Diller Makes Headlines with Aereo

Media Mogul Barry Diller is making headlines with his investment in Aereo, a new media company that will provide remote DVR storage and streaming of broadcast content. Aereo announced that it has raised $20.5 million in Series A funding led by Diller’s IAC. Diller also has a board seat.

Aereo plans to provide up to 40 hours of DVR space for $12 per month with the content being streamed to internet enabled devices (smart phones, tablets, web enabled TVs, etc.). For starters, Aereo in intends to offer the service to consumers in the New York City DMA starting in mid March. Initial reports of the technology are that it involves an array of tiny antennas, each dedicated to a single customer, feeding the hard drive (DVR) storage. It seems that the company is taking this tact in order to make the claim that they are an antenna rental service and not a multichannel service provider. In doing so, Aereo hopes to avoid the need to negotiate and pay retransmission consent fees and capture the “cord cutting” segment of the market with a product that would complement a consumer’s ability to receive cable programming via the likes of Netflix and Hulu+.

In the mean time, cable operators are reacting to declining subscriber numbers by starting to test and deploy lower cost packages that that have been stripped of expensive sports programming. Broadcasters are still talking about mobile digital broadcast services without much to show for it in the market. Both the cable ops and the broadcasters continue to arm wrestle over retransmission consent fees with the FCC almost a year into the process of a proposed notice of rulemaking on retransmission consent – but that’s another blog entry.

For now the initial news is out about Aereo’s plans have been announced. It is more than likely that New York area broadcasters are huddling with their attorneys this morning on the news to explore their options. One just has to wonder if the next headline will be “Broadcasters Attempt to Shoot Down Aereo with Cease and Desist Orders”.

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.

Fox Network Is Letting Time Warner Cable Do What?

Winter Solstice has come and gone. As the hours of darkness shorten, the coldest days of winter are still to come. Somehow the impending gloom of winter sets just the right mood for the ongoing retransmission consent and content licensing tussles that come around this time of year.

Time Warner Cable is shaking things up with Smith Broadcasting and Sinclair. You may remember a while back, it was Sinclair who was involved in very nasty and public negotiations with Mediacom. The big issue between Time Warner Cable and Sinclair is that Sinclair is tying retransmission consent for their CW stations to retransmission consent for their Fox affiliated stations. While the concept of tying is nothing new in the content distribution world (most cable network groups require carriage of multiple services by cable operators, much like the way studios license packages of movies to broadcasters or premium services) it somehow takes on a different flavor when it is coming from the broadcasters. Time Warner would rather have the option of not carrying the CW stations or forcing them to elect must carry status with no payment required.

What make the negotiations different this time around is that Time Warner Cable has a card up their sleeve - apparent rights from Fox to carry network programming via an "insurance feed" or “cooling off feed” for up to a year. Understandably, this has left many local Fox affiliates feeling a bit confused and thrown under the bus. It is a surprising development in that it is the first time that a broadcast network has given these kinds of rights to cable operators. Just as curious is that the provision of a “cooling off” feed was not mentioned by either Time Warner Cable CEO Glenn Britt or Fox Broadcasting COO Chase Carey as part of their testimony during last month’s hearing on retransmission consent. Surely pointing to this as an example of a creative market based solution would have gained points with lawmakers who were grilling them that day.

To be sure, it’s not perfect. The deal allows Time Warner to get the national programming from the local stations feed for a reported 70 cents per subscriber per month, as long as the local affiliate OK's it. Truth be told, it is mainly the network programming that people are tuning in for anyway. The arrangement still allows the local station to deny access to its local news programming and syndicated fare. The 70 cents would then be split between Fox and the local affiliate. The big "gotcha", of course, is that the local affiliate still has the option of saying no and blocking the feed. All the same, it is something. Nonetheless, Sincliar is reportedly not interested in the option. Apparently they are not too thrilled about their take of the 70 cents.

While the local affiliate still holds the cards, it does give the network some political cover. The larger question is whether other broadcast groups will offer similar rights to other cable operators, telephone companies or satellite distributors. As the arrangement stands now, it is not a game changer, but there is a potential that the playing field could shift subtlely with broadcast affiliates left questioning where the allegiances of the network suits really lie. Does it get any colder than that?

Retrans Recap

So, the Retransmission Consent hearings are over (for now) and all of the usual suspects got to have their say on the issue. Keeping to the script, the MSOs asked for some changes in the regime, arguing that Retransmission Consent is another in the long litany of special privileges that broadcasters enjoy. Broadcasters insisted that they need a dual revenue stream to compete. Small programmers argued that the tying involved in many Retransmission Consent agreements makes it difficult for them to gain carriage. For the most part, the hearing was predictable and civil. It was, however, suprising to hear Jay Rockefeller (D WV) rant on the record about the polarizing nature of Fox News and MSNBC and his wish that the FCC could somehow make them go away. It was no suprise either that several Senators suggested the popular notion that the time may have come for the industry to consider a la carte pricing models. Other than that there was not much newsworthy that came of it as John Kerry (D MA) tried to keep the hearing focused on finding a solution to keep broadcast signals on cable systems during retransmission consent negotiations.

It's always easy to tell who benefits the most from the status quo - it's the guy who defends it the most vigorously. That was the role that Chase Carey from Fox played. Carey insisted that taking away the ability to deny carriage strips him of his leverage and eliminates any incentive for a cable operator to get a deal done. He also pointed fingers at Cablevision as the party that used it subscribers to win political gain. Well, there was a hearing after all.

More than a few eyebrows were raised by the fact that different cable providers in the same market can be charged different rates by the same broadcaster for the same signal. In an effort to bring a modicum of transparency to the process, it was suggested that the numbers involved no longer be subject to confidentiality (gasp!).

More than once the lawmakers suggested (or threatened) that if "the market" can't figure things out on their own, then Washington will get involved. With that stance it won't be a suprise that there will be more high profile retransmission consent disputes that result in temporary drops of broadcast feeds. For now it is hard to see what the appetite inside the beltway is for taking another swipe at cable regulation given the much larger problems that the country faces. One thing is for sure, once the ball gets rolling it may be a matter of "being careful what you wish for". Washington is a sausage factory. You can start out with the best of intentions, but along the way it inevitably gets ground up and flavoered beyond all recognition. But for now Retransmission Consent is like the weather, everyone talks about it but nobody does anything about it.

Cablevision vs. FOX: The Good, The Bad and The Ugly

October is winding down, trees are ablaze in orange and red, football season is in full swing while baseball season has boiled down to two teams, but it seems like everyone’s attention is held by the animosity and accusations that are being flung like so much mess in the primate house. No, I’m not talking about the waning days of highly contentious mid-term elections; I’m talking about the very public dispute between Fox and Cablevision.

It’s a week after local Fox stations going dark on Cablevision systems and the rhetoric is getting even hotter. Politicians ranging from NJ Governor Chris Christie and MA Senator John Kerry have weighed in. Meanwhile, Cablevision subscribers have been without the post season play of their beloved New York Yankees and may soon miss out on the World Series. I don’t think this is what Washington had in mind when the retrans rules were written. They expected reasonable people to come to a business agreement. Instead, what they are seeing are media moguls tussling over money while the consumer is held hostage.

Now the latest developments have both sides crying foul and hitting the press with both guns blazing; Cablevision accusing Fox of not negotiating in good faith by making “take it or leave it” offers and Fox accusing Cablevision of asking for preferential treatment (don’t get me started on MFNs) and manipulating the whole process to bring about a political resolution and a change in the law. Cablevision is making hay of Fox’s refusal to submit to binding arbitration. There was even a point where Cablevision subscribers were denied access to Fox programming on the internet. Now Fox is threatening to sue Cablevision, asserting that the MSOs phone reps are telling subscribers they can get their favorite Fox programming by accessing pirate websites. While there may be a grain of truth to each of the accusations, the amplification of the distortions makes each side’s argument look like signs at a Tea Party rally. There seems to be no end to the lengths that both parties will go to make their respective points. Jimmy Dolan even suggested a meeting be held with himself, FOX CEO Chase Carey and the FCC to hammer out a deal.

So there you have it. Another carriage dispute made very public as the cable and broadcast industry both air some very dirty laundry. Who’s right? Who’s wrong? How long will it go on? Who knows? Programming deals are never easy, and retrans deals are probably the toughest of all. While there may be something for the cable guys to gain by making the process political theater, in the short them the only thing to be had is consumer disgust. In the mean time Dolan watching continues to be one of the industry’s favorite spectator sports.

Comcast - CBS Deal Completed Above the Fray

The announcement is out that Comcast and CBS have entered into a 10 year distribution deal that covers retransmission consent of CBS O&O stations as well as carriage of Showtime, Smithsonian Channel and the CBS College Sports Network and On Demand and online rights for certain CBS owned programming. This deal is notable for several reasons

First off is the term of the deal. Rather than keep the term to 3 years in order to mirror the usual retransmission consent election cycle, the deal has a 10 year term which is rather long by industry standards. As noted by CBS CEO Les Moonves, “There is a lot of flexibility built in”. I certainly hope so given the speed at which things change in the industry.

Secondly, the agreement encompasses more than just retransmission consent. Comcast was smart to tackle all of the networks at once. Strategically, it allowed them the ability to do some good old fashioned “horse trading”. As any negotiator and chess player knows, the more pieces you have to move around on the board, the better deal you are able to craft. There is no word whether CBS College Sports will be moved from the poorly penetrated Comcast sports tier to a more penetrated “digital basic” or “expanded basic”. Of course, it doesn’t hurt that Comcast is the largest player in the game either.

Lastly, the agreement was hammered out behind closed doors. Unlike recent negotiations between other cable operators and broadcasters, there were no public theatrics or threats of pulling the stations off the cable systems. Not that I expect this to change the very public way in which Time Warner Cable and The Walt Dinsey Co. are engaging over ESPN and ABC. To be sure, Comcast has traditionally handled their negotiations without high public drama. Even more so lately as the last thing that Comcast needs is a high profile struggle with a broadcaster at the same time that their deal to acquire GE’s NBC-Universal is under review. Perhaps CBS knew that and played it to their advantage.

As if to underline the nature of Comcast’s negotiation style, there was little chest thumping by CBS. While neither party disclosed the financial terms of the deal, there was no grand statement by CBS that the deal is proof that the "marketplace works". That pronouncement will be left to the NAB. However Moonves did say that Comcast negotiated in good faith and “kept their word” – just what Comcast needs the regulators to hear.

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.