Retransmission Consent Battles Are Over But the War Rages On

OK, so Time Warner Cable, Inc. cut a retransmission consent deal with FOX (News Corp.) just in time for the Sugar Bowl on New Years Day and Medicomm got their deal done with Sinclair Broadcasting before their extension ran out. Both deals got done without cable subscribers having their broadcast feeds cut off. With no more high profile deals pending you might believe the claims from the broadcasting camp that the market for retransmission consent in functioning efficiently and the cable operators should just go away quietly and lick their wounds. Not so.

Before the ink was even dry on the Sinclair deal, Mediacomm CEO Rocco Commisso had a letter on its way to Senator John Kerry (D. Mass) asserting that the retransmission consent system is broken. While some may dismiss this as a sign of a sore loser and broadcasters may argue that Medicomm would not have signed a deal they didn’t like, one should ask whether Mr. Commisso and his cable brethren have a point.

It seems that every time broadcasters lobby on the Hill it is done in the name of protecting “free” television. The recent broadcaster backlash to spectrum reallocation is just the latest opportunity for broadcasters to wave this flag. But in fact, doesn’t retransmission consent prove that there really is no such thing as “free” television. Of course, there are costs involved with producing and broadcasting content, and there is certainly value to the broadcast content. But isn’t it the broadcasters who chose to enter and remain in a business, the backbone of which is providing free over the air television on an advertiser supported basis?

Of course, the argument is always made that when compared to cable services like Walt Disney Co.’s ESPN, the broadcasters generate ratings far in excess of cable networks. As such, the argument goes, if broadcaster ratings are four times that of ESPN, then the broadcaster should be entitled to four times the license fee that ESPN collects. If the broadcasters are willing to step up to the plate and offer distributors VOD content, local ad avails and affiliate marketing support the same way cable networks traditionally do, then maybe there is a conversation to be had, but until then a game of “apples and oranges” is being played.

In the end, Retransmission Consent is a consumer issue. It easier for the Consumers Union and politicians to demonize cable operators then to dig in and see that what is actually driving the cost of multichannel video up – the ever escalating license fees paid to broadcasters and cable networks. While FOX may not have gotten the $1.00 out of Time Warner that it was looking for, they certainly did get some cash. Likewise, Sinclair has extracted their “pound of flesh” from Mediacomm and will be back at them for another portion at the end of this year when the deal expires. These are the stories of two of the bigger fish in the pond. Every year there are hundreds of smaller operators and telcos with similar stories that are even worse given their smaller size and limited, if any, negotiating leverage. For them, retransmission consent is yet another transfer of wealth out of their communities and local economies.

To be sure, cable operators like Comcast Corp. and Cablevision are reporting growth in free cash flow. However, once you dig deeper and find out where the growth is coming from you find it is not from traditional basic video services. The real growth is coming from DVR and bundled services relying on voice and data services where the only costs are those of running the physical network itself and content costs are virtually non-existent. As far as the linear video business goes, it seem that operators have become little more than collection agencies for cable networks and broadcasters.

If the cable operators can effectively turn Retransmission Consent into a consumer issue (especially in the midst of a recession) then they may actually have a chance of getting someone’s ear in Washington. Until then, expect the politicians to take credit for pushing operators to keep broadcast signals from going dark, but don’t expect them to get involved in really addressing what’s at the heart of the matter.