TV stations, which generate substantial ad revenue through their carriage in cable homes, should be paying cable operators $4.16 per month, per subscriber in license fees for that extra reach, according to a report commissioned by the American Cable Association.
The suggested license fee was part of a 27-page report, researched and written by Arlen Communications Inc., on the economic impact of retransmission consent on small-town and rural cable systems.
The report argued that in a true free market, cable operators wouldn’t be paying broadcasters cash to carry their TV stations, as now permitted by federal regulations, and cable systems wouldn’t be put in a position where they are forced to carry media conglomerates’ cable networks in exchange for carrying their broadcast stations.
The study was commissioned by the ACA, which represents small independent cable operators and its member companies.
By analyzing the increased ad revenue stations gain through their extended reach to smaller communities via cable, the report maintained that these stations should be anteing up to cable.
The “Big Four” broadcast networks’ local affiliates generated $22.64 billion in ad revenue last year, with the report estimating that 60% of this money, or $13.5 billion, was generated from cable-TV homes, which total 67.5 million. And 8 million of those homes are in small-town and rural areas.
Using a formula based on those numbers, the study calculated that these stations generate $4.16 in ad dollars per cable subscriber, per month.
“The local television industry does not share any of this revenue with the cable industry or factor the value of cable carriage into the determination of its pricing for retransmission consent,” the study said.
“On the contrary, local broadcasters expect payments from the cable industry for carriage on cable systems … In a rational economic structure, broadcasters would pay up to $4.16 per channel, per home, per month for cable carriage and distribution,” according to the study.
The report also calculated that small-market cable systems have to spend almost $17 per month, per subscriber in costs to provide and maintain carriage of over-the-air broadcast stations to their subscribers.
By being forced to allocate money for cash retransmission-consent fees and license fees to launch new channels required by network owners for retransmission consent, some small operators don’t have the funds to upgrade their systems and offer broadband services, the study said.
“Ironically, the consequences of the current retransmission-consent regime impede, not encourage, ubiquitous broadband rollout,” the study added.
The bundling and tying together of carriage for TV stations and launching cable channels as part of retransmission-consent deals poses a special burden for rural cable systems, the report said.
These additional networks forced on small cable operators take up valuable and limited bandwidth, yet they are unlikely to attract new subscribers or generate any new revenue, according to the study.
In addition, “the impact of broadcasters’ cash demands falls disproportionately on smaller and medium-sized cable operators,” the report claimed.
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