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Retrans Wars Start Early

Warner Cable and LIN TV went to war last week over retransmission consent and cash compensation, as more than a dozen TV stations went dark in a dispute that may be a bellwether of battles to come.

As of midnight last Friday, 15 LIN stations lost carriage on Time Warner Cable systems in at least 11 markets. The nation's No. 2 cable company charged that the “greedy” broadcaster, demanding millions of dollars in cash, pulled its signals after refusing to grant a retransmission-consent extension.

As of press time Friday, the stations were still dark, although negotiations were continuing.

The dispute erupted just one day after the Oct. 1 federal deadline for broadcasters to tell distributors whether they wanted mandatory carriage for their stations, or must-carry; or if they wanted to negotiate terms for carriage, namely retransmission consent.

Although some deals are staggered, like Time Warner's pact with LIN TV, most retransmission-consent agreements run on a three-year cycle, with the current cycle set to expire Dec. 31. That means that potentially thousands of retransmission pacts will have to be renewed in the next few months.

Time Warner's standoff with LIN TV over compensation for its stations could be repeated with other cable companies and broadcasters, as the TV stations more aggressively seek cash payment. The LIN TV retransmission-consent deal is just one of several contract negotiations that Time Warner has to deal with, and it's likely the operator doesn't want to set a standard by forking over cash to LIN.

To cite one big example, Time Warner is about to enter retransmission-consent negotiations with Univision, and will soon be starting negotiations with Fox Cable, including its regional sports channels; NBC Universal's cable and broadcast outlets; and Discovery Communications; according to Pali Research analyst Rich Greenfield.

LIN TV has said it is seeking a penny per day, per subscriber for each of its stations, which is a license fee of roughly 30 cents per month. Both Greenfield and David Joyce, a Miller Tabak & Co. analyst, estimated that would cost Time Warner about $10 million annually in retransmission-consent payments to LIN TV.

“Time Warner does not want to set a precedent of such high payments ahead of thousands of other TV-station agreements, for all multichannel-video providers, that are expiring at the end of the year,” Joyce wrote Friday.

According to LIN TV, the Time Warner standoff involves stations in Green Bay, Wis.; Austin, Texas; Buffalo, N.Y.; Columbus, Ohio; Dayton, Ohio; Fort Wayne, Ind.; Indianapolis; Mobile, Ala.; Springfield, Mass.; Terre Haute, Ind.; and Toledo, Ohio. The stations are affiliated with various broadcast networks. Time Warner Cable says 13 cities in all are affected.

In Indianapolis, the actual operator carrying several LIN-owned stations is Bright House Networks and 106,000 subscribers are affected. Bright House has a business relationship with Time Warner, which negotiates its retransmission-consent deals in that market, according to a Bright House spokeswoman.

Greenfield claimed that 2.7 million Time Warner subscribers are affected by the blackout, while the cable operator said only 1.5 million customers are affected.

Greenfield last Friday predicted that Time Warner will lose customers over the flap, particularly in Green Bay, where the National Football League Packers' game was set to air this past Sunday on the Fox affiliate, WLUK-TV, owned by LIN TV.

“Not only will TWC begin to lose subscribers, but we do not believe they are going to get a better deal from LIN by waiting,” Greenfield wrote. “In addition, we believe this sets a worrisome tone for how TWC will deal with retransmission-consent negotiations with other broadcasters over the coming months, with Univision set to be the most contentious retrans battle (given the price Univision wants per subscriber per month).”

There was a lot of finger-pointing by Time Warner and LIN TV last Friday.

“We offered to work through the night to reach an agreement, and they refused,” Time Warner chief programming officer Melinda Witmer said in a prepared statement. “They showed little regard for their viewers and advertisers, and our customers, in their preference to remove the channel rather than work toward resolution.”

In a press release, Time Warner added that “without express permission,” it “cannot legally provide LIN's television stations to its cable customers.”

On its Web site last Friday, Bright House posted its own message to customers about the dispute.

“Thank you for your patience regarding the WISH-TV, WNDY, WIIH, LWS and WANE-TV programming,” Indiana Division president Buz Nesbit said. “You may have heard that their parent company, LIN, stopped delivery of their signal to Bright House Networks. We continue to be optimistic that this programming will be restored. In the meantime, note that much of the CBS network programming is available online. My personal apologies for any inconvenience.”

Bright House is providing A/B switches to subscribers free of charge, and posted a video on its Web site showing customers how to stream video from their PC to their TV, a company spokeswoman said.

LIN TV put the onus on Time Warner for the station blackout.

“Time Warner has known since August that the contract expired on Oct. 2,” the broadcaster said in a statement Friday. “We previously offered Time Warner an extension and they didn't accept it, nor even respond. They finally sent their first serious proposal late yesterday afternoon, and we worked diligently beyond midnight to close the gap, but were unsuccessful.

“There is no reason for any Time Warner subscriber to lose access to LIN television programming. Essentially all Time Warner subscribers can receive LIN signals over the air or through another multichannel distributor and the great majority of Time Warner subscribers can receive LIN television programming three or more ways now and in the future. We hope we will be able to reach an agreement.”

The American Cable Association, which represents independent cable operators, has petitioned the Federal Communications Commission for reform in retransmission-consent laws. It views the LIN TV-Time Warner dispute as the first of many.

“To me it is a bellwether and a sign of things to come, for this reason: If Time Warner has trouble with their size, you can imagine what it's like in the smaller markets,” ACA president Matt Polka said. “One of the differences is, though, at least Time Warner has some leverage. They've got size.

“With our members, they don't, so consequently it's a very, very difficult decision for them about whether they decide to drop a station or not. However, I think the egregiousness of the demands over time are going to force this.”

According to SNL Kagan projections, retransmission-consent revenue paid by cable, satellite and telcos will reach $1.2 billion by 2011, up from $930 million in 2010.

“There just comes a breaking point, which I think we are fast approaching, about whether — particularly our members — can absorb that cost and pass that through,” Polka said. “I think the answer to that is no they can't, so consequently, I see more of these things [retransmission-consent disputes] coming.”

Time Warner argued against paying cash to LIN TV.

“Time Warner Cable has never charged for broadcast programming, which is available for free with an antenna or on the Internet,” the operator said in its release. “Rather, Time Warner Cable believes that LIN TV is fairly and adequately compensated for its channels with the clear reception and extended advertising audience that the station enjoys by being on Time Warner Cable's channel lineup.”

LIN TV makes “millions of dollars in additional advertising revenue as a direct result “of being on Time Warner Cable, and “demanding more is just plain greedy and our customers deserve better,” according to Witmer.

“Despite acknowledging progress in the negotiations, LIN took the extreme step of removing its signal, depriving Time Warner Cable customers of network programming they enjoy,” Witmer said. “We asked for a very short extension to complete negotiations, but it was LIN's preference to pull their signal off the air.”

Witmer said that Time Warner was still negotiating with LIN TV, and that “in the meantime, customers can use an antenna or connect their TVs to their computers and watch their favorite network programming via the Internet.”

In his report Friday, Greenfield said that Time Warner will lose subscribers as a result of the station blackouts.

“We expect Time Warner Cable subscribers to begin seeking alternative video providers over the coming days, particularly in markets where NFL programming is a major issue, such as in Green Bay, Wisconsin, where the Packers game is set to air on Fox this Sunday,” Greenfield wrote.

In contrast to Greenfield, Collins Stewart analyst Tom Eagan in his report Friday said he didn't expect the station blackout to hurt Time Warner.

“We do not believe that this interruption of carriage will have a short-term or long-term impact on TWC's subscribers or financials,” Eagan wrote. “Despite Dish offering TWC subscribers $50 to convert (to the Dish platform), we do not expect material number subscribers will churn, especially with the high-level penetration of high-speed data (60% of basic subs) and voice customers (30% of basic subs). Of the 15 relevant stations, 10 are major broadcast affiliates.”