Operators and programmers still at odds over future biz model

If I’m reading the tea leaves correctly, I would bet that the federal government gets involved in cable’s programming disputes sometime soon.

And I think cable operators will be the ones pushing for it.

I’ve never seen programmers and operators interact publicly the way they did last week at the cable industry’s annual convention in Los Angeles. Operators and programmers are like an old married couple. After years of bickering, it seems the operators are finally resigning themselves to the fact that they need help, while programmers are still in denial, acting as though they can keep cutting deals with the same increases the way they always have.

The problems were crystallized during the conference’s first panel session, during which programmers and operators talked about completely different issues when the topic of carriage negotiations was broached. Programmers are ready to negotiate. But, for the first time in many years, cable executives seem to be more open to allowing Washington to step in.

The panel’s two programmers, Viacom’s Philippe Dauman and Discovery’s David Zaslav, predicted that the biggest fights over retransmission consent — where broadcasters negotiate cash for carriage of their stations — have already happened and have created a template that will make all future retrans negotiations easier.

“Retrans will resolve itself once you get through those initial battles,” Dauman said.

But the panel’s two cable operators, Cox’s Pat Esser and Time Warner Cable’s Glenn Britt, both referred to D.C. as an option if the cost of programming keeps increasing at such a fast clip.

Esser was cryptic. “If we disrupt our customers’ lives, we invite others into this discussion,” he said, alluding to government regulation. “We can’t forget that.”

But Britt was slightly more aggressive. Time Warner already asked the FCC to “fix” retrans rules earlier this spring. “The current mechanism for deciding retrans isn’t working,” he said.

Fox NFL talent, at right with Fox
execs David Hill (left) and Mike
Hopkins (right), was among
stars drawing crowds at the
cable convention.

Earlier, Brian Roberts of Comcast, which owns both content and distribution, explained the differences by saying that when he puts on his cable operator hat, Comcast is not making money on video, saying it “is treading water. And there is a limit” to how much cable operators can keep paying programmers. But when he puts on his programmer hat, he recognizes that the deals “always get done.”

The cable industry already has gone through bruising retransmission consent battles that resulted in programmers getting newfound cash. Earlier this year, Fox and Time Warner Cable came to an agreement after months of public bickering and threats to take the channel dark. ABC’s New York affiliate had a retrans fight that saw its channel go dark on Cablevision systems just before the Oscars.

More carriage battles are coming this year and cable operators may seek help from Washington to keep broadcasters from using their leverage to pull channels from cable systems. Cable operators believe this would help keep costs down.

Both Time Warner Cable and ESPN are prepared for a public battle when ESPN’s carriage deal runs out at the end of August. And cable operators privately say they are ready to fight when Turner tries to push through big license fee increases for TBS, TNT and truTV on the back of its NCAA tournament deal.

And Fox’s aggressive push to collect retransmission consent cash, which started with Time Warner Cable at the beginning of the year, will hit every other cable operator eventually.

The specter of retrans was all over the cable convention last week. For the first time in recent memory, broadcast networks brought their biggest stars to the confab in a not-so-subtle attempt to demonstrate the popularity of their programming and show why they are worth the money they are seeking.

On Tuesday, a line snaked through the Los Angeles Convention Center as cable executives waited in line to get autographs from and pictures of some of Fox’s NFL talent: Troy Aikman, Terry Bradshaw, Howie Long and Jimmy Johnson. The next day, Fox brought  Kara DioGuardi of “American Idol” on stage.

NBC brought some of its “Sunday Night Football” talent, including Cris Collinsworth, to a party it hosted at Universal Studios on Wednesday night.

The message to the cable community is unmistakable: Broadcasters are going to demand to be paid for their programming.

“We’re looking for equity for what we think the network is worth,” Fox Sports Chairman David Hill told me from the Fox booth last week. “It’s value for money. Networks are the basis for the entertainment business in this country, in reality. We feel we should be compensated.”

I believe cable operators when they complain that the video business is not a good business for them anymore. For the last several years, it’s become a loss leader for them — something they use to entice customers to buy broadband and telephone service from them.

At some point, could video programming become so expensive that it doesn’t make sense anymore? Some cable operators think so.

One senior executive with a top-five cable operator sought me out last week to talk about Turner’s involvement in the 14-year, $10.8 billion deal to grab NCAA tournament rights. The executive’s first reaction upon hearing the deal was to wonder how much of a license fee increase Turner would try to get for TBS, TNT and truTV, which will carry the games.

“At what point in this food chain can someone step in and say, ‘That’s enough?’” the cable executive said. “The answer might not be in our hands.”

Cable operators feel like they are in a no-win situation because they can’t drop channels that have highly rated live sports. And the channels that have highly rated live sports are demanding increased license fees.

In the past, cable executives bent over backward to tell Washington to stay out of its business. They feared the law of unintended consequences. Once you let federal regulators into one part of your business, it opens up the rest of your business to scrutiny.

That they now are saying “the answer might not be in our hands” shows that they believe D.C. may now present the best solution to their retrans problems.

John Ourand can be reached at Follow him on Twitter @Ourand_SBJ.

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