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Why do retransmission fee negotiations break down?


mikedeuce

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The blackouts sometimes last a few hours, or a few days, and rarely weeks, but they almost always get resolved. Why do so many go through this unnecessary blackout phase? Whatever terms they end up hammering out could've been agreed upon before the blackout and saved everyone a headache.

 

I guess we see it in other industries, like players unions vs. league owners, etc.

 

Do you think certain types of DMAs are more prone to blackouts for some reason? (i.e. markets with lower ad rates, so the station doesn't care if the blackout lasts longer, or markets with no telco so cable operators are less worried about switching to telco?)

 

Or is this all as simple as both sides playing chicken and sometimes accidents happen?

 

Curious

Mike

I think because one side wants to make a statement, so by pulling the signal it makes them look bad, and it finally hits home for viewers. I guess they see that it's affecting viewers now so then they finally have some incentive to negotiate. Should they try to reach an agreement before any blackout? Yeah, but this isn't a perfect world and businesspeople's mentalities have always mystified me.

 

Broadcasters want to squeeze as much as possible out of cable providers because they're losing ad revenue. They don't want to cut into their bottom line because then all the shareholders and executives would then be forced to lose their giant mansions and private jets, and they can't let that happen.

 

Cable providers want to keep costs down for their consumers, so they want to pay as little as possible to the broadcaster. Because any rate increase would be passed on to the consumer, because although the cable companies can absorb the cost, they'd rather jack up the price so their executives and shareholders can also continue to live in giant mansions and fly private jets.

 

Hence the tense and sometimes breakdown of negotiations.

 

I also think these retrans fee breakdowns happen a lot more with publicly traded broadcasters than with private entities whose main goal isn't to maximize value but rather just to turn a profit and make a living. That's not to say they're not any more immune than public companies. Hearst has had tense negotiations with Time Warner.

 

And both sides may lose money every day a blackout draws on, but then again some of these businesspeople are not very bright either...

 

Anyways...

thanks sanewsguy

 

it really is baffling

 

It's only happening slowly but I think the operators paying retrans fees should start explicitly passing through these fees to consumers based upon the DMA they live in. For example, the satellite guys still don't, so if I'm a station negotiating with satellite I'm going to push hard for a high retrans fee, because i know they won't increase satellite prices in my market. Whereas if cable guys did it more, like Comcast seems to, then the stations might be less inclined to directly raise cable prices via higher retrans fees -- they'd be shooting themselves in the foot too then.

As much as I hate to pay my cable bill, broadcasters have a point. Cable companies pay money to air cable channels and that money is used to migrate viewers and quality programming from OTA TV onto cable. Cable is a wasteland and it has also turned network TV into a wasteland of reality shows. Conversely, OTA TV stations still bring in the most viewers for cable companies, so why shouldn't they get a piece of the pie?

 

Not that I like paying for this, mind you. But I do think there are superfluous channels they can cut.

They're entitled to a piece of the pie. The fact that cable companies don't tell them to screw off means they are valuable to cable/viewers. What I don't get is why blackouts ever happen... each hour a blackout goes on, both sides are losing money. Are they both just hoping the other side is going to pick up the phone first?

 

They're entitled to a piece of the pie. The fact that cable companies don't tell them to screw off means they are valuable to cable/viewers. What I don't get is why blackouts ever happen... each hour a blackout goes on, both sides are losing money. Are they both just hoping the other side is going to pick up the phone first?

 

Since radio is a hollowed out industry, the only place to turn to during severe weather is TV. And given that everything in the world is cookie cutter corporate these days, I like the idea of making sure local news stays viable.

 

THAT SAID, I do respect Time Warner for taking these negotiations to the mat.

 

But do we really need the Game Show channel? I'm sure they can make up the difference without raising rates by kicking some of those channels off.

 

But do we really need the Game Show channel? I'm sure they can make up the difference without raising rates by kicking some of those channels off.

 

That's why I believe cable should switch to the a-la-carte system but the current system favors the broadcasters.

 

There's people who want Game Show Network, just like there's people who don't want or watch ESPN or the Disney Channel. That's why a-la-carte is the best option for everyone involved.

It's interesting to see how retrans consent has become the butter to go with the advertising bread of TV stations in the US. You could argue that it is retrans that has not only financed the improved profits of TV station groups but also spurred on the consolidation of broadcasters and MVPDs alike as well as ever-rising cable/satellite bills.

 

And then you look at a country like Mexico, where last year a new policy went into effect that any TV network with 75% or more national coverage had to be provided free of charge by broadcasters and then carried free of charge by cable companies ("must-carry, must-offer"). That caused some revenue loss for Televisa and Azteca.

 

The blackouts sometimes last a few hours, or a few days, and rarely weeks, but they almost always get resolved. Why do so many go through this unnecessary blackout phase? Whatever terms they end up hammering out could've been agreed upon before the blackout and saved everyone a headache.

 

I guess we see it in other industries, like players unions vs. league owners, etc.

 

Do you think certain types of DMAs are more prone to blackouts for some reason? (i.e. markets with lower ad rates, so the station doesn't care if the blackout lasts longer, or markets with no telco so cable operators are less worried about switching to telco?)

 

Or is this all as simple as both sides playing chicken and sometimes accidents happen?

 

Curious

Mike

 

First, not every contract that comes up for renewal goes through this. A lot of them are settled and terms agreed to out of the public eye. That said the public pissing matches are becoming more common these days.

 

You kind of answered your own question(s) with the last question you asked. It's all leverage and what party feels they have more of it.

 

 

Both sides are losing money each day a blackout continues.

 

Again, it's leverage. Both sides are "losing" but, who is losing more. You brought up a labor dispute with union vs. management. Let's say the employees go on strike. The company might be able to ride it out longer than the employees. However, maybe the company is on some shaky ground and can't go that long. Then the pendulum swings towards the employees.

 

To bring it to the topic. I can't think of a single MVPD that would drop ESPN. The MVPD's need ESPN way more than ESPN needs the MVPDs. The MVPDs would have defections galore within days. ESPN/Disney carries the hammer...end of story. On the flipside, if your a small (or, smaller) programmer you need the MVPDs more than they need you. So, let's says if Scripps Network Interactive's channels (Food Network, HGTV, etc.) were dumped there aren't going to be a ton of defections. So, the MVPD carries the bigger hammer.

 

Sometimes, these get disputes get drug into the public eye because one of the parties feels it will help them gain more leverage as the party feels the public will be sympathetic to their position.

 

And, It's partially what's driving all the consolidation...everyone wants a bigger hammer.

 

 

thanks sanewsguy

 

it really is baffling

 

It's only happening slowly but I think the operators paying retrans fees should start explicitly passing through these fees to consumers based upon the DMA they live in. For example, the satellite guys still don't, so if I'm a station negotiating with satellite I'm going to push hard for a high retrans fee, because i know they won't increase satellite prices in my market. Whereas if cable guys did it more, like Comcast seems to, then the stations might be less inclined to directly raise cable prices via higher retrans fees -- they'd be shooting themselves in the foot too then.

 

Huh? are you talking about the "broadcast channels fee" Comcast and others are now charging?

 

 

That's why I believe cable should switch to the a-la-carte system but the current system favors the broadcasters.

 

There's people who want Game Show Network, just like there's people who don't want or watch ESPN or the Disney Channel. That's why a-la-carte is the best option for everyone involved.

 

You'd pay a ton more and get less with a-la-carte.

 

 

It's interesting to see how retrans consent has become the butter to go with the advertising bread of TV stations in the US. You could argue that it is retrans that has not only financed the improved profits of TV station groups but also spurred on the consolidation of broadcasters and MVPDs alike as well as ever-rising cable/satellite bills.

 

And then you look at a country like Mexico, where last year a new policy went into effect that any TV network with 75% or more national coverage had to be provided free of charge by broadcasters and then carried free of charge by cable companies ("must-carry, must-offer"). That caused some revenue loss for Televisa and Azteca.

 

Retrans is the bread and ad revenue has become the butter. In Hearst's latest annual report they stated 60% of their revenue came non-advertising sources. The ad market is extremely fragmented...there are so many more places and ways to advertise now. That's why I shake my head at the "Well, they did just fine on ad revenue for years. So, they don't need any more money"-style comments.

 

Somehow I think Televisa and Azteca will get by...just saying.

 

It's interesting to see how retrans consent has become the butter to go with the advertising bread of TV stations in the US. You could argue that it is retrans that has not only financed the improved profits of TV station groups but also spurred on the consolidation of broadcasters and MVPDs alike as well as ever-rising cable/satellite bills.

 

And then you look at a country like Mexico, where last year a new policy went into effect that any TV network with 75% or more national coverage had to be provided free of charge by broadcasters and then carried free of charge by cable companies ("must-carry, must-offer"). That caused some revenue loss for Televisa and Azteca.

 

On the one hand, everybody dips into the pool of money created by cable customers monthly fees. This leads to less viewership, and less viewers means they can't afford the types of "quality" programs you used to see. Laugh, but when you watched Hawaii Five-O or The Mod Squad, the guest star was often a big name like Sammy Davis and the shows were pretty entertaining.

 

Now you have brooding shows that are overthought. I can't watch a lot of the newer TV shows these days ... I'm not looking for heavy duty stories. I want something where I can sit back and relax and where the plot moves along at a good clip. But I digress ......

 

I feel like I'm getting ripped off by using my subscriber money to increase these groups' profits, but then again the market is distorted. They wouldn't need the retrans money if they other stations weren't being subsidized by it.

 

 

 

 

 

To bring it to the topic. I can't think of a single MVPD that would drop ESPN. The MVPD's need ESPN way more than ESPN needs the MVPDs. The MVPDs would have defections galore within days. ESPN/Disney carries the hammer...end of story. On the flipside, if your a small (or, smaller) programmer you need the MVPDs more than they need you. So, let's says if Scripps Network Interactive's channels (Food Network, HGTV, etc.) were dumped there aren't going to be a ton of defections. So, the MVPD carries the bigger hammer.

 

 

 

Even the moderate sports fan has a need to watch ESPN. With so many sports gravitating to cable, your local school or whatever your local team is will have most of their games on cable.

 

Plus, they say advertisers love ESPN because you can't skip through the commercials on the DVR.

Much as I'd like to say ala carte is a viable option, Thundershock is right. You WOULD be paying a lot more for less. There's nothing stopping cable companies from just charging the customer the fee they have to pay now. Which would mean that ESPN - and ONLY ESPN, not ESPN2, ESPNEWS, or their other services - would be $5 alone. At least.

 

There's a lot of stuff that goes on with cable bundles and how networks get compensated. That's why HBO Go isn't being made available to people who just want that, despite the demand and apparent wish on the part of HBO.

 

Again, it's leverage. Both sides are "losing" but, who is losing more. You brought up a labor dispute with union vs. management. Let's say the employees go on strike. The company might be able to ride it out longer than the employees. However, maybe the company is on some shaky ground and can't go that long. Then the pendulum swings towards the employees.

 

Thanks for your reply Thundershock. Your reply seems intuitive, but I respectfully disagree. In recent NBA vs players and NHL vs players disputes, neither side is going broke, yet both resolved their disputes at roughly the midpoint of the seasons. Why did they end up resolving the dispute midseason? It's not because the owners ran out of cash and it's not because the players ran out of cash.

 

I would also argue even if the players were broke (let's say in a minor type sports league where the players earn less than 6 figures), that even though the owners have massive leverage, disputes should not occur. The players would know if they go on strike, they're going to be in trouble within 2-4 weeks when their paycheck doesn't come, so they desperately fear a dispute and so they agree to terms basically dictated to them.

 

To bring it back to local TV: all of the big cable/telephone/satellite companies can easily exist with never-ending disputes. It hurts, but it's not like Time Warner Cable was going to fold even if the dispute with CBS lasted over a year. Likewise for CBS. Same thing for Dish and Hearst. Their financial solvency is not at stake.

 

I certainly agree that leverage clearly explains the division of the pie, but I don't see it explaining blackouts that every day reduce the size of the pie for both sides.

 

The only explanation I can come up with is that both sides hope by holding out, the other side blinks and they end up with a higher % of a smaller pie. (eg. 50% of 900,000 by holding out vs. 40% of 1,000,000 by not holding out). But then why does anyone blink?? :)

 

As for this:

Huh? are you talking about the "broadcast channels fee" Comcast and others are now charging?

 

Basically yes. If TWC's total retrans fees are $4 in DMA#1 and TWC's retrans fees are $3 in DMA#2, and they explicitly add this to the consumer's monthly bill in each market, then in the next round of negotiations stations may be less eager to seek higher and higher retrans fees if they know it is going to directly increase cable rates to TWC subscribers in their market. At the moment, TWC sets the same basic price across markets (just like the satellite providers do) so any single station is not going to worry about cable/satellite prices increasing in only their market. In other words, directly 'punish' stations each time they acquire higher retrans fees.

 

Curious what you think.

 

Thanks again.

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