It is a business model made in heaven, as long as you’re the business and not the customer.
Local TV stations get to increase what they charge for their product and slip the blame to someone else. You didn’t think you paid for free TV, those stations regulated by the Federal Communications Commission and available “over the air?” You do if you get the signal by cable or satellite.
You not only pay for channels you’ve heard of — KING, KOMO, KIRO, etc. — you also pay for the stations’ secondary and tertiary channels. Does anyone actually watch THIS-TV? You pay for it anyway.
And any rate increase is not only embedded in what cable and satellite providers charge, the providers are prohibited from telling customers how much they pay the stations each month.
Even if the providers balk at the charges, and the TV channel disappears from customers’ sets, most viewers blame the cable provider for blank screens and not the TV station. More often than not, the providers pony up and try to pass the increase along via higher cable bills.
Cable providers don’t have to include local stations. But Mitch Robinson, a Tacoman who has worked both for local TV stations and a cable provider, said that isn’t likely to happen.
“A cable system without ABC, NBC, CBS and FOX isn’t a real cable system,” Robinson said. But if no deal can be reached, a cable provider can’t bring in the network affiliate from, say, Portland. Federal rules don’t allow it.
I would never begrudge TV stations their money. Like a lot of traditional media faced with declining advertising dollars – newspapers included – they are looking for other sources of revenue. As such, the dependence by TV stations on what is known in the business as retransmission fees is growing at annual rates well into double digits.
As I said, a business model made in heaven. Not that newspapers like The News Tribune haven’t raised monthly subscription prices significantly. And like other companies, we’ve also started charging for our websites and apps that were once available for free. But at least we deliver the bad news ourselves and take the heat for it.
Local TV does neither. Like when Tacoma’s municipally owned cable network Click got in a pricing dispute with KOMO. The company’s channels were taken off the service Jan. 1 when negotiations hit a dead end. But way too many customers blamed Click, not KOMO, and the municipally owned Click had to give in “under protest.”
“We believe that (KOMO’s then-owner) Fisher has an unfair advantage over Click and used its power to withhold the signals in order to impose unreasonable terms in these negotiations,” wrote Click official Tenzin Gyaltzen.
Unlike private cable companies, Click is publicly owned and subject to Washington’s Open Public Records Act. But when The News Tribune made a request for Click records regarding the negotiations and the rates paid, KOMO and the other local TV stations dashed to court to block it. They have succeeded, for now, even though what local stations are paid – somewhere north of a buck per customer per month – is not quite as secret as KOMO asserts.
The News Tribune is appealing a lower court ruling. I’m not directly involved, but you can guess who I’m rooting for.
Such disruptions will become more common as stations, most owned by a declining number of national chains, seek more revenue from cable and satellite subscribers. A recent study by investment firm Veronis Suhler Stevenson said America’s TV stations have increased the amount they get from retransmission fees from $11 million in 2001 to $1.45 billion in 2011. The annual percentage hike during that decade ranged from 33.3 percent in 2003 to 374 percent in 2005.
The same firm estimates that total fees will continue to increase, reaching a total of $3.7 billion by 2016. SNL Kagan, a media research firm, is even more bullish, estimating the fees will reach $3 billion this year.
One reason for their success is the ongoing consolidation of the local TV business. When Gannett bought the TV stations owned by Belo Corp. in June, it announced that it would use the clout of its combined companies to get more money from cable and satellite providers. KING-TV is one of those stations. Another expanding company, Sinclair Broadcast Group, has made similar assertions while buying more stations, including KOMO.
Reported the Wall Street Journal: “What makes the combinations appealing is that big station groups with lucrative retransmission agreements with pay-TV operators can apply the terms of those agreements to the smaller stations they buy, many of which have less favorable arrangements in place, analysts and consultants say.”
This isn’t just a local issue. Customers of Time Warner Cable in big cities such as New York, Dallas and Los Angeles have been without CBS-owned stations since Aug. 2 because the two can’t reach a deal on retransmission fees.
Unlike Time Warner, Click is too small to effectively battle the stations and their corporate owners. While it is part of a national collective that is big enough to drive hard bargains with cable channels such as ESPN and CNN, it is on its own with local TV stations and regional cable networks such as ROOT Sports.
Robinson, who used to negotiate contracts for Click, said he worries that if the rates of both local and national channels is released via public records law, the channels will simply refuse to appear on Click’s lineup. That could destroy Click, he said, and reinstate Comcast’s monopoly.
Click’s lawyers agree with the TV stations that public knowledge of the rates it pays to the stations would put it at a disadvantage in future bargaining. But given how broadly known the going rates for all the cable channels are — appearing in study after study — punishing Click and its customers would be more pique than a business decision.
And given how badly it lost the battle with KOMO — and how hungry the other stations are for more money from cable customers — it is hard to imagine how anything would make Click’s bargaining position any worse.