Fox Takes Hard Line With Affiliates In Tussle Over Fees [WSJ]
I've written with increasing frequency about the problems inherent in the current retransmission rules that govern negotiations between broadcasters and video providers. What’s not discussed often enough is the role that the networks often play in those negotiations, even when they're not the station owners.
The local broadcast affiliates and their owners are the ones who collect retransmission fees from cable and satellite distributors, but many times it's the national broadcasters (NBC, FOX, ABC, CBS) who are, behind the scene, demanding higher programming fees from local affiliates. This is part of what leads to local broadcasters demanding huge increases in fees from distributors who are forced to pay to continue being able to provide these channels to their customers.
The Wall Street Journal reports that News Corp, which owns FOX (and the Wall Street Journal, for that matter), is unabashedly promising to drop any local FOX affiliates that refuse to pay increased programming fees to News Corp. In other words, if WDRB in Louisville refused to pay an increased fee, News Corp will simply cut WDRB off from receiving FOX programming.
Because national broadcast programming and live sporting events are some of the most popular programs local affiliates broadcast, local affiliates are largely at the mercy of the network when it comes to a demand of this nature.
On last week’s earnings call for News Corp, COO Chase Carey unveiled a plan by which FOX plans gain an additional $1 billion in annual earnings over the next two years through fees collected from local affiliates, who then attempt to pass on those costs to cable and satellite providers and ultimately end up costing customers.
Apparently Carey believes that $1 billion of additional revenue is worth exploiting the network's relationship with affiliates that broadcast FOX’s programming and the cable and satellite customers who are their viewers. Further, it’s not as though News Corp is looking at $1 billion gains because their programming is in higher demand or they’ve expanded their viewership and ad revenue. They want to gain an additional $1 billion by simply hiking their programming fees regardless of how they are doing in the ratings.
As I’ve stated before, this is a broken system. There are no natural market checks on broadcasters, who are allowed to negotiate exclusive rights to major events like the Super Bowl or March Madness and then use those monopoly-like powers to force distributors, and ultimately consumers, to pay up or lose their favorite programs.
I have said here in the past, the only reason I keep cable is for HBO & Showtime. Specifically their boxing coverage (I am a big boxing fan)... but I am very close to cutting the cord Mike. I'm 26 and work in IT so I'm not your average consumer, but I'm so close to saying good bye because of garbage like this. Media Center PC, tv tuner with PVR... Hulu (Forget HuluPlus and their limited content I'll be enjoying their full free catalog), Netflix, Vudu, Amazon Streaming, MLB.TV, NHL Game Center Live. The current system is broken and politicians are bribed to accept it, meanwhile cable rates have increased at a greater rate than crude oil over the last decade. I have relatives out of state and I know how to get around (without degrading the quality) IP filtering, I would find it unethical and wrong if I didn't feel the system itself is unethical and wrong.
Posted by: Nate Hiatt | Monday, February 14, 2011 at 06:11 PM
This post and the one regarding March Madness just underscore the fact that the obscene amounts paid for NFL and college basketball/football broadcast rights are driving the lion's share of increases in subscription TV rates regardless of whether it's for cable, satellite, or FiOs. In the meantime, those of us who have no interest in sports programming have to pay for it while those channels that at one time offered at least some arts and cultural programming (I'm thinking of A&E, TLC, and Bravo) have degenerated into a garbage heap of reality shows and trash TV. Even NatGeo, which I would expect to offer some good science/exploration programs, seems to be dominated by prison reality shows. My point is that non-sports programming has deteriorated while cable rates have increased to cover sports programming in which I have no interest.
Even if a complete a la carte programming system is not cost-effective, cable and satellite ops need to consider some packaging alternatives (including within the Classic Cable tier) in order to offer better value to subscribers.
Posted by: BC | Monday, February 14, 2011 at 01:17 PM