TV Grudge Match Reignites

For months, station owners have praised Nexstar Broadcasting for standing up to cable operators in the battle that is known in TV circles as retransmission consent.

Nexstar Broadcasting is insistent on forcing cable systems to pay cash to retransmit its local stations' signals. Since January, three Nexstar stations have been stripped from cable systems that refused to pay. Last week, as the kickoff of the latest season of retransmission-consent negotiations was about to commence, Nexstar COO Duane Lammers was preparing to issue similar demands on behalf of most of his remaining 46 stations.

Nexstar considers its move a noble cause, but few seem willing to follow the broadcaster to the mat and risk the ratings and advertising pain of cable operators' not carrying their signals.

Lammers says he doesn't expect a lot of company in the battle: “There's a lot of people out there ready to fight to the last drop of our blood.”

Blood—more like red ink—is what industry executives worry about during retransmission talks. Over the weekend, broadcasters were due to notify cable systems what they want in exchange for the right to carry the signals of local TV stations.

Many broadcasters stagger the terms of the cable deals, so the three-year cycle doesn't apply to all 2,600 TV stations or 8,000 cable systems. And many stations lack the leverage to make demands. Stations with weak signals or weak programming will opt for “must-carry” status. That forces cable operators to carry the signals, but the cable operator isn't compelled to compensate any further (for example, providing prime channel position). The National Cable & Telecommunications Association (NCTA) estimates that 50% of stations opt for must-carry status.

Still, this round comes as station owners—which have induced payments from DBS and telephone companies—are increasingly interested in securing cash for permission to retransmit their signals.

CBS Chairman Les Moonves has seized on the idea of getting cash from retransmission consent as justification for owning CBS stock after it is spun off from Viacom next year. There will doubtless be a few collisions as the Dec. 31 negotiating deadline approaches, but this probably isn't the year for a widespread battle between stations and systems.

Most station groups and large operators will continue to do as they have done in the 12 years since retransmission-consent rules were enacted: without cash. Even the combative Sinclair balked at a showdown with Comcast last spring, settling a dispute without collecting cash. And CBS stations are tied up in long-term agreements, so we won't see how serious Moonves is for about three years.

Most broadcasters will be seeking full carriage of new “multicasting” channels, starting in space created by their switch to digital broadcasting. They'll want better terms and license fees for cable networks they own all or part of. Big operators are willing to disguise payments as advertising or cable-network fees, but they stubbornly resist straight cash-for-carriage deals.

Retransmission consent is a powerful tool for companies owning both broadcast stations and cable networks. One MTV Networks executive recently told me that losing retransmission consent is the only downside in the Viacom split. Using the power of CBS' and UPN's TV stations, MTV has been able to drive distribution of a slew of startup networks, from VH1 Classic to Noggin. (Another executive, however, counters that the retransmission game is played out for MTVN. The better leverage today is operators' hunger for product to feed video-on-demand. “VOD is the new retransmission consent,” the executive says.)

The negotiations could be much harsher on small cable operators, who contend a train wreck is coming. Some of them—around 10% of the members of little-guy lobbyist American Cable Association—already pay cash. And the association warns of an onslaught this year that will cost them $1 billion. Broadcasters will have second thoughts before provoking a showdown with giants Comcast or Time Warner Cable. The big cable boys could take those stations dark on systems in major markets across the country. But there's little to lose by beating up on 18,000-subscriber Rapid Communications or even 400,000-subscriber Cebridge Communications.

Those operators are getting demands for 50¢-$1 per subscriber monthly. ABC says in an FCC filing that it thinks it's worth $2 per subscriber. By comparison, MTV collects around 27¢ per subscriber monthly; ESPN gets $2.60.

Prospects are so dark for small cable operators that they've occasionally gotten demands for payments from companies straddling both sides of the argument, companies that own both stations and cable systems. According to FCC filings, one of those is The Washington Post Co., parent of Post-Newsweek stations and CableOne, which is battling Nexstar.

Meanwhile, the Nexstar fight lingers on. The company's stations are still off cable systems in Abilene and Texarkana, Texas, and Joplin, Mo. Cox Communications Director of Programming Debbie Cullen says she hasn't met with Nexstar since February. Cable operators have handed out a few thousand rabbit-ear antennas and lost a few thousand subscribers that have jumped to DirecTV or EchoStar services, both of which pay cash for retransmission consent. (On DBS, broadcast stations come on an optional tier. If the FCC lets cable do that, cable operators would happily pay for retransmission consent—and give away a lot more pairs of rabbit ears.)

But Nexstar's audience has plunged; Nielsen Media's May book shows its stations are down 30%-40% in key dayparts. But the markets are small enough that it's not causing a financial crunch to Nexstar as a whole. Expanding the war will magnify the pain.

Although antitrust laws prevent companies from teaming up against systems, Lammers hopes other broadcasters in Nexstar markets will take up the fight, dramatically increasing the pain to cable. Says Lammers, “It's market-by-market.”

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