Latest Click cable contracts show more big increases in broadcaster fees

Seattle broadcasters are charging striking rate increases for new contracts with Tacoma-owned Click Cable TV. Viewers pay the price.

New contracts that took effect Jan. 1 show the broadcasters’ fees are rising far faster than inflation.

No fee has increased over the years more than that of Seattle broadcaster KOMO. In 2009, the broadcaster received only 31 cents per month per home from Click. That amount has soared this year to $2.43 — a 684 percent increase.

Had the broadcaster’s fee risen equal to inflation, KOMO would earn only 34 cents per subscriber — or approximately $78,000 for all of 2015.

Instead, the new fee structure will mean Click pays about $561,000 this year. That cost is likely to be passed down to the utility’s 19,250 subscribers.

Chris Gleason, spokeswoman for Tacoma Public Utilities, which operates Click, said Friday the utility board will consider a 17.5 percent rate increase for Click subscribers for 2015 and an undetermined increase for 2016 during a Wednesday meeting.

That contrasts with an earlier plan to have two 10-percent rate increases, one this year and another in 2016.

The TPU board’s first public vote on the new proposal could happen April 8, after which the Tacoma City Council would have the final say.

Comcast and Click charge $52.99 per month for similar 88-channel packages. If the Tacoma City Council approves a 17.5 percent rate hike, it would add nearly $10 onto Click’s offering.

Outside of Click’s service area, where there is no competition from another cable provider, Comcast charges $69.49 for the same channels.

The “17.5 percent increase is a massive increase for us,” Gleason said. She cited increasing fees to broadcasters as “a huge driver” for the rate increase.

The fees Click pays, and by extension its subscribers, will continue to rise. The three-year contract KOMO’s owners negotiated calls for Click to pay $2.92 per month per subscriber in 2017.

KOMO isn’t alone. Click also signed new, three-year contracts with KING, KIRO, KSTW and Q13 FOX — all stations based in Seattle and whose signals are available for free over the air.

Collectively the five networks will charge Click about $2 million to rebroadcast their signals this year. Had the fees adjusted with inflation, Click would have paid about $415,000.

The broadcaster contracts, called retransmission consent agreements, doubled fees overnight for three of the five Seattle broadcasters as Tacomans rang in 2015. Four of the five broadcasters will charge more than $2 per subscriber per month by 2017.

The agreements, long held secret, were released by Click after a two-year court battle that led to the state Court of Appeals ruling for The News Tribune.

The broadcaster fees represent a sharp turnaround from a few decades ago, when broadcasters feared a nascent cable industry that led to the rise of pay-TV networks like HBO and Showtime. In the 1980s and 1990s, broadcasters worried their programming — and the advertising they are paid to carry — would be shut out of living rooms across America.

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 to get their programming and advertising to more viewers. It wasn’t until 2006 that Seattle network affiliates started charging Click to carry their content.

Industry analyst SNL Kagan predicted in 2013 that broadcasters nationwide would rake in $7.64 billion by 2019 from retransmission fees. But the fees have increased even faster than Kagan predicted, and the company revised its 2019 estimate upward to $8.78 billion, according to Multichannel News.

Still, cable systems pay much more for other programming. ESPN receives more than $6 per viewer per month, according to the Wall Street Journal.

Retransmission fees are a means to help offset broadcasters’ declining advertising revenues. They also allow broadcasters to afford to pay the increasing cost of access to NFL and other sports, local news and other entertainment programming, National Association of Broadcasters spokesman Dennis Wharton told The News Tribune in January.

“They need a healthy revenue stream that sustains that,” Wharton said.

The amounts outlined in the new Click contracts are lower than what broadcasters initially proposed, Gleason said, but there’s nothing else the utility can do “other than going dark, which doesn’t seem to help us.”

Gleason is referring to a month in 2013 when KOMO withheld the signal from Click customers over a contract dispute. Even though Click customers were unable to view the programming that month, Click was forced to pay KOMO’s parent company $31,843 anyway.

“We don’t really have a lot of bargaining power with these broadcasters,” Gleason said. “... We do negotiate with them but there’s not a lot of leverage for us.”

Escalating fees could accelerate the trend of “cord cutters” — people who don’t have a cable subscription and who watch shows online.

Comcast and Click, like most cable companies nationwide, have bled subscribers in recent years. But Click is losing customers faster than the cable industry as a whole, according to Click subscriber counts and a nationwide analysis by Leichtman Research Group, a broadband industry analyst.

The top cable companies lost 1.7 million subscribers in 2013 — or 3.4 percent of their customers. By comparison, Click lost 7.6 percent of its customers in 2013. By the end of that year, Click had 20,650 subscribers and that number continues to drop.

At some point viewers could succumb to fee fatigue and revert to the old standard of hanging an antenna to pull free broadcast signals from the air, said Philip Napoli, a Rutgers University journalism and media studies professor.

“In some ways it’s ironic that broadcasters and cable folks have been at each other’s throats for so long,” Napoli said. “If you are a broadcaster, you are not rooting for people to cut the cord at all.”

TPU Director Bill Gaines has hinted that change could be coming for Click, which is becoming a budget drag in part because of growing programming costs.

Among the options are handing off the cable TV operation to a private provider while maintaining ownership of Click’s fiber-optic network that also helps maintain the power grid and provide broadband Internet service.

Mayor Marilyn Strickland has said the City Council will discuss the future of Click soon. Last week, Strickland said the city plans to schedule two public forums for residents to “weigh in on what should happen to Click.”

Those meetings could happen in the next few months.

This story was originally published March 22, 2015 at 12:00 AM with the headline "Latest Click cable contracts show more big increases in broadcaster fees."