Follow the Money – Sports Programming, Golden Goose & Possible TV Revolution

Although not explicitly stated by any of the panelists, the political adage, “follow the money,” was an underlying theme to the Broadband Unlimited Webinar on Retransmission Consent held on Friday 11/30. There seemed to be agreement among the panelists – all of whom have been involved in the retransmission/must-carry regulatory game since it was enacted with the 1992 Cable Act – that money paid to the talent on the production side of the media business is at the root of what translates into higher pay-TV subscription bills for the consumer.

Sports Programming Calls the Shots #

John Hane, Pillsbury Winthrop Shaw Pittman LLP

John Hane, Pillsbury Winthrop Shaw Pittman LLP

There also seemed to be agreement that TV deals with the sports leagues, such as those by the NFL ($27B over 9 years), MLB ($12.8B over 8 years) and BCS ($5.6 B over 12 years for 4-team playoff and other select games), are the big drivers in terms of programming costs. The Wall Street Journal summarized the issue when it characterized the NFL as, “The league that runs TV.”

And the costs flow downhill and eventually hit the consumers’ wallet. An interesting nuance to this point, provided by John Hane who represents broadcast station clients as an attorney with the firm of Pillsbury Winthrop Shaw Pittman LLP, is that even if retransmission fees were regulated or free, programmers would simply divert programming that is now on broadcast to their cable channels, driving up the prices of those channels and lowering the quality level on the over-the-air broadcast channels.

As was pointed out by Chris Cinnamon, a partner with Cinnamon-Mueller, a law firm that represents small cable operators in retransmission consent negotiations, cross-ownership between broadcast networks and cable was not as prevalent as it is today when the legislation was written. Another difference between today and 20 years ago, Cinnamon explained, is the rise of multiple MVPDs (multichannel video programming distributors) in a given market. Cinnamon argued that the monopoly position enjoyed by a local broadcaster gives it an advantage as it is able to pit MVPDs (satellite/cable/telco) against each other.

John Hane suggested segmenting broadcasters into two types; the Little B (those who are independents and broadcast groups) and the Big B (those owned by ABC, CBS, NBC and Fox).  With this framework in mind, the divide is often between the smaller and larger entities and not necessarily the local broadcast station and the local cable operator. One take-away from the discussion is that network affiliated broadcasters have essentially become toll collectors for the networks (which have to pay for the sports rights, etc.) and have little negotiation leeway.

Matt Polka, president and CEO of the American Cable Association, characterized the flow of money from broadcast station affiliate to the network as reverse compensation. Polka suggested that negotiations have changed with media consolidation. In the early years of retransmission consent agreements in the 1990s, the negotiations tended to be between the general managers of the local broadcast station and the local cable system. With media consolidation, the negotiation changed to one at the corporate level, often leaving the local management virtually powerless.

Hane pointed out that the cable operators set a precedent that has come back to haunt them, when  they agreed to carry cable network programming across multiple markets in exchange for carriage of local broadcast channels. Tying of cable networks to the carriage of local channels, as well as single representatives negotiating for multiple broadcast stations have been points of contention for ACA and its members (although these points were barely touched upon in this webinar).

Evolution or Revolution #

Looking forward to 2013 and beyond, Matt Polka made the interesting observation that, “the best advocates for reform of the rules will be the networks themselves.” Cinnamon echoed this when he suggested that at some point high costs will kill the golden goose of program ratings. From a regulatory and legislative standpoint, the panelists indicated that 2013 would be more about discussion and review than radical changes to the existing way of doing business.

The panelists were skeptical of some revolutionary business model that might disrupt retransmission consent. One potentially disruptive business model, Aereo, was a topic of discussion. Aereo’s approach as sort of combination multichannel antenna extension, network PVR and over-the-top subscription service, offers a radically different way to deliver broadcast channels to consumers. Polka pointed to the rise of this type of offering as, “Underscoring consumers’ desire for control of what they watch and what they watch it on.”

There seemed to be agreement that chances are slim for Aereo to win its court case and, if it does, to win the hearts of the consumer. CED reported in its 12/3/12 issue that, after one year of service, Aereo has 3,500 subscribers with subscription prices starting at $8 per month.

Echoing the panelists comments, CED stated that, “The 2nd U.S. Circuit Court of Appeals seemed poised to reverse a lower court judge who in July reluctantly gave a thumbs up to the company.” One of the judges in the case, John Gleeson, questioned whether Aereo’s business model is similar to ‘constructing a business to avoid taxes’, except in this case the business is built around avoiding copyright laws.

A question asked at the end of the panel, but that wasn’t fully explored, is whether some other entity with an established business, such as an ISP, might be able to create a variation of Aereo’s model that is commercially successful and within the bounds of copyright law (e.g. including off-air channels with every one of its broadband packages). This was just one of many questions that would have been interesting to explore had the panel had more time.

Questions Abound #

It is difficult to talk about retransmission consent in a vacuum without quickly moving into the broader topic of programming rights in general. Here are some others questions that were left for another time (e.g. a full day conference) or for the discussion thread below this post.

  1. What sort of tying are you seeing between broadband over-the-top (i.e. multiscreen), and off-air rights? For instance, will broadcasters have their own direct to consumer multiscreen approach, while, at the same time, licensing content for operators multiscreen offerings?
  2. In the aforementioned multiscreen scenario, who controls advertising; particularly when the advertising might be location-based and not traditional inserts, but wrap-around banners and overlays?
  3. There have been lots of ideas for using the sub-channels – from additional programming for the broadcasters to mobile TV – how does this play into retransmission consent? Are these sub-channels being tied with the main channel in retransmission negotiations?
  4. Increasingly, we are seeing hybrid set-top boxes with the capability to do things like Off-Air with over the top or IPTV services. Do any of you see a scenario, where an operator could create a “low-cost” package of off-air and cable programming? Or, is these even practical due to the tying of cable programming and off-air programming?
  5. How will the upcoming spectrum auctions impact the future of retransmission consent? For instance, will we see the idea of spectrum sharing where several broadcasters or stations share a carrier? What impact does this have on sub-channels?

3 comments for “Follow the Money – Sports Programming, Golden Goose & Possible TV Revolution

  1. December 17, 2012 at 4:21 pm

    As usual, the government does not have permission to be involved in this. They twist the Constitution “For the good of the people” but, it costs the people more and gives the government money and power that it is not supposed to have. This is not for the good of the people. It is for the good of the government.

  2. December 4, 2012 at 1:24 pm

    And here is an excellent summary of the webinar from analyst/consultant, Gary Arlen, in the latest Multichannel News:

    http://multichannel.com/blogs/i-was-saying/retransmission-consent-policy-making-2013-unlikely

    The LA Times has a good summary of the impact of sports programming on the average cable bill:

    http://www.latimes.com/entertainment/envelope/cotown/la-fi-1202-ct-sports-cost-20121202,0,2955837.story?page=1

    Will Richmond has a great summary chart showing the cost of sports programming:

    http://www.videonuze.com/article/80-billion-reasons-why-pay-tv-will-become-even-more-expensive

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