[Infowarrior] - ‘Free’ TV Could Cost More Due to Fox’s Demands

[Richard Forno]

‘Free’ TV Could Cost More Due to Fox’s Demands


	• By Eliot Van Buskirk
	• December 30, 2009  |
	• 5:43 pm  |
	• Categories: Commerce, Media, Miscellaneous, Video

http://www.wired.com/epicenter/2009/12/free-tv-isnt-free-but-could-cost-more-due-to-foxs-demands/

Time Warner Cable responded to Fox Network's demands for more money by  
posting this "ransom note" on its RollOverorGetTough.com site.
For football fans with Time Warner Cable subscriptions, 2010 could  
start out on the wrong foot, now that Fox Network has threatened to  
pull its programming, including the traditional New Year’s Day Sugar  
Bowl and Cotton Bowl football games — unless the cable giant agrees to  
pay Fox more money.

If these companies fail to come to an agreement before the ball drops  
in Times Square Thursday night at midnight, Fox and its affiliate  
networks will disappear from Time Warner Cable. Alternatively, if the  
two companies come to an agreement before then, your cable or  
satellite bill will likely increase by $12 to $20 per year, as the  
price hike spreads through the rest of the industry.

In a last-minute bid to stave off the impending outage, Sen. John  
Kerry (D-Massachusetts) asked both companies to agree to binding  
arbitration supervised by the FCC, keeping Fox programming on Time  
Warner until they agree on a new rate. Time Warner agreed to this, as  
one would expect, because it would avoid an outage and buy them more  
time to negotiate. Fox has yet to reciprocate, also as one would  
expect, because arbitration would take its only trump card — a service  
disruption — off the table.

(Update: News Corps. told employees to expect an outage.)

Unless something changes within the next 30-plus hours, Time Warner  
Cable subscribers will lose Fox programming on New Year’s Day.  This  
would inconvenience millions, but it’s not “the end of free TV” some  
are calling it.

First, Fox’s over-the-air broadcasts will remain free for anyone with  
an antenna and digital receiver who lives within range of a local Fox  
affiliate. Time Warner advises its customers on its Get Tough or Roll  
Over website that if Fox pulls its programming, they should buy rabbit  
ears or an HDTV receiver in order to grab those bowl games, NFL games,  
American Idol, House and 24 out of the air. It’s a hassle, but it’s  
free.

Second, the networks’ “free” stations are not free for cable and  
satellite to retransmit, contrary to what has been reported elsewhere.  
Pay-TV networks routinely pay television networks and affiliates  
through a mix of cash, free advertising and barter, according to  
Multichannel News senior finance editor Mike Farrell. For instance, he  
said it’s common for a cable company to gain the right to retransmit a  
given network’s programming (Fox, NBC) in exchange for paying for the  
broadcasters’ cable-only channels (Fox Soccer Channel, MSNBC).

The only difference this time around is that Fox is asking for $1 per  
subscriber per month, which represents a significant increase over  
what Time Warner is paying now. And Time Warner will pass some, if not  
all, of that increase on to consumers.

Fox's KeepFoxOn.com website encourages viewers to demand that Time  
Warner acquiesce to its proposed price increase before midnight on  
Thursday night.

“A buck is a lot — that’s a big increase,” said Farrell. “From all  
these retransmission deals, the broadcasters always say that they got  
cash, and the cable guys always say they didn’t pay cash, but [rather  
they trade] in-kind services and advertising…. The increases are just  
getting so much that they can’t offset it anymore, and they have to  
pass some of this on to people.”

Cable and satellite providers already pay networks and many affiliate  
stations between 15 and 60 cents per subscriber per month, depending  
on market size, according to Miller Tabak analyst David Joyce. So this  
is not about “the end of free television.” It’s about customers paying  
more for television — even if the weak ad market improves.

“At $1 per subscription, the ramifications are big for the broader  
industry, and it ultimately means consumers will pay in the end,” said  
IDC analyst Danielle Levitas.

“The recession has brought this whole thing to a head,” said Farrell.  
“Advertising revenue at stations and for broadcast networks has been  
dismal, and practically every [network] has said that they want the  
dual revenue stream that cable networks get.”

The price increase Fox specifically is asking for won’t cost  
subscribers much, at first anyway. Joyce predicted in a Dec. 21 report  
that even if Time Warner agrees to pay $1 per subscriber per month to  
Fox Network and 15 cents to Fox affiliate stations, it would have a  
minimal impact on the company’s costs –- and, by extension,  
subscribers’ cable bills.

But as Fox’s agreements with other pay-TV providers expire, which will  
happen over the next three years, he estimates that Fox Networks would  
earn an additional $472 million in annual revenue from cable and  
satellite providers.

The other networks will likely follow Fox’s lead in demanding higher  
fees, driving up pay-TV companies’ costs even further. The networks  
have long been jealous of cable channels that charge pay-TV companies  
for programming that includes advertisements. This gives them dual  
revenue streams, and those fees helps them weather a lean ad market.

In other words, Fox and the News Corp.’s cable channels (also a part  
of these negotiations, according to Joyce) could be leveraging the  
recession to push through price increases they’ve been contemplating  
for some time.

Earlier this month, CBS head Les Moonves told investors he expected to  
rake in $250 million in additional network retransmission fees in 2012  
(affiliates would receive additional payments). Extrapolating this to  
the other three networks, that’s an extra $2 billion or so per year  
that cable and satellite providers would have to pay to television  
studios, according to Farrell, should the Fox model spread.

Those costs will be passed on to television subscribers, as Time  
Warner admits on its website. Given that approximately 100 million  
American households subscribe to pay television services, an increase  
to $1 per subscriber per month would increase the average American  
household’s cable or satellite bill by $20 per year. Analysts expect  
Fox to settle for 60 cents or so, rather than $1 — a scenario that  
would increase the average subscriber’s bill by about $12 per year  
instead.

Nobody wants to pay more for cable or satellite programming, and  
losing Fox’s New Year’s Eve special or these bowl games on New Year’s  
Day would certainly rile thousands of Time Warner cable subscribers.  
But “the end of free TV”? Hardly. Even if that were true, we’d still  
have the internet.