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December 08, 2010
With three weeks left before year-end, Sinclair Broadcasting Group (SBG) and Time Warner Cable (TWC) are struggling to reach agreement on the local station group's demands for increased carraige fees. SBG operates 58 local stations with affiliations in the CBS, ABC, NBC, Fox, MyNetwork TV and The CW Networks, 33 of which operate in TWC markets and all of which could now go black.
Reports have circulated that TWC and Fox reached an insurance accord which will keep the Fox Network's primetime programming on the air even if Sinclair pulls its signals. Even if TWC were to enact the insurance clause and keep Fox's primetime content on the air, it would still leave significant holes in programming schedules given that the network only programs 22 hours a week, ableit including the highest value programming (including sports).
SBG has taken a leading role as independent broadcasters endeavor to secure retransmission fees. In 2009 retransmission fees accounted for 12 per cent of total revenues, up from 3 per cent in 2006. Like other broadcasters including network-owned and operated (O&O) stations, SBG is trying to establish the dual revenue stream of advertising and carriage fees that have made cable networks highly profitable.
Broadcasters argue that the content they deliver, local news and prime-time programming has been undervalued by subscription TV operators. Screen Digest estimates that TWC is paying $17.5m per year to SBG, an average of $0.05 per home passed per month for each of the 33 stations involved, with the range of fees paid estimated between $0.02 to $0.23 per home passed per month. SBG is seeking an across the board increase from TWC which could raise rates as much as 25 per cent within three years. The scuffle with TWC which may find a short-term resolution with only the broadcast of the network feed, but more will result in a last-minute capitulation by both sides like TWC's 11thhour deal with Fox O&O's in January 2010.
Aspirations for increases in retransmission fees are an inevitable as the television business evolves. Broadcaster business models, which relied upon advertising revenue were hurt by the economic downturn of 2009. In that year SBG saw a 15 per cent decline in advertising revenue from $626m in 2008 to $531m in 2009 and like SBG every other broadcaster suffered significant declines in advertising revenue.
After the pain of 2009 the fears of another soft advertising market are justified, however, 2010 is shaping up to be a significant improvement over 2009 with most companies reporting growth in the low double digits year-over-year. But by obtaining retransmission fees as a secondary revenue stream, broadcasters will be able to better weather advertising downturns in the future.
Increased carriage fees and retransmission fees are a fact of life for cable operators, and consumers. As content owners continue to seek increased fees, we expect that consumers will be faced with increasing numbers of channel blackouts, and eventual loss of independent niche content.
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