Fight continues over cable retransmission fees

Comcast on call. The fee charges will increase the typical cable bill 2 percent here, Comcast says.
Comcast on call. The fee charges will increase the typical cable bill 2 percent here, Comcast says. (Bloomberg News)
Posted: January 06, 2014

Few products or services are free in America.

But since the dawn of TV time, the broadcast networks NBC, CBS, and ABC have been free to viewers who grabbed their signals out of the air with rabbit ears. Later, those networks were distributed freely - at least, without a cash fee - to subscribers as part of basic cable-TV packages.

Now, after several years of TV blackouts and hardball negotiating tactics, the Big Four networks (including Fox) are being paid substantial new fees by cable- and satellite-TV companies for the rights to distribute their entertainment and news programs over local stations.

These retransmission fees are being passed on to many of the 100 million U.S. pay-TV subscribers and will add billions of dollars to TV bills, according to the research firm SNL Kagan.

This month, Comcast Corp., the nation's largest cable operator with 22 million subscribers, will itemize for the first time a $1.50 monthly broadcast-TV fee on bills in the Philadelphia area. The charge will be levied on subscribers nationwide as part of its annual rate-increase cycle.

Comcast says the charge covers only part of the retransmission fees to pay for the local broadcast-TV stations, though the fees will likely escalate in future years. Top-rated CBS Corp. reportedly sought $2 a month per household for local TV stations in recent negotiations with Time Warner Cable, the nation's second-largest cable operator. Time Warner Cable relented last summer after CBS withheld content from subscribers.

Over time, ABC, NBC, and Fox could seek similar fees, resulting in $6-a-month-per-household fee for broadcast-TV stations. Seemingly small, those fees spread over all pay-TV households add up to billions of dollars.

Comcast has itemized the broadcast-TV fees "to be more transparent with our customers about the factors that drive price changes," company spokeswoman Jennifer Moyer said.

Comcast has said that it is not boosting the price of its two most popular Xfinity packages, limited basic and digital preferred, in 2014 and that adjustments to other video-service prices will be lower than they would have been without the broadcast-TV fee, according to Moyer.

The changes will increase the typical Comcast bill 2 percent in the Philadelphia area, company spokesman Jeff Alexander said. Comcast serves about 65 percent of the pay-TV market in the area.

The broadcast-TV industry says retransmission fees help finance local news and allow stations to air quality content. Executives also view the fees as part of their potential revenue growth as they transform TV stations into double-stream media properties, earning revenue in both advertising and fees.

Traditionally, TV stations have earned revenue only through advertising. Stocks in public companies that own TV stations have soared.

But pay-TV industry officials and consumer advocates say the fees harm consumers and are a consequence of the outdated 1992 Cable Act. Comcast, which owns NBCUniversal and benefits from retransmission fees paid for NBC's TV stations, has been silent on the issue, for the most part.

"The networks have abused the rules to the point that they are overly abusive to consumers," said Matthew Polka, head of the American Cable Association, a group of small cable operators. "It's a situation that is absolutely getting worse."

The retransmission fees pay for broadcast-TV sports-rights contracts - retransmission fees have inflated TV contracts for the NFL and Major League Baseball in recent years, analysts say - and boost corporate profits at television networks, Polka said.

The American Television Alliance, an organization of 30 pay-TV companies, content providers, and organizations, lobbies for reform of retransmission-fee rules. Members include Time Warner Cable, DirecTV, Dish Network, and Starz Entertainment. The alliance was formed as an alternative to cable TV's traditional lobbying organization, the National Cable and Telecommunications Association, whose largest member is Comcast.

The American Television Alliance says content companies that own broadcast-TV stations have forced the pay-TV industry into higher retransmission fees by withholding TV channels during carriage negotiations. Periodically, the content companies - CBS, Walt Disney Co. (which owns ABC), NBCUniversal, and Fox - negotiate new carriage agreements to distribute their entertainment on pay-TV systems.

When TV channels go dark on one pay-TV service, subscribers tend to drop that service for a competing one, making blackouts an effective negotiating tactic. Pay-TV companies pay the retransmission fees to avoid the bad publicity and subscriber drain, executives and analysts say.

In 2013, there were 127 such blackouts, the American Television Alliance says; there were 51 nationwide in 2011, 91 in 2012.

"It's obvious that the retransmission consent system is broken," said Brian Frederick, spokesman for the alliance.

Retransmission fees are central to the legal dispute over Aereo Inc., the New York technology company that streams broadcast-TV stations over the Internet. Because Aereo grabs TV signals out of the air with small antennas and then streams them, it says it does not have to pay retransmission fees.

NBCUniversal, Fox, and others have said Aereo must pay the fees and have sued in federal court to stop the company, which says it is following the law. The case could be decided by the U.S. Supreme Court.

Lawmakers have heard complaints. In September, Rep. Anna G. Eshoo (D., Calif.) introduced the "Video Consumers Have Options in Choosing Entertainment Act of 2013," which seeks to unbundle cable channels from broadcast channels.

On Friday, National Consumers League vice president John Breyault said consumers should not be caught in a "game of chicken" between the pay-TV operators and broadcast-TV companies.

The question, Breyault said, is whether "consumers are getting a fair deal for what they are paying for with their cable bill."


BY THE NUMBERS

22M

U.S. subscribers

to Comcast

cable service.

65%

Comcast's share

of pay-TV market in this area.

$1.50

Monthly broadcast-TV fee that Comcast will begin itemizing.

$6

Additional monthly fee that cable-TV subscribers may face if ABC, NBC, and Fox each seek a $2 fee.


bfernandez@phillynews.com

215-854-5897

@bobfernandez1

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