Deconstructing a retrans he-said she-said report


Dollar Sign
The American Cable Association is pressing the FCC to restrict broadcasters when it comes to retransmission negotiations, and MVPDs in general have been seeking government assistance at the FCC and on Capitol Hill for some time. A recent article by a trade publication looked at the issue, but an even earlier study by the same publication sheds some light on the issue very much in broadcast’s favor.

SNL Kagan took a look at the latest ACA complaint.

Everybody acknowledges that the programming costs borne by MVPDs and generally passed on to their subscribers are going up.

The drivers aren’t under much dispute either. The two areas that are increasing are sports programming and broadcast retransmission.

However, the reasons for the increases aren’t always identified – but an RBR-TVBR look at a study that appeared in SNL Kagan a few months back in 2012 pointed out one key fact about the broadcast end. In a nutshell, broadcasters are paid far less than one would think when their popularity is taken into consideration.

Here are some key passages of the RBR-TVBR report:

“And according to Kagan, the numbers show ample room for growth. It cites the work of Todd Juenger at Sanford C. Bernstein. He believes MVPDs are paying a total of about $33/sub in program fees right now. Despite a 40% audience share, broadcasters are earning only $1.25 of that total – about 3.8%. Basic cable gets $22, $5-$6 goes to premium channels, $2 is earmarked for VOD and regional sports nets claim $2.

“It would not be surprising at all if broadcast hit $4/sub by 2025, and still have room to grow. Although the growth projection is complicated by the free availability of broadcast off-air, it could be even higher. However, Juenger believes that $2/sub would be a good goal, giving broadcasters a 7% growth rate, a small enough bite to keep MVPDs reasonably happy.

“SNL’s Robin Flynn added a bit of historical perspective, pegging total retrans at an estimated $215M in 2006, to $1.46B in 2011 – and a 2017 projection of $4.86B. Flynn agreed with Juenger’s comment that $2/sub by 2025 was a goal that may be acceptable to both sides.”

RBR-TVBR observation: Here are some things to keep in mind when considering this issue:

* Broadcasters are paid far below their value to MVPDs – they are often the only source an MVPD has for local content, including critical news, public affairs and emergency broadcasts, and on top of that are the most popular channels overall, and reach almost all subscribers. Rapid increases in this sector are happening because broadcasters are playing catch-up and are nowhere close to being compensated at a rate commensurate with their value.

* Sports costs are rising with alarming speed, and passed along to all subscribers even though only a fraction are heavy users of sports programming.

* Many basic cable channels are probably earning retransmission compensation far in excess of what would be warranted by their viewership.

* Many basic cable channels may not be carried at all except for the fact that their carriage is tied to carriage of a more important must-have channel.

This things need to be kept in balance – we would suggest bringing broadcast up to a fair level, trying to hold the line on sports, and finding places to cut costs on basic cable, which would possibly include discouragement of the practice of channel bundling.

Of course, we’re biased, but we nevertheless believe the facts support this prescription.