Market Watch

US Carriage Fee Battles Continue in New Year


Display Driver IC Forecast


Another year, another round of heated negotiations between network owners and service providers. This past year saw numerous such battles for retransmission/carriage fee renewals, and now, at the turn of the year, several more feuds are brewing, some which have resulted in channel blackouts for consumers.

Here is a round-up of these negotiations and how satellite and cable providers have fared:

  • DISH and Frontier failed to reach carriage agreement, subscribers blacked out from Frontier TV stations
  • DISH reached an agreement with Chambers Communications.
  • DISH agreed to short-term negotiation extension with Comcast-owned E! And Style.
  • DirecTV reached an agreement with Hearst Corp. covering 29 stations.
  • DirecTV and Northwest Broadcasting talks fell apart; subscribers face the risk of a blackout from Northwest's stations
  • Insight Communications and Raycom reached an agreement.
  • Suddenlink and Viacom reached an agreement for the company's cable channels.
  • Time Warner Cable and Sinclair Broadcasting extended contract talks until 14 January.

At stake for programmers is the lucrative revenue that arises from such negotiations. IHS Screen Digest estimates that in 2010, broadcasters received between $650m to $700m in total revenue from retransmission fees. Cable networks received carriage revenue estimated at $28bn in 2010.

Analysis
Broadcasters and cable networks are battling with subscription network operators as they attempt to negotiate new deals for retransmission and carriage fees. Broadcasters are still seeking to offset a weakening ad market as they try to compete with cable networks. The recession alarmed broadcasters when they realised how suddenly ad revenue can fall when businesses slash their spending. Now they are making up for it by following cable networks' dual revenue stream of ad revenue and carriage fees.

This dual-revenue stream is at the heart of television programmers desire to garner higher retrans/carriage fees. All the while, cable and satellite distributors are doing all they can to resist these demands, even risking channel black outs for their customers.  Television programmers for their part have been asking for double-digit and even triple digit increases when contracts come up for renewal. Of course, subscription network operators can say no, and that's when blackouts occur as in the case over the New Year when several Frontier Radio Management TV stations were pulled from DISH Network. Similarly, negotiations broke down between Northwest Broadcasting and DirecTV resulting in local TV stations being pulled. Meanwhile, subscribers from Time Warner Cable are on the verge of being blacked out from local TV stations owned by Sinclair Broadcasting as the cable operator and Sinclair have until 14 January to reach a retransmission agreement.

There were several successful agreements between programmers and operators, such as DISH network reaching an agreement with Chambers Communications. Also, DirecTV and various broadcasters reached successful fee agreements. Insight Communications and Suddenlink also reached reach contract renewals with Raycom and Viacom, respectively

Eventually, it's the subscribers that have to carry the burden of increased fees, as cable and satellite providers are forced to charge higher prices for their services to offset the increases. In just this past month, Time Warner, AT&T, Dish and DirecTV have all announced price hikes to their cable services. Also, Frontier Communications, which acquired about 100,000 Verizon FiOS TV subscribers in Oregon and Washington this past year, have announced massive FiOS TV price hikes in the range of 50%.

Television programmers are providing subscription network operators with various types of content, and at the same time, the cable and satellite operators expand the programmer's footprint and give them move viewers. But when it comes to negotiations, Cable operators are asking U.S. lawmakers to make changes to the negotiation process that will prevent their subscribers from being subject to programmer's trump card of removing channels when negotiations flare up. It is a move that will change the balance of power in fee negations between programmers and service providers.  Until such actions come to pass, expect more retrans/carriage fee negotiations to turn ugly in the coming year.

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