Nexstar stands tough against cable MSOs
Rabbit ear antennas are suddenly a hot seller in Joplin, MO, Texarkana, Abilene and San Angelo, TX, with Perry Sook's Nexstar Broadcasting standing firm in its demand to be paid 25-30 cents per subscriber per month by local cable systems (12/14/04 TVBR #242). Both Cox Communications in Abilene and the Washington Post Company's Cable One in Joplin have refused. Without retransmission consent from Nexstar, both cable operators were forced to drop Nexstar's owned and LMA'd stations from their channel lineups on New Year's Day. Cox also has systems in the Joplin market and is threatening to drop Nexstar's stations there as well at the end of this month.
The broadcaster-cable battle has been big news in all four communities since the Nexstar stations were pulled from the cable systems - - KRBC (Ch. 9, NBC) Abilene, KLST (Ch. 8, CBS) San Angelo, KTAL-TV (Ch. 6, NBC) Texarkana and KSNF (Ch. 16, NBC) and KODE (Ch. 12, ABC) Joplin. Newspapers in the towns have run numerous letters to the editor, some taking each side of the spat, plus some from readers who were just mad at everyone involved. Late last week, the battle began getting national attention, with the Associated Press distributing a story about the standoff to newspapers nationwide.
Sook tells TVBR that his stations may never return to the cable systems in question. He insists that ad revenue losses so far in the four markets have been "fairly inconsequential" - - about a third of what the company had expected. "There have been some cancellations, but in a company that does a quarter billion dollars in ad revenues, it has been merely a six-figure number," Sook said. "When you compare that to what is at stake, which would be getting paid from every wired home in our universe, obviously the fight is worth fighting." He claims that in the first 15 days of the standoff, the cable companies have lost more in subscriber cancellations than the TV stations have lost in ad revenues. If Nexstar were to get 25-30 cents per month per home from all of the wired cable systems carrying its stations, Sook said it would increase EBITDA by about 25%, or more than $20M. "We don't think a penny a day, when ESPN gets 10 times that, is an unreasonable expectation," he noted.
Nexstar picked this particular fight very carefully, opting for two-year retransmission contracts with Cox and Cable One in these four markets (but not in others) when the industry standard was three years. Nexstar's other retransmission contracts, and those for many other broadcasters, are due for renewal in 2006. Sook is hoping that his company won't be alone in the fight with cable next year. "Hopefully other companies whose agreements expire in 2006, who did the three-year deals, will recognize that this is a flaw in our business model and it is something that absolutely has to be fixed if we are to survive and ultimately prosper as an industry," he said.
At each of the four Nexstar stations, the local manager has posted an "open letter" to cable customers on the TV station's website, explaining that they are no longer receiving the station on their cable service because the cable operator has refused to "pay us 25 cents out of the extremely expensive cable bill that you pay every month." They note that other program providers are paid by cable systems, but not broadcasters. In Abilene and San Angelo, the stations also note that Cox (via its parent company, Cox Enterprises), also owns TV stations and claims that "their broadcast division shares our viewpoint about being compensate for carriage by cable companies."
In an attempt to strike at the financial heart of their cable adversaries, the Nexstar stations are telling viewers who come to their websites that they should drop their local cable service and switch to satellite TV packages from EchoStar and DirecTV (both of which do pay Nexstar for retransmission consent).
Cable One claims that the payments Nexstar is demanding would amount to $1.3 million over four years for the two Joplin and Texarkana stations. The cable MSO says it can't pay Nexstar because it is trying to avoid increasing rates to subscribers this year. Nexstar's response to that is that the cable company has been raising rates faster than the rate of inflation for two decades.
There's no doubt that local broadcasters carrying the major TV networks are the most-watched channels on cable TV. It's only been in the past dozen years of so that the broadcasters have questioned why all of the other content providers for cable are being paid by the MSOs, but not the "free TV" channels that have been on cable since the days when people only needed cable in areas where over-the-air reception was poor. It's not surprising that the cable guys don't want to pay for something that they've always gotten for free, so this is going to be a brutal fight. The big multi-media companies have been able to do swap deals, so no actual cash changes hands (you get retransmission consent if you add my new cable network), but the stand-alone TV groups have nothing else to swap for, so they want cash and they earned it because they take all the risks and deal with all the problems that go with the public trust. Like the FCC and shall we remind you of indecent content. Every TV operator best unit on this one.