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Retrans: Present at the Creation

Recently, CBS announced
an historic agreement
with Comcast for the
payment of significant
cash fees to “retransmit”
on cable the CBS television
stations, made possible by
a largely forgotten event
almost 20 years ago.

When Larry Tisch took
over a failing CBS in 1987,
he asked for a review of
the long-term prospects
of free over-the-air television,
which was threatened
by the two revenue
streams of cable channels,
per-subscriber payments
by cable operators plus
advertising, while television
broadcasters relied
solely on advertising.

None of these cable
channels had the audience
reach of the three television
networks (Fox had only recently
started), yet MSOs were providing
local broadcast stations
with network programming to
their subscribers without paying
any fee. So Comcast was paying
$0.20 per month per subscriber
for TNT (with a primetime rating
of 1.4) and $0.23 for USA Network
(with a rating of 2.2), but nothing
for CBS with a rating of 12.1. It was
widely accepted that if cable systems
couldn’t offer the Big Three
TV networks, they would have to
dramatically reduce their monthly
subscriber rates and probably
lose many subscribers. In effect,
broadcast stations were providing
a massive subsidy to the entire
cable industry.

We decided that broadcasters
needed a second revenue stream
by charging cable operators fee
for ABC, CBS and NBC stations,
just as they paid for the muchless-
watched USA, A&E or MTV.

But how could we get paid?

Our lawyers focused on longestablished
copyright law. But that
was complicated and wouldn’t
solve our problem. So we turned
instead to an arcane concept going
back to the original Radio Act
of 1927 — that a broadcaster had
the legal right to prevent someone
from retransmitting its signal
without consent.

So beginning in 1990, Larry
Tisch and our team journeyed repeatedly
to Washington to make
the case to Congress that universal
free television was in jeopardy
and would only survive if it was
given the protection and revenue
of “retransmission consent.” At
first, we were greeted by incredulity
— that we wanted to be paid
by cable operators for something
that we had always given away
for free. But slowly, congressional
leaders began to understand the
long-term risk to free television
from the monopoly power of the
cable industry and felt compelled
to consider this approach.

CBS was enthusiastically
joined by NBC led by Bob Wright
and Rick Cotton and the leadership
of the National Association
of Broadcasters.

At the same time, growing public
outrage over rapidly rising cable
rates (61% over five years,
compared to a 7% rise in the CPI)
and deteriorating service put increasing
pressure on Congress in
the 1992 election year to regulate
cable rates and restrict cable’s unchecked
monopoly power. When
the bill to protect cable consumers
was finally enacted, the broadcasters’
right of “retransmission
consent” was included.

One of our biggest problems
came from our own side. ABC,
which was heavily invested in cable
through ESPN, A&E and Lifetime,
not just declined to
join but subtlely opposed
us. Finally, we confronted
the heads of Capital
Cities/ABC, Tom Murphy
and Dan Burke, and won
a pledge of neutrality.

For most of the last 18
years, this victory has
largely gone unrealized,
as broadcasters were unable
to get cable companies
to pay for their signal.
But dire economic times
have pushed broadcasters
to take the risk of confronting
cable to win these
needed fees. Rupert Murdoch
gets credit for the
first significant victory,
facing down Time Warner
Cable last year to win
payments estimated at 50
cents per subscriber per
month — setting the industry
standard. CBS followed
with its own TWC agreement.
Then ABC beat Cablevision Systems
in a dramatic confrontation
over the Academy Awards.
And now CBS’s 10-year Comcast
agreement consolidates the
breakthrough. CBS expects to
earn $250 million starting in 2012
from these fees. Those funds will
allow the unique national/local
broadcasting partnership, which
has served the nation well for decades,
to continue.

(And it may be time to reexamine
how retransmission
works. While broadcasters have
generally opposed arbitration to
settle retransmission disputes,
now that a marketplace value
has been set for these rights,
arbitration might be beneficial
to smaller-market stations, not
owned by networks, which lack
the resources to confront massive
cable operators or risk the
loss of revenue from invoking
their retransmission right.)

As we praise Rupert Murdoch
and Les Moonves, we should also
pause and salute the vision of Larry
Tisch who relentlessly pursued
a sometimes lonely battle that
gave broadcasters their “retransmission
right” that is finally making
level the competitive structure
of American television.

Jay Kriegel, a senior adviser at
Related Cos., is the former senior
vice president of CBS Inc.