Station to Station

Northwest Broadcasting and DirecTV Spat Rages On; Both Sides Have Their Say

1/06/2011 12:23:27 PM

Northwest Broadcasting and DirecTV remain far, far apart in their stalemate over retransmission consent payments, which has resulted in stations going dark for DirecTV subscribers.

Both parties have their say below.

Northwest Broadcasting President/CEO Brian Brady says:
How do you let them get away with saying things like “Profits or not, accepting a 600% increase would cause a customer’s bill to become ridiculously high and we have to take a stand.” They have been raising their prices at the beginning of every year by 4-6% with impunity for the last five years I’ve been a subscriber. They had plans to raise their rates well before our issues started with them. Navigant Economics said in April that the cost of cable service from five publicly traded cable operators has risen more rapidly in recent years than the price of programming, and that for every dollar increase in programming expenses, MSOs raised total charges to consumers by $5.72.

Don’t you find it odd that the local stations which bring the cable and satellite guys the most value, are the ones they want to pay the least. Name me one other channel that if it came off a cable system would cause them to lose 20 % of their subscribers? Lifetime, VS, Discovery, TNT, Spike, Military Channel, A&E, CNN, Hallmark, shall I go on. The one thing that I’ve been reminded of over the last week talking to viewers is just how important their local station is to them. When asked how much of their bill goes to paying the local stations, the average response is twenty dollars. They are shocked to find out that it is less than 20 cents. When they find out that they are paying $5 for ESPN, and over a dollar for TNT and TBS they are equally shocked. They cannot believe that DIRECTV would not pay the station at least what they are paying for ESPN.

By the way, all those people I talked to that don’t watch ESPN weren’t overjoyed to find out they are paying that kind of money every month for a channel they never watch.

I laugh when I read DIRECTV lecturing me in your article; “If Northwest really cared about their viewers, they would restore the channels so we can keep talks at the negotiating table where they belong…It’s the only right thing to do and only Northwest can make that happen.”

Who are they kidding, we have been at this for three months and all we get is their same old rhetoric that we are asking too much–based on what? Their ability to negotiate with other broadcasters. Based on my dust-up with Time Warner a number of years ago, they will conservatively lose 10% of their subscribers in Northwest’s footprint, which would represent a loss of approximately 20,000 subscribers. Let’s do the math: if they are averaging $60 per subscriber per month that’s approximately $14.5 million a year in subscriber fees. Now take that same loss of 20,000 subscribers and multiply the equity value of $4,000 per subscriber and that’s $80 million.

Now, based on that math, what are my station worth? Even if my numbers are off by 50%, don’t you think a dollar a sub is a steal?

The cable and satellite guys are broadcasters’ competitors now more than ever. They are launching news channels, expanding their video-on-demand service, pushing time-shifting through DVR’s, selling local advertising and, in the case of DIRECTV, soon they will be able to deliver addressable advertising. They are doing everything they can to destroy our business and at the same time asking us to subsidize their profit margins.

I say enough is enough–it’s time for the distributors to pay for the value they are receiving.

Derek Chang, EVP, Content Strategy and Development at DirecTV responds:

First, all TV providers raise their rates roughly once per year. We have to because programmers and broadcasters like Northwest keep charging us more for their programming. Regardless of the fact that programming costs have been spiraling out of control, we’ve found a way to make changes in other areas of our business to keep the annual price increase in the neighborhood of 4%, a far cry from the 600% Northwest wants to charge us. Our customers won’t pay a 600% increase, why should DIRECTV? Maybe Northwest should look at other areas of their business to try and get their price increases more in line with what we pass on to customers.

Also, let’s make sure we compare apple with apples. Cable networks and local stations are two different animals. In the months of November and December alone, we came to an agreement with six broadcast groups, representing 67 markets and 86 individual local television stations across the country. Surely we wouldn’t have been able to come to a deal with every one of them if you believe Mr. Brady’s’ comments. The bottom line is that we paid market prices for all of them and Northwest wants us to pay them something that is dramatically higher than market. We cannot do that to our customers, as it would result in them paying significantly more than the normal yearly increase.

Mr. Brady’s description of negotiations is inaccurate. DIRECTV had reached out to Northwest far in advance of the deadline, but were met with months of radio silence. They finally made contact with us at the eleventh hour and tried to force an increase on us that was dramatically higher than what we pay any other local station, regardless of size. But whomever you believe about timing, seems like it’s a no-brainer that keeping the channels on while we negotiate is ultimately the right thing to do for the customer.

We recognize that customers don’t care about how negotiations happen, which is why keeping the channels on while we negotiate seems like the most customer-friendly act for both parties.

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