McDermott column: Blackout threat at Charlestons WCBD shines light on cable fees
The script reads like a tiresome sitcom that always seems to end on the same note: with consumers footing the bill.
The latest episode featured Media General Inc., the owner of the Charleston region’s NBC station, and Time Warner Cable, which serves about 20,000 households in the Summerville area.
In what has become a common negotiating tactic, the two sides went public last month as their contract renewal talks stalled, with each side looking to cast the other as the bad guy.
On cue, the companies literally struck an 11th-hour deal late New Year’s Eve, about 75 minutes before Media General could have yanked the plug on Time Warner Cable’s connection to WCBD-TV 2.
The seemingly minor scuffle involved big money: the mounting “retransmission” fees that pay-TV providers fork over to the big networks, and eventually pass on to their subscribers, for access to “over the air” content.
The tiff also underscores a pronounced shift in the economics of the TV business. A few years ago, many cable and satellite providers flatly refused to pay for historically “free” network news and entertainment.
Then the disruptive reality of the digital age set in.
“The programming is not free,” said Robin Flynn, a senior analyst of SNL Kagan, a media research firm that tracks retransmission fee trends.
The pay-TV business has since relented, partly out of the fear of losing subscribers in the event of a blackout.
“That’s the leverage the broadcasters have,” Flynn said.
Station blackouts have been rare, but the war against these fees by the cable and satellite TV providers has waned.
“They’re paying because it’s become pretty much the expected practice now,” Flynn said.
CBS and Fox were first to jump on the new revenue source, with each expected to collect $1 billion in retransmission fees by 2016, according to one estimate. The old-line networks are tapping the money partly to offset the loss of advertising to newer, competing video content providers.
Now, it’s NBC’s turn at the trough, as demonstrated by the recent WCBD-Time Warner Cable contract spat. The Peacock Network had been a latecomer, namely because its majority owner is Comcast Corp., the nation’s biggest cable carrier.
Comcast flip-flopped its position on fees about 18 months ago and is now starting to play catch-up with its network rivals. Steve Burke, one of the company’s top executives, acknowledged at a media conference in September 2011 that the change wouldn’t be “a good thing for the cable side of Comcast,” while also saying “it’s going to be a very good thing” for the TV network.
“It will be hundreds of millions of dollars for NBC,” Burke said at the conference.
The job of collecting and redistributing the money back to the network typically falls to the local broadcast affiliates, such as WCBD. The station owner’s renewed contract with NBC illustrates the network’s newfound appetite for fee revenue.
According to a Dec. 10 filing with the Securities and Exchange Commission, Media General said it expected to pay the network $11 million last year for the rights to air its shows on WCBD and seven other television stations it owns.
The number moves up quickly from there. The company estimated its minimum payment will jump by $8 million to $10 million “per year” through 2015, to as much as $42 million annually, “although the rate of increase could be higher or lower depending on future subscriber counts and retransmission revenues.”
Flynn of SNL Kagan called that “a huge increase.” But she also noted that Media General will pocket about half of the fees it collects, which is becoming the standard split for the industry.
The Richmond, Va.-based company said in its SEC filing that it agreed to the escalating payment schedule “in part, because it expects to garner increased retransmission revenues from agreements it already has signed or expects to renew in the coming years.”
In cliffhanger fashion, a future cable rate increase is buried in there somewhere.
Contact John McDermott at 937-5572.