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Carey: Retrans Modifications Could Imperil Free News, Sports, Entertainment

If the government modifies retransmission consent laws, local news on broadcast TV could be eliminated and high-value sports and entertainment content will migrate from broadcasting to cable.

That is the message from News Corp. President Chase Carey to Congress, according to a copy of his prepared testimony. He says retrans is going through "growing pains" because broadcasters are, for the first time, seeking cash for their high-value, highly-rated content, just as cable nets have been doing all along. He says claims that broadcasters are seeking 100% increases is true: "Any increase over zero is a 100% increase."

Carey, who is slated to appear at a Nov. 17 Senate Communications Subcommittee hearing on retransmission consent, says that the only reason Cablevision wound up striking a deal with Fox was that it became clear that the government was not going to step in.

Cablevision had sought the FCC's help in brokering the deal, pointing to the consumer impact of losing access to Fox
programming. "In the end, a deal with Cablevision was reached after it became clear that the government was not going to step in to "rescue" Cablevision from a free market negotiation with Fox. Once Cablevision came back to the bargaining table, we were able to negotiate a deal quickly."

Carey plans to tell the legislators that Fox is asking a "more than fair" price for its stations given that some cable channels "command as much as $4 and $5 per sub." He points out that Fox has an average 8 million viewers per night in primetime, "more than the top three cable channels combined." He says the comparison holds beyond price to "any comparison based on the quality and quantity of unique programming offered [or] the amount invested in programming," citing shows like Glee, House, The Simpsons and American Idol.

He says Fox is asking several times less than cable nets that have a fraction of broadcast ratings.

He concedes that the two weeks when Fox was off Cablevision systems during its recent retrans impasse caused pain "primarily to viewers." But he says that had the FCC stepped in to try to force the parties hands. "Cablevision would not have come back to the bargaining table, and we likely would still not have a contract in place," he said.

But Carey suggests the dominoes would not stop falling with the impact on Fox or retrans deals. He says the real harm to consumers--the "30 million Americans who rely exclusively on over-the-air television"-- would result from government intervention and the resulting impact on the broadcast business model. "[I]f we can't sell our content for a price that allows us a fair return on our investment, we will no longer be able to invest in the high quality content that viewers enjoy," he warns.

That would mean the highest quality content, since it is most expensive. That migration has already begun, he advises, pointing out that Fox was outbid by $100 million for the Bowl Championship Series by one of the cable channels with a second revenue stream. He did not name the winning bidder, but it was ESPN, one of those cable nets that reportedly gets more than $4 per sub. "Fox could not justify the price for the BCS because we did not have a second revenue stream," he says, the stream Fox and others are trying to build through retrans cash.

"Additionally, local news, which is very expensive to produce, could be eliminated entirely or become less local in nature, as advertising alone can no longer cover the hefty production costs," he warns.

Carey says he recognizes the government impulse to step in to help out viewers, but says it needs to resist that urge and offers some alternatives. "We understand how difficult it is to ignore these disputes and stay out of them when you hear from frustrated viewers who have lost their service," he said. "We all care about viewers. After all, without viewers, we have no business. However, it is critically important that the government not let a sector of the industry manipulate an honest process to gain advantage."

Carey says the best way to help consumers is to make sure they are informed about their options of hooking up an antenna--some will also need a converter box, too--or switching to another multichannel video provider. He also wants cable operators to refund subscribers for channels that are removed. "Distributors are quick to raise rates when they add channels," he says, "likewise, they should be quick to lower rates when they delete channels."