass on a reasonable offer — one that was consistent with our other distribution agreements — then legally they could not re-sell our signal to their subscribers.”
High unemployment and stagnating wages are threatening the consumer’s willingness to pay steeper prices for television services, especially when there’s cheaper alternatives such as Web video and movie-rental provider Netflix, said Chris Marangi, an analyst at Gabelli & Co. told Bloomberg.
Cable and satellite operators are losing their pricing power and content providers, including Disney, are further aggravating pay-TV companies by offering shows for free on competitive platforms such as Hulu.com, while making distributors pay premium prices for the same programming.
“The idea that the programmers, who are charging more for their programming, are then taking that programming and making it free on the Internet — that really pushes the envelope,” Jim Dolan Cablevision CEO, recently said at an investor conference.
This month, News Corp.’s Fox Networks cut delivery of 19 local sports channels, FX and National Geographic, to Dish subscribers because of a dispute over rate increases. The contract has expired without an agreement on a new price, and Fox has pulled the channels. DISH says that Fox wants a rate increase of greater than 50%.
Disney’s WABC-TV NY pulled its signal to Cablevision customers in March, leaving 3 million homes in New York DMA without access to the first 13 minutes of the Academy Awards telecast. No terms of the retransmission consent agreement were disclosed. Cablevision had previously paid zero for the right to resell WABC programming to its cable subscribers. During the 21 hours that WABC was missing from its cable systems, all in the Tri-State area of greater New York, Cablevision had announced that all on demand movies ordered on Sunday would be free to its subscribers.
The public, high-profile disputes don’t serve the industry well because they can backfire and prompt discussions in Washington about potential a la carte pricing, David Joyce, an analyst at Miller Tabak & Co. told Bloomberg.
Still, cable companies and satellite distributors are trying to push programmers to allow them to bundle smaller, cheaper options for customers. Time Warner Cable has been championing the idea to sell less costly packages of fewer channels to lure economically strapped consumers.
“We’ve expressed an interest in having smaller packages,” Rob Marcus, Time Warner Cable’s CFO, said at an investor conference. “The reality is that our programming vendors have a different interest, which is having the broadest possible carriers they can.”
Of course, to keep a level playing field, broadcasters are requiring distributors to pay retransmission fees as well for their broadcast channels that were previously free. This is adding to the battle as well.
Chase Carey, News Corp. President/COO, said this year that he thinks Fox is worth $5 a month. That would top the most expensive channel out there, Disney’s ESPN, which brings in $4.08 for each subscriber, according to SNL Kagan.
The dispute has made its way to DC. Many of the country’s biggest pay-TV operators, including Time Warner Cable, have signed a petition for rulemaking with the FCC to require, among other things, stations to keep sending a signal as long as the negotiations continue in good faith. They have also formed a lobbying group called the American Television Alliance to push for Congressional action.
RBR-TVBR observation: The first distributor to offer channels on an a la carte basis would surely be a hit with consumers. However, we highly doubt it would be accepted by the conglomerates such as Viacom/MTV Networks or Turner Networks, as (for one thing) their upfront negotiations are based on buys across all of their networks to hit the reach and frequency targets negotiated months before. Another thing—their valuations are based on the number of subscribers across the country. A la carte would be messy. However, take note (as the story implied): politicians who want to make a big name for themselves may see this increasing controversy as a means to put a la carte pricing on the table to lower rates for the cash-strapped consumer. Needless to say, they would get a lot of support from the public. But fast forward—if this happens, you’ll be charged $3.96 to watch an hour of “River Monsters” on Animal Planet. Does anyone really want such a model?