Cable to Ergen: You Go, Guy!

Operators see political plus in EchoStar/Viacom dispute

Cable operators are gleeful over Charlie Ergen's head-on collision with Viacom. Sure, they hope to steal a few of the EchoStar Communications CEO's subscribers. But they're really cheering his brawl with a powerful programmer.

When Ergen took CBS and its big-ticket cable networks dark on his Dish Network for 24 hours last week, a key issue was Viacom's power to yank CBS owned-and-operated stations in a handful of markets. That ability, in turn, gives it a club for extracting better carriage and more money for its cable networks nationwide.

Specifically, if Dish Network wanted consent to retransmit the signals of local CBS and UPN O&Os in 16 markets, where Dish has about 1.6 million subscribers, it would have to pay more if it also wanted its MTV. And it had to agree to launch a new network, Nicktoons, to all 9.5 million Dish subscribers.

"We think we should be offered a chance to buy CBS by itself," Ergen said.

Fat chance, said Viacom.

After months of fighting at the bargaining table and in court, Ergen gave in to most of Viacom's demands. That's because subscribers started screaming that they would be missing Survivor, and congressmen whined about missing their basketball games.

The programmer may have prevailed, but cable operators are hoping the outcry will give them more ammo in their fight to get Congress to weaken broadcasters' retransmission consent rights.

"Retransmission consent is a government-mandated unnatural act," says Michael Wilner, CEO of cable operator Insight Communications. "It causes consumer prices to go up."

"Retrans has to be reformed. There are too many things wrong with it," said a senior executive at one major cable operator. "Networks' use of market power, both by their footprint and the astonishing vertical power they have, forces us to do things we wouldn't otherwise do, then charge customers for it."

The situation for cable operators could get worse in a world with multiple digital TV signals they might have to carry.

Cable operators are pushing for the kind of restrictions imposed by the FCC on News Corp.'s purchase of a controlling stake in DirecTV DBS service. An agreement with the commission significantly dilutes Fox Broadcasting stations' power to use retransmission-consent negotiations against cable operators, eliminating the company's option to pull the signals of its stations or regional sports nets. Instead, Fox and the operator have to submit the dispute to an arbitrator. Cable operators want Congress to apply such restrictions to all broadcast networks.

One broadcaster pointed out that cable operators encouraged them to tie retransmission consent to cable networks in the first place. Retransmission consent started in 1993, giving strong TV stations the ability to cut a deal with cable operators seeking to carry their signals. Stations with weak signals or programming can instead opt for "must-carry" status, forcing nearby cable systems to carry them for free.

Stations initially wanted operators to pay cash, but operators instead offered carriage space for any networks they wanted to start, which eventually included FX, MSNBC, Food Network, SoapNet, and HGTV.

"They certainly thought it was a good idea back then," the broadcast executive sniffs.

If cable operators have their way, he'll have to wake up and smell the future.