Happy Hostilities! - Broadcasting & Cable

Happy Hostilities!

The holiday season brings with it the fight over cable carriage of local TV
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Broadcasting and cable executives are bracing for their new holiday tradition, the annual outbreak of fights over cable systems' carriage of local TV stations.

Dec. 1 is a pivotal day. Many systems' deals to retransmit local TV signals—so-called retransmission consent—expire at the year's end. Federal rules require them to give subscribers 30 days' notice that a station may go dark. Stations routinely grant extensions to keep negotiations going or to push the whole matter off for a few months.

But a station intent on provoking a clash will set a deadline, forcing the issue. When the Chyron warnings start crawling on cable channels telling customers they may lose the channel they're watching, the game is on.

Sinclair Broadcast Group is embroiled in a showdown with cable operator Mediacom, threatening to yank its signal from various systems serving around 700,000 subscribers in 22 markets, mostly in small towns and Iowa cities like Des Moines and Cedar Rapids. Medicom has gone to court and the FCC to slow Sinclair down.

Other fights are simmering as well. The Hearst-Argyle station group is battling with Cox Communications. A dozen CW affiliates are trying to get carriage on Time Warner Cable. CBS-owned stations' agreements with several smaller cable operators are expiring soon, and CBS Corp. President/CEO Leslie Moonves has practically made securing cash payments from operators his personal crusade.

Broadcasters believe they deserve meaningful cash from cable systems seeking to retransmit TV stations' signals. So far, stations have squeezed cash only out of satellite and small cable operators.

A Pandora's Box?

Major operators still resist. They offer compensation like buying advertising or carrying a cable network that a broadcast company has launched. (That's how Fox's FX came to be in many markets). Cable operators fear that cash deals will open a Pandora's box that could ultimately cost them $1 billion a year.

The Medicom-Sinclair fight is nasty. Mediacom CEO Rocco Commisso looks and speaks every bit like the Bronx Italian former nightclub owner that he is. What is less immediately apparent is his financial savvy, developed through years as a commercial banker and cable executive.

Sinclair's gruff CEO, David Smith, seems to revel in provoking fights. He is not part of the broadcasters' “club” and doesn't seek to be.

It's getting personal. In a recent earnings call with analysts, Smith said that the fact that Mediacom took the retrans fight to the court and the FCC rather than continuing negotiations “speaks to the integrity and credibility that they have as a company and as a group of people.” Industry executives say that Commisso was enraged over Smith's remarks.

Sinclair General Counsel Barry Faber says Mediacom executives and lawyers “have screamed at me, have sworn at me, have called me names. My experience with Medicom is, they think you're reasonable if you agree with them. If you don't, they're yelling and bullying and threatening to go to war.”

Mediacom Executive VP John Pascarelli says, ultimately, viewers are the ones that pay: “If we agree to their outrageous demands, cable bills go up even more. If we don't agree, Sinclair pulls the stations. Either way, the consumer gets hurt.”

Sinclair laid out a price schedule to Mediacom calling for 36¢-40¢ per subscriber monthly for systems carrying any of the company's affiliates of the Big Four networks, and 10¢-12¢ to carry affiliates of The CW or MyNetworkTV. But court filings show that Sinclair has also proposed deals at around half those costs.

So, bottom line, Medicom would have to pay about $2 million a year. That's hardly crushing, but Commisso worries that succumbing to Sinclair's demands would encourage other broadcasters to try to ask for even more. (ABC once suggested that its stations should be worth $2 per sub.)

Both companies are in a bind. Mediacom risks losing customers to satellite TV, but Commisso doesn't have the leverage to inflict much pain on Sinclair in return. A cable system is most powerful if it dominates the market, which means a station risks losing the bulk of its viewers—and advertisers, as well —overnight.

Sinclair's Strategy

In this case, Sinclair's Des Moines and Cedar Rapids, Iowa, stations would be crunched, and possibly crushed. But Sinclair will suffer far less damage than if it picked a fight with, say, Comcast, which owns systems in two of Sinclair's largest markets, Baltimore and Pittsburgh.

Sinclair needs to win. The company has touted retransmission-consent payments as a key source of growth, telling investors the fees could reach $80 million-$100 million annually. If so, that would increase Sinclair's operating cash flow by 25%-30%.

Medicom has lost an initial round in court, and the FCC hasn't ruled. But this is only one of many fights to come. The only sure beneficiaries are media attorneys, who can count on these fights to generate a nice Christmas bonus each year.

E-mail comments to jhiggins@reedbusiness.com

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