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Broadcast Television's Hard Bargainers

7/22/2005 8:00 PM Eastern

Cable operators are bracing for retransmission-consent trouble with almost 10 broadcasters, most of them independent TV-station owners.

Based on input from cable-industry sources, Multichannel News has put together a list of over-the-air players that are expected to be aggressive in their demands during negotiations later this year.

“It's fair to say that we think we'll get the most trouble with these small to midsized broadcasting groups — hence a Nexstar [Broadcasting Group Inc.] — that need to have a second source of revenue, and see cable as potentially their last resort,” one MSO official said.

“Frankly, if they're not drawing the advertising dollars they used to and if they're not getting network comp, they will fight very aggressively to try to get … let's call it 'cable comp' for now,” he added. “Those are going to be the toughest ones.”

Some broadcasters made it onto the list because of their track records during retransmission-consent negotiations three years ago. Operators fear these TV-station owners will resurrect their old cash-for-carriage demands this year.

During the past 18 months, several of these broadcasters have already engaged in retransmission-consent battles with cable systems, with most of those disputes centered on TV stations seeking cash for carriage for their digital HDTV signals.

Other well-publicized fights have sprung up over broadcasters seeking compensation for analog broadcast signals in markets where retransmission-consent contracts expired in January, a year ahead of most of those pacts.

The following is roster of broadcasters who have, by their own pronouncements or past actions, have sought — or are seeking — cash for their signals.

NEXSTAR

The independent broadcaster that owns or operates 46 stations in 11 states has been over-the-air-TV's champion of fighting for cash for carriage.

For more than half a year now, Nexstar has been in a retransmission-consent dispute with Cox Communications Inc. and Cable One Inc. As a result, a number of Nexstar stations have been taken off the two operators' systems in Louisiana, Missouri and Texas.

But that ongoing standoff may just be the beginning of cable operators' troubles with Nexstar. The broadcaster has said that “a substantial number” of its retransmission-consent deals will expire at the end of this year or early in 2006.

While cable operators are expecting the worst, it remains to be seen if Nexstar aggressively pursues cash for carriage in other, larger markets. The broadcaster is keeping quiet.

“We do not plan to share our strategy at this point,” Nexstar chief operating officer Duane Lammers said in an e-mail last week. “It is developed and ready for implementation.”

While Nexstar is still taking an aggressive stance regarding cash-for-carriage when it talks to the consumer press, the company has been far more measured in talks with Wall Street, indicating it will approach retransmission consent on a case-by-case basis.

“What I don't want to do is to publicly disclose our strategy,” Nexstar chairman Perry Sook said during a first-quarter conference call in May. “[But] it will be a calculated decision and the dynamics will be taken into account on a market-by-market basis.”

He elaborated a bit, saying Nexstar will consider “what happens with other players in the industry; what the competitive dynamics are in our individual markets; and what we continue to learn as we evolve through the markets where we are currently in this discussion with the cable operators.”

Nexstar officials, who initially requested a 30-cent license fee for their stations from Cox and Cable One, have told Wall Street that they carefully picked their battle with those two MSOs in the markets in question, setting them up as test cases for securing cash-for-carriage.

Those DMAs were smaller, with retrans deals expiring a year earlier than most others. Those markets also had high DBS penetration and only a handful of TV stations, with Nexstar's outlets possessing the dominant local-news franchises, according to Sook.

In the spring, he said Nexstar had signed the largest “subscriber-fee deal” with a cable operator for retransmission consent in the broadcaster's history, but it hasn't “cracked the top 10 MSOs yet.”

There may not be a “one-size-fits-all” retransmission-consent strategy for the broadcast industry, according to Sook. “It may be done on a company-by-company basis.”

Cable One has taken steps to buttress itself against problems with Nexstar in additional markets at the end of the year. In Wichita Falls, Kan., where NBC has a station, Cable One has already “locked up friendlies,” securing retransmission for analog and HDTV signals for the ABC station there, according to Tom Basinger, vice president of the MSO's central division.

SINCLAIR

Maverick TV-station owner Sinclair Broadcast Group Inc. has been pretty upfront with its demands to get paid for HDTV signals. Cable-operator sources fear Sinclair, which owns or provides services for 62 stations, will be similarly aggressive about getting cash compensation for its analog signals.

Earlier this year, Sinclair tangled with Comcast Corp. over carriage of HDTV digital signals for Fox affiliates in six markets, including Baltimore, Pittsburgh and Nashville, Tenn. In February, the broadcaster played hardball in the midst of finalizing a temporary retrans deal, actually pulling the plug on those digital signals for Fox affiliates from Comcast.

Two weeks later, Comcast and Sinclair announced a long-term analog and digital retransmission-consent deal for all the broadcasters' stations in the MSO's markets.

On its Web site, Sinclair has a letter on “Cable HDTV Negotiation Status” posted, in which it talks about cable systems refusing to pay to carry the broadcaster's digital signals. Sinclair argues such fees won't cause cable bills to rise.

“In the first place, Sinclair is looking for no more than 50 cents per subscriber, per month, a very small percentage of the average cable bill,” the letter says.

“Cable companies simply need to reallocate the fees you pay them away from the cable channels with low viewership to the broadcast stations which have compelling programming and high viewership.”

Sinclair declined to discuss its upcoming retransmission-consent strategy. “We're just not in a position to comment on what our plan is,” Sinclair general counsel Barry Faber said last week.

Trouble could be coming, though. Sinclair is threatening to pull TV-station signals off EchoStar Communication Corp.'s Dish Network lineup on Aug. 1. Both parties had agreed to a two-month extension of their expired retransmission deal so they would continue negotiating, but that extension expires on Aug. 1.

Sinclair claims the direct-broadcast provider hasn't responded to its request for an extension for another month.

HEARST-ARGYLE

Through retransmission-consent agreements, Hearst-Argyle Television Inc. has reaped millions of dollars in revenue: $6.2 million during the past three years, with up to $3 million expected this year and as much as $6 million next year, according to filings with the Securities Exchange Commission and company estimates.

“Unlike some of the other broadcast groups, they can use a programming tie-in,” American Cable Association CEO Matt Polka said.

Hearst-Argyle, which owns or manages 28 stations, works hand in hand with corporate sibling Lifetime Entertainment Services to best leverage retransmission-consent opportunities and generate revenue from those deals.

Half-owned by Hearst Corp., women's-targeted Lifetime acts as Hearst-Argyle's agent and negotiates the broadcaster's retransmission-consent contracts with distributors. In the past, Lifetime has secured launches for start-up services such as Lifetime Movie Network as part of these contracts.

This year, sources said, Lifetime is seeking to expand carriage for spinoffs LMN and Lifetime Real Women.

In exchange for retransmission consent for Hearst-Argyle stations, operators are being asked to distribute LMN to 95% of their subscribers and to carry Lifetime Real Women on digital, sources said.

If distributors don't want to extend carriage for those two networks, they will be asked to pay cash instead. The license-fee rate card for the Hearst-Argyle stations is 50 cents a month, per subscriber, for next year; 55 cents in 2007; and 60 cents in 2008, according to sources.

Lifetime and Hearst-Argyle declined to comment for this story.

ABC NETWORK

The Alphabet Network, part of The Walt Disney Co., could be in the middle of retransmission-consent squabbles as contracts expire at year end for its 10 owned-and-operated stations.

The Mouse House is open about what it will request from distributors. The options range from seeking launches for ABC News Now — the bundled broadband, video-on-demand and digital linear network — to pursuing wider distribution for services such as Toon Disney, ESPN Deportes, ESPN Classic, SoapNet and ESPN 360.

Distributors who don't have an interest in those Disney products will be asked to pay cash for carriage for the ABC stations.

“In many respects, our strategy for this round of retransmission consent remains consistent with how we have always handled the process, which is that we always make — and we always have and we always will — make a cash offer available to cable operators and satellite providers to carry the ABC stations,” said Ben Pyne, executive vice president of Disney and ESPN Networks affiliate sales and marketing. “If someone pays cash, there is no other obligation to do anything else for retransmission consent.”

Disney will offer distributors who don't ante up cash “an alternate consideration that will include any number of pieces of our portfolio. Most times, but not always, operators are interested in the other consideration,” Pyne said, referring to rollouts of Disney cable networks.

“Clearly, we have an ever-broadening portfolio of great networks that people want to watch and want to experience, so we plan pretty much on a case-by-case basis to develop an appropriate 'consideration' strategy,” he said. “We've announced ABC News Now. That may, in some circumstances, be part of the mix.”

Disney in the past has used demands for cash-for-carriage as a “hammer” to drive distribution for its cable networks, according to Polka.

With this round of retransmission-consent negotiations, all of Disney's cable properties — entertainment services such as Disney Channel and sports networks like ESPN — are for the first time being handled by a combined affiliate sales force.

“In some ways, it gives our operators more choice,” Pyne said.

Pyne stressed that Disney is committed to working with distributors on retransmission-consent deals that will give them options that help drive their businesses. However, cable operators with channel-capacity issues typically have not been happy about being compelled to launch new networks as part of retransmission-consent pacts.

With respect for the license fee Disney will have on the table for the ABC stations, Pyne referred to his testimony In Washington, D.C., a year ago. At that time, he said, Disney had sought license fees of 70 cents to 80 cents for its stations in the past.

“The economist study that we also submitted last year in our testimony put ABC as worth an average of somewhere between $2 and $2.09 per sub, per month,” Pyne said.

He declined to specify the ABC-station license fee Disney will put on the table, other than saying, “It's still under a dollar.”But sources said the ABC station rate card will be 85 cents for 2006.

EMMIS

Decrying its lack of leverage as an independent station owner and competition from cable, Emmis Communications Corp. has put its 16 TV outlets on the block, which could remove it from the retransmission fray.

“It is premature to speculate on how we will approach the issue should we still hold TV assets at that time, but I can tell you we have been consistent in fighting for payment for our digital signals,” an Emmis spokeswoman said. “In fact, we do have one deal in which we are being paid.”

Over the past year or so, Emmis has been at loggerheads with cable operators over its demand for cash for its HDTV signals. For example, the broadcaster tangled with Cox in Omaha, Neb., over that issue.

Right now, KOIN, Emmis's CBS affiliate in Portland, Ore., is the only station in the DMA that doesn't have cable carriage for its HDTV signal. Comcast Corp., the cable operator in that market, doesn't want to pay cash.

“In some markets, including Portland, Ore., our digital signal is off because we have not been able to reach an agreement with the local provider, although talks continue,” the Emmis spokeswoman said.

When Emmis chairman and CEO Jeff Smulyan announced plans to seek “strategic alternatives” for his TV stations earlier this year, the reasoning he cited, in part, is the broadcast industry's difficult competitive position against cable.

Smulyan has been an outspoken advocate of cash for carriage, and in January lauded Nexstar for its retransmission-consent stance with Cox and Cable One.

“This is the greatest issue in this industry, and I just can't stress enough that it is an issue that must be addressed,” Smulyan told analysts. “It is impossible for the American broadcast industry to continue to give its signal away to people who are charging billions of dollars a year, when the fact is that we are the most-watched part of all those cable systems by far. … Yet the only part of the system that doesn't get paid are the local broadcasters.”

CBS NETWORK

In the past two months, no one's been a more vocal proponent of cash for TV-station carriage than Les Moonves, Viacom Inc.'s co-chief operating officer. He knows his recent pronouncements on the topic have irked cable operators, and he doesn't care.

“It's a new day and I want to get paid for my good programming,” Moonves told analysts in June.

In the past, Viacom has used retransmission consent in some cases to help secure distribution for its MTV Networks unit. Just last week, Viacom did a comprehensive long-term distribution deal with DirecTV Inc. that included continued carriage for a number of MTVN services, retransmission consent for CBS and UPN stations, and local-into-local rights to CBS HDTV programming.

Viacom is poised to split its broadcast and cable assets, and the CBS unit plans to actively seek cash compensation for retransmission consent for its 21 owned-and-operated TV stations as standalones. But as it turns out, cash isn't the only payment the broadcaster will be willing to accept from MSOs.

“Yes, we prefer cash, but we're always open to other expressions of value, but not wooden nickels, either — real value,” said CBS executive vice president Martin Franks.

“Promotion at 2 o'clock in the morning, I'm sure it's lovely, but it's a little less valuable to us,” Franks said. “There are lots of ways to exchange value.”

During the past two years, digital-signal carriage has emerged as a important factor in retransmission-consent talks, now that HDTV “seems to be one of the principal points of competition between terrestrial cable on the one hand and the DBS companies on the other,” according to Franks.

“It strikes me as no coincidence that we started reaching a new level in our retransmission deal-making as we got more and more sports on in HD,” he said. “We do a very nice job doing deals for our local analog signals … but in terms of a change in the marketplace in the past two years, our HD has given us some very nice ammunition to take into the negotiations.”

Many of the Tiffany Network's retransmission-consent deals with large MSOs won't expire for another three to five years, according to Moonves. However, CBS's deals with smaller cable operators are up for renewal at the end of 2005.

The National Cable Television Cooperative, which represents smaller independent operators, two years ago finalized an extensive carriage deal with MTVN. But that affiliation contract didn't include retransmission consent for CBS stations.

COX TELEVISION

With 15 stations, Cox Television has been involved in some small retransmission-consent rows over the past two years in which it has sought cash for its broadcast outlets. It remains to be seen if that's the stance that Cox TV takes with distributors this year.

Two years ago, in Johnstown, Pa., Cox TV was seeking 20 cents a month per subscriber for its NBC affiliate, WJAC-TV. In lieu of paying that fee, operators had the option of carrying the station's cable network, the Pittsburgh Cable News Channel, for a 40-cent license fee, and then get WJAC for free.

Cox TV's actions in that particular situation drew fire from the ACA. The broadcaster's position on cash was considered somewhat ironic by some, since it is a sister company of Cox Communications Inc., the nation's third-largest MSO and one that's currently involved in a much-publicized retransmission fight with Nexstar over cash payments.

Cox TV, part of Cox Broadcasting Inc. — which, like Cox Communications, is a subsidiary of Cox Enterprises Inc. — declined to comment for this story. But Cox TV and the Cox cable officials have previously pointed out that the broadcast and cable units are run independently and make their own decisions regarding issues like retransmission consent.

POST-NEWSWEEK

The owner of six TV stations, Post-Newsweek TV Stations Inc. has taken a hard line regarding cash for carriage in at least one market.

Earlier this year, tiny Guadalupe Valley Communications Systems, which has 6,500 subscribers in San Antonio, Texas, lodged a complaint with the Federal Communications Commission when it asked ABC affiliate KSAT for permission to carry its HDTV signal in January, and the Post-Newsweek station demanded a 50-cent license fee for its analog and digital signals.

“That's a strong signal of how Post-Newsweek is going to handle smaller operators,” one source said.

The case is still pending at the FCC.

Like MSO Cable One, Post-Newsweek is part of The Washington Post Co. Hence, the situation is similar to the one with Cox TV and Cox Communications, in which a broadcaster and a cable operator are both owned by the same parent, with the TV group seeking cash for its signals from MSOs while its sister cable company opposes that marketplace policy.

Also like Cox, Cable One is in the midst of a retransmission-consent dispute with Nexstar that has resulted in the broadcaster's signals being pulled off cable in several markets.

Post-Newsweek declined to comment.

GANNETT

Like many station groups, Gannett Broadcasting, which owns and operates 21 stations, isn't talking about its retransmission-consent plans for later this year. But Polka described the TV-station owner as a “bad actor” during the round of retransmission-consent renewals three years ago.

In particular, Gannett has a history of seemingly targeting small cable systems with its demands.

“That resulted in signals being dropped,” according to one source.

In some markets, such as Atlanta, Gannett sought a $1 license fee for its stations from small operators, while big MSOs in those DMAs weren't paying cash for carriage, according to sources. In other markets, Gannett sought license fees for its stations of just 50 cents and up.

In one instance, a small operator in Monroe, Ga., refused to pay cash compensation, reportedly a $1 license fee, for WXIA, Gannett's NBC affiliate in Atlanta. Instead, the system signed a retransmission-consent deal with an out-of-market NBC affiliate, WGMT in Macon, Ga.

NBC tried to scuttle that deal by claiming out-of-market WGMT was violating its affiliate agreement by granting retransmission-consent outside its DMA. But ultimately, the FCC ruled that the cable system could carry WGMT.

And in at least one case in Ohio, a Gannett station refused to grant retransmission consent for its HDTV signal. But that dispute was ultimately resolved, with the cable system getting the digital signal.

A Gannett spokeswoman said it was “too early in the process” to discuss the company's plans.

 

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