Viacom Strategy: More for Less?

Philippe Dauman and Les Moonves have both captured trade press recently with statements that their respective companies (Viacom / MTV Networks and CBS, Inc) continue to grow affiliate fees and retransmission consent revenues. Perhaps most interesting is Dauman’s comments made at Nomura Securities U.S. Media Summit conference in New York this week in which he is quoted as unapologetically saying that the increases in revenues to large media companies like his own will have the effect of squeezing smaller independent networks out of the game, while smaller networks affiliates with larger entities will continue to survive. Likewise, Moonves has said that as retransmission consent revenues for CBS and other broadcasters rise, smaller players will likely face extinction.

While Dauman may be right to thump his chest at a financially focused media summit, publically bragging about growth while suppressing independent voices might not play well inside the beltway. A groundswell of small cable operators and independent cable networks has formed in the last few years to focus lawmakers on just these issues; the increases in retransmission consent payments and the leverage used by large programming conglomerates to tie carriage of marginal “emerging” networks to that of larger, more established and popular services. Dauman effectively confirmed what groups like the American Cable Association (ACA) and the small independent networks have been talking about for the past few years; forced tying in order to drive smaller independent voices out of the market is a core strategy for companies like MTV Networks. It’s curious that Dauman asserts that there is no interest on the distributors’ part for new independent nets, but there seems to be room for equally uninteresting programming services that large companies like his thrust on the market.

Curiously, the FCC has basically sat on the sidelines during recent retransmission consent and programming spats. They’ve consistently focused on the issue of whether parties are negotiating in good faith and have purposefully refused to get involved in the rate setting aspect of the negotiations – insisting that retrans rates are better set in the market. Now the head of MTV Networks has all but said that they will force carriage of more new networks (while at the same time making content available on the internet – but that’s a different entry) tying them to flagship brands, and the head of CBS said that he will continue to push for increased retrans fees while at the same time squeezing independents out of the market, and everyone’s OK with it. One would think that this would be a bipartisan issue, uniting those on the left concerned with protecting independent voices and those on the right concerned with the dominance of the so called “mainstream media”. I would suggest that the next time cable operators are called to testify on rate increases (as is almost certain to happen during the reelection cycle) that Misters Dauman and Moonves be invited to the party too.

FCC Votes to Open Retrans NPRM

In a unanimous vote this afternoon, the FCC agreed to open a Notice of Proposed Rule Making (NPRM) related to the issue of Retransmission Consent. Recently a hot button topic as a result of several high profile disputes, the FCC’s concern with retransmission consent comes on the heels of a congressional hearing on the matter. While commissioners differ on the degree of actions that should be taken, all agree that adherence to the seven good faith standards in the rules are paramount.

To be sure, no new rules were adopted at this meeting; this was merely a vote to look into the matter and to hear from all of the concerned stakeholders; broadcasters, MVPDs and consumers. More than one commissioner warned that no parties to any negotiation should read into the NPRM any likely outcome, nor should anyone use the NPRM as a delaying tactic in their negotiations. The standards of good faith negotiation still stand. After all, the commission could go through the process and decide to do nothing – kind of like looking at the desert tray and just ordering coffee.

What does it mean for the industry? This is one more chance for all interested parties to go on record. If you are a broadcaster, the process works fine as a vast majority of retransmission consent negotiations are completed quietly and without incident. If you are a cable operator, the process is broken and the smaller a cable operator you are the worse it is broken. No doubt the ACA will be prepared to show that smaller cable operators pay a disproportionate higher rate as the result of MFN’s and weaker relative market leverage. The commissioners even specified that they want to hear from organizations that represent consumers too.

Make no mistake, retransmission consent will not be going away – that will require an act of congress. It is expected that the main focus of the commission will be to find a way to keep the signals available to consumer while cable ops and broadcasters hash out their deals and to find away to prevent consumers from being “held hostage” by the process.

In a related note, Comcast and Sinclair announced a “multiyear agreement-in-principle” for the carriage of 36 stations in 22 markets.

Online Video Upstart Smacked Down

Online video provider ivi raised more than a few eyebrows last year when it launched an internet based service that streamed the linear feeds of local broadcasters to subscribers. Auguring that they fit the definition of a “cable system”, ivi claimed that simply by paying a compulsory copyright license fee they were able to receive and retransmit broadcast signals without the permission of the station owners and that because they were an internet service they were able to do so without the permission of the broadcasters or paying additional fees for retransmission consent.

U.S. District Judge Naomi Reice Buchwald begged to differ, ruling that ivi is not a cable system as defined by law. Furthermore the judge found that ivi could not selectively determine which regulations applied to them and which did not. In short, they could not be a “cable system” only when it was convenient. She further commented that taken to its extreme, ivi’s argument is absurd and would make anyone with a computer, TV antenna and internet connection a “cable system”

In a statement, ivi CEO Todd Weaver insists that Buchwald’s ruling is incorrect and vowed to appeal the decision. For now, ivi subscribers have seen their service taken down pending the next steps in the process. While an appeal is certainly likely, it is almost certain that this marks the beginning of the end of the road for ivi. While they may be able to proceed with a modified business model that provides for payments to the broadcasters they carry, they will certainly not continue operation as a “pseudo cable system”. With the courts placing control back in the hands of the content owners, chances are that ivi will be lucky to be remembered as a footnote in the history of over the top video.

Retrans Spat Goes Upstream: Crazy Like a Fox?

The next time you tune into your local Fox station and its not there, it may not be because your local cable operator was unable to reach an agreement for retransmission consent of its signal. News broke this week that Fox network has been in discussions with its affiliate group to obtain cash for carriage of network programming on their stations. Apparently the talks are not going well and Fox Network is starting to talk to the affiliate stations directly to reach deals. The affiliate board is accusing the network of taking a “divide and conquer” approach. Meanwhile, Fox asserts that they are just trying to get a deal done before they have to pursue “different distribution channels”. Things are getting contentious and now the negotiations are starting to play out publicly as if this was a battle between the stations and a local cable operator.

It seems that the proverbial shoe is on the other foot and the affiliates are none to happy about it. With most of the affiliates having retransmission consent deals in place with local cable operators and the two national satellite providers, the last thing they need is the network asking for a piece of the action that hasn’t been budgeted for. All this comes at a time when a deal between Fox and Time Warner Cable provides a workaround for the big MSO to get the network programming for up to a year should they encounter an impasse with a local Fox affiliate - lending credence to the “different distribution channels” threat.

To be sure, Fox COO Chase Carey has not been shy in saying that the network will pursue these kinds of retrans revenue sharing arrangements, so it should have come as no surprise to the affiliates. All the same this comes off as another instance where a broadcaster makes the spurious argument that they need subscriber revenues to flow back to them in order to “preserve free broadcast TV” all because they are seeing viewership continue to migrate to cable networks and more time spent online, undermining their advertising based business model.

Yes, this is a private business negotiation, but with TV a seemingly American birthright anything that results in viewers being deprived of network programming inevitably becomes a public policy issue. With retransmission consent having such a high profile, and the FCC slated to take it up at its March meeting, one wonders whether this is the wisest time for Fox to be pursuing this so aggressively. In the end, the affiliates will come to an agreement because they need the programming and Fox can’t pull the plug on a wholesale basis without the risk of being called in front of House and Senate panels to answer for its actions. Inevitably it all flows back to the consumer in the form of higher cable and satellite rates, putting even more pressure on consumers who are on the verge of “cord cutting”.

At this point, the rest of the “Big 4” are sitting back to see how this develops. While there are still a lot of unknowns as far as how this will play out, one thing is for certain, if this proves successful for Fox, watch for the rest to follow suit.

DISH Enables TV Everywhere to Android Devices

While Comcast was making noise in advance of CES with a VOD iPad app, DISH Network had their own announcement as the satcaster unveiled its Android app that enables Google enabled Smartphone users to access DISH programming. A former professional gambler, DISH CEO Charlie Ergen has undoubtedly raised the stakes in the TV Everywhere game. While the Comcast model will provide roughly 3000 hours of VOD content plus some streaming networks, the DISH service goes one better and allows customers access to their entire line-up of channels and all of their DVR content via a Sling enabled set top box, allowing for ultimate flexibility.

At a time when cord cutting has become a primary concern among multichannel providers, operators are looking to TV Everywhere as part of the solution to deal with the estimated quarter million video subscribers lost by the industry in the second and third quarters of 2010. While the multichannel sector as a whole as seen subscriber losses, Verizon, AT&T and DirecTV have seen gains. DISH is down about 50k subs in 2 and 3Q while Comcast is down over half a million video subscribers in the same period.

Comcast’s iPad VOD and streaming app will not launch until later this year, so the jury is still out as to whether its streaming to tablets will be enough of a silver bullet to hold on to subscribers or whether digital customers will continue to vote with their feet (and wallets) that they see better value in getting a limited amount of programming for less, or even free, from on-line options like of Netflix and Hulu.

Comcast Announces iPAD Video App

Comcast CEO Brian Roberts got a jump on everyone at CES with an announcement on the eve of the 2011 show. It seems that Comcast will be making nearly 3000 hours of VOD content available for streaming on iPADs later this year with enhancements that will include the ability for users to tap into their social networks. In doing so, Comcast is the first cable MSO to truly take the concept of "TV Everywhere" to heart. Until now, MSOs that have launched so called "TV Everywhere" services have made their VOD content available on their branded websites in an effort to thwart other online video providers like Hulu and Netflix that have been chipping away at their subsription revenue by enabling cord cutting (more on that some other time). This move eliminates the inherent limitation of having a "TV Everywhere" product limited to home PCs and laptops and is an effort to shore up their Xfinity digital subscriber base among iPAD users; those who are aguably the early adopters who are the most prone to being cord-cutters.

Although limited to the iPAD device for now, this app is a great start to the "unleashing" or unteathering of TV Everwhere. For now Comcast is working where the content rights allow them, but I expect that a smartphone app is not too far down the road, of course, programmer rights permitting.