Fees for Tacoma’s Click Cable rise quickly, analysis reveals

Tacoma cable system’s struggle with broadcasters mirrors fight nationwide

Staff writerMarch 30, 2014 

Bosses at Tacoma’s Click cable system have said for years that customers have to pay more every year in part because local broadcasters are demanding more money for the right to rebroadcast their channels.

What Click hasn’t revealed is how much it is paying those broadcasters that once delivered their signals for free, or how much those fees have gone up.

Now, an analysis by The News Tribune shows steep increases in the fees the city-owned network has paid in recent years to rebroadcast free, over-the-air television signals from the local affiliates for the major networks.

The review is a rare glimpse inside the struggle facing cable systems nationwide, as the increasingly large corporations that own local broadcasters use the threat of blackouts to win higher fees for their signals. The growth comes at a time when cable systems are also facing escalating costs in a larger expense category: the fees for cable network programming, especially sports channels.

Since most of the retransmission negotiations occur between private companies, and confidentiality agreements are standard in the industry, consumers have little information to help them gauge whether the fee increases that show up in their bills as rate hikes are reasonable. But Click, as a public agency, is required to operate more transparently.

In all, Click has paid at least $4.3 million for retransmission consent fees to five broadcasters from 2009 through 2013, according to The News Tribune’s review of public records and a for-pay government purchasing database.

For Click, no retransmission fee increased more than that of Seattle-based Fisher Communications, which did not receive money from Click until 2009. Between 2010 and mid-2013, the per-subscriber, per-month fees Click pays to Fisher increased by 300 percent.

The battle over retransmission fees came into sharp focus in late 2012, when Click and Fisher sparred over a new contract. Fisher withheld its signals, including the local ABC affiliate KOMO and KUNS, from Click subscribers for a month in early 2013.

Early in the blackout, the Tacoma City Council unanimously passed a resolution blasting Fisher for proposing new fees that “represent an increase of 300 percent since 2009 and are significantly higher than rates agreed with any other major local broadcast station.” Fisher shot back, blaming Click for being “unwilling to compensate us fairly for the value of the programming that we bring to viewers like you.”

Click eventually paid the higher fee “under protest” to end the blackout, according to a Feb. 8, 2013, email from Click’s general manager, Tenzin Gyaltsen, to Fisher.

“We believe that Fisher has an unfair advantage over Click and used its power to withhold the signals in order to control and impose unreasonable terms in this negotiation,” he wrote.

Those “unreasonable terms” appear to equal a four-fold increase in the per-subscriber amount Click would pay Fisher from only three years earlier, according to the records obtained by The News Tribune.

A LAWSUIT

After Click’s showdown with Fisher, The News Tribune asked for copies of the new contract and previous ones. In response to the request, made under the state Open Public Records Act, the city of Tacoma told the broadcasters that it considered its contracts with them public records and therefore disclosable.

The corporate owners of KING, KOMO, KIRO, KCPQ and KSTW then sued Click and The News Tribune to keep the terms of the contracts secret, alleging that the fees are trade secrets. A Pierce County Superior Court judge sided with the broadcasters and ordered the contracts and related documents withheld. The case awaits a hearing in the Court of Appeals.

But The News Tribune has analyzed information gleaned from other public records requests and a government purchasing database to calculate what the utility apparently pays broadcasters for each subscriber.

Tacoma Public Utilities officials said last week that the court order prevents them from either confirming or denying the accuracy of conclusions drawn from the newspaper’s analysis.

That analysis indicates that in 2010, Click paid Fisher about 33 cents per subscriber per month for a package of four channels: KOMO, KUNS, This Seattle and Mundo Fox. That per-subscriber fee appears to have nearly tripled by 2012, to about 96 cents per subscriber, the analysis shows.

Under Fisher’s contract with Click, each channel would receive a specific amount per subscriber per month. “This Seattle” has fewer subscribers than the rest, so its inclusion in the Fisher bundle could mean that broadcaster’s per-subscriber fee was slightly less than The News Tribune’s calculations suggest.

After the blackout ended in early 2013, Click paid Fisher about $1.32 per subscriber, records show. It may not seem like a lot, but when paid each month and multiplied by all of Click’s 22,000 subscribers at the time, the payments added up to $173,658 over six months starting in December 2012.

Click subscribers saw a rate increase on Aug. 1, a few months after Click reached its deal with Fisher.

Fees paid to other local broadcasters have risen as much as 180 percent since 2010, records show.

Fees for the local CBS affiliate KIRO, owned by Cox Media Group of Atlanta, have increased from 30 cents per subscriber in 2010 to roughly 84 cents per subscriber in 2013.

Belo Management Services, the Dallas company that owned the NBC affiliate KING, KONG and Northwest Cable News, charged about 52 cents per subscriber in 2009. The fee increased to about 56 cents per subscriber in 2011. But in late 2012, the broadcaster authorized a contract extension that nearly doubled the fee, to around $1.01. These stations are now owned by Gannett.

The per-subscriber fee for KSTW, owned by CBS in New York, went from 17 cents per subscriber in 2009 and 2010 to around 21 cents per subscriber in 2012 and 2013.

Records do not include enough information to show whether the per-subscriber fee for FOX station KCPQ and Joe TV, owned by Tribune Broadcasting of Chicago, have changed. In 2011 and part of 2012, Fox appears to have charged Click about 57 cents per subscriber.

Tacoma Public Utilities Director Bill Gaines said the utility wants to minimize rate increases, but it also has to keep the broadcasters in the channel lineup or risk losing more customers.

Even as Click has lost subscribers — from about 24,400 in 2009 to 20,650 at the end of last year — broadcasters have returned again and again to demand increased fees for its programs.

In that same time frame, rates for Click’s standard cable package with 88 channels have increased from $32.50 to $48.29 — nearly a 50 percent increase. Click executives say rising retransmission and programming fees are to blame.

“(Broadcasters) charge on a head-count basis,” Gaines said earlier this month. “They’ve kind of gotcha. … The cost has been escalating very rapidly for a long time. That’s what’s really driving the rate increases.”

TPU officials plan to ask the City Council for another Click rate increase – the sixth since 2010 – in time for the new charges to appear on customer bills July 1. Click officials say the proposed rate increase of about 10 percent would keep Click’s rates at the same or less for comparable service from its competitor, Comcast.

The fees Click pays to broadcasters could increase again next year. Broadcaster contracts expire at the end of this year.

The ever-increasing retransmission consent fees — and costs for all of Click’s programming — are a threat to Click’s competitiveness, Gyaltsen has said.

“We have to do rate increases to cover costs,” Gyaltsen told the Tacoma City Council earlier this month. “Customers are going to get tired. There’s a rate fatigue element to this. That’s going to drive customers away.”

However, Comcast’s fees are rising in Tacoma, too. Since 2009, rates for a standard cable package from Comcast inside Click’s service area have risen about 36 percent, from $38.99 to $52.99, according to information from Click.

In addition, customers across the country are cutting the cable cord and watching shows online, through services such as Netflix.

“If this continues to happen, then the cable industry could implode like the music industry,” Gyaltsen said.

A NEW PERSPECTIVE

The tone of discussions between local broadcasters and cable companies nationwide has changed since cable television began, said Rutgers University journalism and media studies professor Philip Napoli.

Local broadcasters once feared “people would watch cable and that cable wouldn’t carry the local stations, and free TV would go away,” Napoli said.

In 1992, Congress adopted a law allowing local broadcasters to choose either to require a cable system to carry its signal or to charge a fee to carry its signal.

For a while, many broadcasters continued to send their signals to cable networks at no charge in exchange for getting programming and advertising to more viewers. It wasn’t until 2006 that Seattle network affiliates started charging Click to retransmit their signals, said Tacoma Public Utilities spokeswoman Chris Gleason.

By the end of 2014, Click will have spent nearly $22 million on all programming costs since 2013 — not just fees for local broadcasters. Gleason would not say what fraction of that amount pays for local retransmission consent fees, citing potential litigation.

The biggest share of fees goes to cable-only channels, and those are going up as well. Click faces similar pressures from those companies, most recently from Viacom, the parent company of stations including MTV, Comedy Central and Nickelodeon. Viacom is in negotiations with the cable cooperative that includes Click and could choose to remove its channels if a deal isn’t reached by Monday.

Nationwide, local broadcasters’ retransmission fees are expected to continue to rise, according to SNL Kagan, an industry analysis company.

Broadcasters collected about $3.3 billion in retransmission consent fees from cable companies nationwide in 2013 — up from $758 million in 2009. That figure is expected to grow to $7.6 billion by 2019 — all during a time when subscriber numbers are predicted to remain flat, according to a report issued by SNL Kagan in November.

The most expensive channel on anyone’s bill is sports network ESPN, according to another SNL Kagan report from 2013. It estimated ESPN earned an average of $5.54 per household per month in 2013 — a 10 percent increase over 2012. Turner Network Television, one of the few cable-only channels to earn more than $1 per subscriber according to Kagan, earned an average of $1.24 per month, 5 percent more than it earned in 2012.

The American Cable Association, an industry group that represents small to medium cable networks, including Click, has told federal policymakers that retransmission fees are often a bigger burden on small operators.

“ACA and its members know firsthand that retransmission consent increasingly harms consumers via spiraling prices and bitter public showdowns with threatened or actual withdrawals of local network signals,” the group’s president, Matthew Polka, said in 2010 letter to then-Sen. John Kerry, who was proposing retransmission reforms.

“Compounding this problem for smaller operators is the fact that broadcasters unjustifiably charge smaller operators and their customers significantly higher fees than larger operators for the rights to retransmit the same programming.”

Rising cable bills are not the fault of local stations, said Dennis Wharton, a spokesman for the National Association of Broadcasters.

“Cable companies have been charging two times the rate of inflation ... for the last 20 years,” Wharton said. “Only in the last five or six years have broadcasters begun to get a fair market rate for the programming that most viewers are watching.”

Napoli said consumers would benefit if pricing information were public, yet the precise cost remains a secret.

“They seem to be so tight-lipped to who is paying what,” he said. “… There is such a long tradition in the broadcast industry of them both wanting policymakers and consumers to stay in the dark about aspects of what they do. This is part of a much larger trend. They don’t want policymakers to have information that may or may not lead to particular regulatory actions.”

The growth in retransmission fees is driving sales of local television stations, with big owners getting even bigger, according to the Pew Research Center. Its State of the News Media report issued last week said that almost 300 full-power local TV stations changed hands in 2013, at a cost more than $8 billion.

And with acquisitions of new stations comes the chance to push retransmission fees even higher. When Gannett bought 43 Belo television stations last year, including KING, KONG and Northwest Cable News in Seattle, its CEO told stock analysts that the purchase gave the company an opening to renegotiate the retransmission fees it charges cable networks.

Napoli said a key reason the FCC allowed local stations to charge retransmission fees in the first place was to prevent local news programs from going off the air. But lately, local affiliates are sending more retransmission revenue to their corporate bosses.

Cuts to local news stations are a byproduct of this change in revenue flow, he said.

In August last year, Baltimore-area company Sinclair Broadcast Group bought the company that owned Fisher. After its purchase of Fisher, Sinclair sent layoff notices to about 20 KOMO employees, including 10 in the newsroom, according to a report in the Puget Sound Business Journal.

And in 2012, KING 5 shuttered its Emmy-winning local political show “Up Front with Robert Mak.” Station management blamed stagnant advertising revenue. At the same time the KING 5 newsroom lost seven positions through attrition and layoffs, according to the Seattle Times.

Money paid by local broadcasters to parent corporations is expected to double by 2019 to $2.3 billion, SNL Kagan reported last year.

“Each year the station groups are reporting increases in their retransmission consent revenues,” said Napoli, the Rutgers professor. “It has a definite upward trajectory because what’s happening as contracts come up for renewal, the terms that are being demanded are higher … than the previous contract.”

Kate Martin: 253-597-8542
kate.martin@thenewstribune.com
@KateReports

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