Cover Story: The Retrans Battle Playbook

As networks and cable operators collide, the battleground has gotten a bit predictable, from the hyperbole and spin to the inevitable compromise. Here’s what to expect the next time around.
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The lines have been drawn in the broadcasters’ battle
to eke out a second revenue stream from cable
providers. In one corner, we have ashen-faced
broadcasters staring at dwindling profit margins
and watching puny cable networks command carriage
fees from MSOs. In the other corner, we
have cable operators (and their cheering section,
the satellite and telco providers) determined to
draw a line in the sand for broadcasters demanding
retransmission
cash.

And in the middle is the consumer, who already pays
approximately $50 a month
for an expanded basic-cable
package including myriad networks
that viewers click past,
according to the broadcasters’
mythology, on their way to ABC, CBS, Fox and NBC.

As recent skirmishes between Time Warner and Fox, and Cablevision
and WABC New York, have unfolded, a playbook has
emerged that undoubtedly will be followed when future deals
come up. These negotiations have all the trappings of a mudslinging
political campaign, and a rather predictable ending.

So, before the next retrans battle takes place, here is a look at
how it will play out.

1. TIME IT TO A BIG EVENT
The battles are timed to a big television event for maximum
leverage and public relations impact. The thinking is obvious:
Dangle the idea of fans missing a big game or event, and suddenly
people care.

News Corp. used Fox’s New Year’s Day telecast of the Sugar
Bowl as a very effective pawn in its battle with Time Warner.
And Disney’s ABC used the highest-rated event telecast in its
arsenal: the 82nd Annual Academy Awards.

While Disney-ABC’s deal with Time Warner comes up at
the end of August, News Corp. will be at the bargaining table
with DISH this fall and Cablevision in October, conveniently
during the height of the baseball playoff season. A Yankees
playoff series would be the perfect centerpiece for a highprofile
battle.
2. RAMP UP THE RHETORIC

Dueling Websites will go up touting the other side’s abject greed.
Consumers will be bombarded with TV, radio, print and online
ads—and the talent and news arms of broadcast companies will
be compelled to take sides.

On her ABC daytime program The View, Barbara Walters
warned that viewers could miss the Oscars and her last Oscar
special to boot. “This seems unfair,” Walters said. “If this happens,
you have options. You can contact Cablevision; tell them
you don’t want to lose ABC.”

Regis Philbin and Kelly Ripa also engaged in canned banter
about the tussle. “Just a reminder, Cablevision gets paid by the
subscribers and Channel 7 is not paid,” Philbin said. And as animated
as Philbin can be, he was not the most cartoonish retrans
spokesman: In Viacom’s 2008 retransmission battle with Time
Warner, Nickelodeon drafted SpongeBob SquarePants to make
Viacom’s case against big, bad Time Warner.

“The game has now changed,” CBS Corp. CEO Leslie
Moonves said recently. “We used to joke that USA, which
is a wonderful network, is getting paid for showing NCIS repeats
and we’re not getting paid for showing the original product.
If we’re spending millions of dollars on NFL football or
CSI, we should get paid as much as a cable network showing
repeats.”

And it will get personal. Rebecca Campbell, president and
general manager of WABC, gave the family-run Cablevision,
which is controlled by James
Dolan and was founded by
his father, Charles, the Maoist
moniker “Dolan family
dynasty.”

Cablevision took a page
from overzealous fans and
cause-oriented guerilla
groups by publishing the
e-mail addresses of Disney-ABC executives, including President/
CEO Bob Iger, Disney-ABC Television Group President
Anne Sweeney, and ABC Sports and ESPN President George
Bodenheimer. Executives were bombarded with e-mails, according
to sources.

3. HERE COMES WASHINGTON]

Not to be left out of a high-profile kerfuffle and a chance for
some free publicity, Washington heavyweights like Sen. John
Kerry (D-Mass.) will inevitably weigh in with a wagging regulatory
finger—especially, in Kerry’s case, if the Patriots or Red
Sox are involved.

Cable companies relish the attention from lawmakers, passing
along every statement from beetle-browed legislators worried
that constituents will miss out on
the big game or the big kudo-fest or
Simon Cowell’s Scrooge act. And last
week, Time Warner and a coalition of
cable operators filed a petition with
the FCC asking the agency to reform
the retransmission consent process,
including interim carriage during
contract disputes and independent
arbitration.

Democrats and Republicans both
drape themselves in the mantle of
consumer concern during such disputes.
But it is the Democrats who
beat the “retrans is broken” drum,
while Republicans stand their probroadcast,
anti-government-interference
ground.

But analysts caution that the public tussle could work against
broadcasters and MSOs. “It’s attracting more potential regulatory
intervention,” says David Joyce, senior equity analyst at
Miller Tabak. “If it is too ugly and too public, they are going to
lose control of their business model.”

4. MEET IN THE MIDDLE

In their recent negotiations, News Corp. and Disney were seeking
around $1 a month per subscriber
from Time Warner and Cablevision,
respectively. According to analysts,
News Corp. ended up with around 50
cents per subscriber, while Disney got
between 25 and 50 cents.

“There is going to be more realization
that the market is changing and
these deals are going to get done,” says
Robin Flynn, senior analyst at media
research firm SNL Kagan. “It’s hard to
go from zero to a number. Sooner or
later, it really just depends on what the
economics of the industry are.”

CBS’s successful retransmission
negotiations with cable, satellite
and telco providers over the past
few years have yielded significant
cash for the broadcaster. According
to Moonves, the company will take
in more than $100 million in retrans
fees this year, and CBS expects that
figure to grow to at least $250 million
in 2012.

And Univision expects to bring in
more than $350 million annually in
additional subscriber fees for retransmission
consent.

“The content players to a large
extent are clearly flexing their muscles,”
one industry analyst points
out. “The reality is that content is
more important than the method of
distribution.”

5. GO BACK TO BUSINESS AS USUAL

Despite all of the threats and calls to action for consumers
to switch providers (such as Verizon FioS
offering Cablevision customers a $75 discount to
switch with the unsubtle tagline: “…never miss an
episode!”), consumers tend to take the path of least
resistance.

“What will become clear to viewers is that no particular
operator is immune to this, so why switch from one operator
to another when it could impact the next one six months
from now?” says Tom Eagan, senior media analyst at Collins
Stewart. “The more these battles become public, the more viewers
might see no reason to switch.”

So, if viewers have become privy to the playbook, the warring parties might want to call an audible, negotiate quietly and
settle, saving them a lot of time and money—and keeping bigticket
programs on the air.

ABC-TIME WARNER CABLE

Deal expires: August 2010

Leverage: ABC does not have any big sports or event programming as a hook for these negotiations, but the debut
of the fall TV season is not far off. The season premieres of Desperate Housewives and Grey’s Anatomy are poised
to be ABC’s biggest draws. So, discussions between the network and the U.S.’s second-largest cable operator, which
already duked it out with Fox over New Year’s, will likely center on the broadcaster’s value in a more general sense.

FOX-CABLEVISION

Deal expires: October 2010

Leverage: The parties made a one-year deal in October 2009 as the Yankees swung through the MLB playoffs. Fox
has great leverage with its rights to the baseball playoffs as Cablevision’s 3.1 million subscribers in suburban New
York, New Jersey and Connecticut look to follow their hometown team, which will field a powerhouse squad again
this year.

FOX-DISH

Deal expires: Fall 2010

Leverage: Just as the MLB playoffs give Fox and Cablevision something to fight over, DISH, too, must face Fox to get
baseball coverage to its subscribers, who as of the end of 2009 numbered 14.1 million.

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