SBJ/Nov. 8-14, 2010/Media

Four takeaways from the Fox-Cablevision Big Apple brawl

Last month’s dispute between Fox and Cablevision was the nastiest one I’ve seen in 16 years of covering cable carriage negotiations. Stations rarely go dark during these types of negotiations. When they do, service almost always is restored in a day or two.

This time, Cablevision subscribers went without Fox for more than two weeks. That meant two weeks without the MLB playoffs and NFL games.

Real animus still exists between these two companies. Cablevision admitted that it was a big loser in this fight, saying after a deal was reached in principle that it was paying an “unfair price.” The cable operator couldn’t even put up a veneer of a win-win.

What did Cablevision learn from this fight? Here are four takeaways from the 2010 Battle in the Apple:

1. Retrans reform isn’t coming.

None of my best D.C. sources believe Congress will be able to enact new laws governing retransmission consent. At least, not any time soon. In fact, all the lobbyists I’ve contacted say their biggest takeaway from the Cablevision-Fox dispute deals with how much government wants to stay out of these types of negotiations. The unmistakable message from D.C. last month was that regulators want to let the market decide how much broadcasters like Fox are worth. Given repeated opportunities to get involved in the dispute — even as Cablevision’s New York-area consumers clearly were being harmed — the FCC consistently demurred.

That doesn’t mean the issue is dead. Politicians certainly will continue to make a lot of noise about it. Demands that broadcasters can’t go dark during these kinds of disputes are sure to be politically popular. At the end of October, Sen. John Kerry, D-Mass., called on the FCC to look into reforming retransmission consent rules. Others, like the American Cable Association, a group of small cable operators, will continue to bang the drum for retrans reform. But nobody believes these efforts will be fruitful. Retrans reform won’t get close to passing.

2. Not every distributor wants government help.

Cablevision’s ploy was obvious. If it could hold out long enough — and if it whipped up enough public outrage from disgruntled viewers who were missing the National League Championship Series and NFL games — Cablevision believed it could force the FCC to get involved.

But that’s a plan that differs from what many of Cablevision’s fellow multisystem operators want. Make no mistake: Cable operators want retrans reform as much as Cablevision. Thanks mainly to retrans, programming costs are rising much faster for cable operators than any other part of their business. But cable operators generally are terrified of having government snoop around their business. They fear the law of unintended consequences.

Cablevision may have asked the FCC to set up binding arbitration for the Fox deal, but many cable operators worry that binding arbitration gives the FCC an opportunity to take a look at a host of other issues that can arise during such disputes, such as net neutrality, online video, a la carte and bundling.

Either programmers and operators have to figure out how to settle their differences in a way that makes both sides reasonably happy, or government is going to step in and deal with something that has nothing to do with retransmission consent — and that’s a worst-case scenario for everybody: MSOs and programmers.

3. The retrans market has been set.

Cablevision wound up paying Fox a rate that starts at 50 cents per subscriber per month for its two New York broadcast channels, Fox5 and My9, according to multiple sources. Up until now, Cablevision had not been paying anything — not one dime — to carry Fox’s broadcast channels. When Chase Carey was named News Corp. president and COO in June 2009, he identified getting paid retrans dollars as one of his priorities.

Ultimately, Cablevision’s rate is similar to the rate Time Warner Cable agreed to pay for Fox’s channels at the beginning of the year, and it’s similar to the one Dish Network signed just a day before Cablevision agreed to its Fox deal.

Fox originally was looking for a five-year deal that grew from 50 cents to $1.25. Sources say Cablevision signed a 3-year deal that gets close to $1 eventually.

For broadcast networks looking to get cash for carriage, the market essentially has been set. This is in the neighborhood of what cable and satellite operators should expect to pay for retrans.

4. David Hill will emerge as the biggest winner.

Cablevision didn’t do a deal because its subscribers were clamoring to see shows like “Glee” and “House.” Cablevision did the deal because its subscribers wanted to see the MLB playoffs and NFL regular-season games. If there was any doubt before about the power of sports programming, it was erased during this dispute.

That’s why Fox Sports Chairman David Hill will be the biggest beneficiary from this deal. Hill was not involved in the Cablevision negotiations, but watch for much of the retrans revenue to funnel through Hill’s sports division. The added revenue should grow Hill’s sphere of influence within Fox. Look for him to add sports content to FX, a channel that has been mainly entertainment-focused until now. Look for him also to continue to try to add more sports rights to Fox’s portfolio, or keep the ones it already has: Fox’s MLB and NFL contracts expire in the next few years.

There were a lot of winners on the Fox side, from Carey for his retrans vision to affiliate chief Mike Hopkins, who led successful negotiations on two fronts (Cablevision and Dish Network). But sports was the key driver of these deals.

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

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