Retransmission fees - shouldn't it be the other way around?

August 12, 2013 12:08 PM

The recent blackout of CBS by Time Warner prompted this question. I understand the basic premise behind retransmission fees - if CableCo wants to carry broadcasts from XYZ network, they need permission from XYZ, who will charge a fee for the privilege. But this seems backwards to me.

By agreeing to have their signal re-transmitted over cable, XYZ is guaranteeing themselves a larger population base, through a customer footprint that is larger in area than the OTA signal can reach, as well as within that geographic area for people without access to outdoor antennas or otherwise subject to poor reception. And since ad rates are based on viewership numbers, and broader reach equals more eyeballs on the screen, it would seem that the broadcasters already gain a benefit from being carried on cable. In fact, here in Southwestern CT, we get both CT and NYC broadcast stations on our local cable lineup. There's no way I'd get NYC stations with an OTA antenna, which means they are getting tens or hundreds of thousands more viewers than their broadcast signal footprint would suggest.

Especially in this day and age - where cable already offers a bazillion channels, plus the availability of online streaming options (Hulu, Netflix, Amazon, etc), you'd think the broadcasters would be willing to cut any deal necessary to simply guarantee that their content remains available to all. I know that personally, I might jump through some hoops to view a favorite show or two that is currently on a blackout channel, and others might do the same for sports or other live events - but I have to think the broadcasters are losing big money because of all the lost viewers. And if the blackout continues into fall premiere season, the CBS affiliates in Time Warner territory can kiss their ratings goodbye. Which also means lots of lost ad money. Right?

So basically - what are the economics of the situation that I'm missing here? Why aren't the broadcasters paying cable companies to carry them, instead of the way it currently works?

posted by trivia genius to Work & Money (12 answers total)

...since ad rates are based on viewership numbers, and broader reach equals more eyeballs on the screen, it would seem that the broadcasters already gain a benefit from being carried on cable.

But ad rates have plummeted, thanks to the Internet and DVRs. So, networks want to shore up their revenues where they can.
posted by sparklemotion at 12:14 PM on August 12, 2013

Response by poster: Not threadsitting, I swear...

But sparklemotion - unless my thoughts above are still missing a big piece of the puzzle, wouldn't some revenue from low ad rates be better than none? Why don't the cable companies just tell them to go pound sand? (OK, they already are, hence the blackouts. Why aren't broadcasters listening?)
posted by trivia genius at 12:17 PM on August 12, 2013

Best answer: Cable companies want viewers to pay for cable TV. Viewers won't pay for cable TV if they can't get the channels they want. Their local broadcast stations are channels they want.

This puts the power firmly in the local station's hands. They can charge money for the cable provider to carry their channel, because otherwise, some percentage of potential subscribers won't subscribe. Therefore, they do.

You can be sure that the cable provider has worked out exactly how much money they stand to lose if they were to stop carrying every given channel.
posted by kindall at 12:17 PM on August 12, 2013 [3 favorites]

Best answer: Especially in this day and age - where cable already offers a bazillion channels, plus the availability of online streaming options (Hulu, Netflix, Amazon, etc), you'd think the broadcasters would be willing to cut any deal necessary to simply guarantee that their content remains available to all.

You would be amazed at how many people have cable and simply do not know about or do not choose to avail themselves of the Hulu/Netflix/Amazon options, for a variety of reasons. These people want to be able to watch NCIS on their TVs, and the cable companies are well aware that they will lose those subscribers if they can't.
posted by Etrigan at 12:26 PM on August 12, 2013

The dynamics of the cable business are largely driven by the kind of tug-of-war you describe — between CBS's interest in having its New York station available to the widest possible viewership and Time Warner's interest in being able to offer the channel to its subscribers. Time Warner's blackout is its way of trying to put financial pressure on CBS in order to get a more favorable deal. The Wrap ran this story last week indicating that CBS was still winning in the ratings despite not being on Time Warner Cable -- suggesting that CBS might not lose so much money at least over the short term. Then it's up to Time Warner to see how long they're willing to incur the complaints of angry customers wanting to know why they're not getting channel 2. The more customers depart TW over this dispute, the more quickly TW will have to go back and try to negotiate a deal.
posted by Mothlight at 12:26 PM on August 12, 2013

I can't really do a summary of this much justice, but NPR the past week was covering all the aspects of this, including the history, and various ways people suggest to get around it (eg a'la'carte pricing):

NPR story
posted by k5.user at 12:30 PM on August 12, 2013

Cable and TV assets are bought and sold like crazy. Whatever industry dynamics existed X years ago are probably completely changed by now.

For example, CBS used to be part of Viacom along with Comedy Central, MTV, Nickelodeon, etc. Viacom wanted cable companies to distribute all its channels. So CBS, since it was also available OTA, was just kinda thrown in.

But CBS and Viacom split up. And now people want their to their local affiliate in HD and in the same package as cable. So now CBS can play hard ball with retransmission fees.
posted by mullacc at 12:43 PM on August 12, 2013

trivia genius: but I have to think the broadcasters are losing big money because of all the lost viewers.

This is, essentially, why all the retransmission spats up until now have ended fairly quickly. There are financial pressures on both parties to get things back to normal. Some people think that part of the reason this one is more extended is that the broadcasters are starting to realize they have the upper hand on the Cable companies -- they've figured out that a blank screen hurts Time Warner more than it hurts CBS, and so they can be a bit more cutthroat in their negotiations.
posted by Rock Steady at 12:49 PM on August 12, 2013 [1 favorite]

Best answer: Retransmission consent fees are a really interesting phenomenon. In the dark ages of cable, things were more as you described -- most broadcasters, fearing lost audience, elected what is called "must carry" status, which meant that the cable company HAD to carry them, but for no fee. Even today, a lot of small broadcasters still choose must carry because they want the audience. But the bigger broadcasters -- the Big Four affiliates, mostly -- began to choose to negotiate for retransmission consent fees right around the same time that consumers began to have more options for television service.

In the dark ages, you really could only get cable from your local monopoly cable provider. But at some point, that began to change. In some places, overbuilders came in and offered a competitor to wired service; also, importantly, DirecTV and Dish (well, Echostar, then) began offering service. So consumers had a choice of provider in a lot of places, and that meant that broadcasters had some leverage because often the new guy was more willing to pay up for the networks in order to draw subscribers.

This dynamic is particularly true today. Nowadays, most people (at least in urban areas) have access to more than one television service provider, and people have shown their willingness to jump providers at the least provocation. Broadcast retransmission fees are paid per sub, so if you demand a higher price from CableCo and CableCo won't pay but the overbuilder (RCN) or telco (U-Verse) will, those subscribers for whom XYZ network is a must-have (and the Big Four are all must-haves) are often going to jump ship for the provider who is willing to pay the broadcaster fee, leaving the broadcaster with just as many subscriber fees as before. No real net loss, and more likely a gain because CableCo is much more sensitive to losing those customers than the broadcaster is.

Consolidation, as described by others, is also a big factor--if you are Disney and you own several ABC affiliates and ESPN, you can demand a lot for your ABC affiliates by threatening to yank ESPN from the lineup.
posted by devinemissk at 1:21 PM on August 12, 2013

Response by poster: Ah yes, consolidation. I hadn't considered that aspect.

Also, I guess it's safe to assume I'm not a typical case. With all the streaming options available, I'm really indifferent to these sorts of spats since I can watch anything online that I don't get on cable (or that my DVR fails to record!). So a blackout wouldn't make me jump ship. I suppose if most of the US thought like me, it really would be the broadcasters paying instead of cable companies.

Thanks everyone.
posted by trivia genius at 2:00 PM on August 12, 2013

TG: That's one of the reasons, I think, that Time Warner has dropped CBS-owned Showtime as well as CBS. Because people like you and I don't give a crap about CBS. We can watch the paltry few CBS shows worth watching by anyone under the age of 60 anywhere. Hulu, Amazon, and so on.

But that's not true for Showtime. I've now missed two episodes of the final season of Dexter and there is no way, so far as I am aware, to legally watch those online. You can watch older seasons but not the current one. So it appears to me that both Time Warner and CBS are aware of exactly what you're saying. Blacking out CBS would never make me jump ship. Blacking out HBO or Showtime (permanently) would absolutely make me jump ship. And, in fact, if Showtime doesn't come back by the end of September I'll probably do exactly that, presuming I can get a better deal elsewhere. Which I will.
posted by Justinian at 3:07 PM on August 12, 2013

If you're looking to jump ship, the satellite providers' teaser deals are basically unbeatable, and their DVRs are pretty nice these days too. The satellite providers do have their spats with the content providers too, but they tend to be extremely interested in retaining you as a customer, to the extent that they will slash prices if that's what it takes.
posted by kindall at 9:04 AM on August 13, 2013