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MSOs Draw Line at Cash for Carriage

1/02/2005 7:00 PM Eastern

In what could be a harbinger of retransmission-consent battles to come — over cash for carriage — a broadcaster was set to pull signals for a half-dozen TV stations from Cox Communications Inc. and Cable One Inc. systems on New Year’s Eve.

At press time late last week, the two cable operators and Nexstar Broadcasting Group Inc. were at an impasse — in disputes marked by a flurry of nasty ads — seemingly unlikely to be resolved by the end of the day Dec. 31.

The issue at the center of the standoffs is one looming as many retransmission-consent pacts expire at the end of 2005: Broadcasters are now seeking cash from MSOs in exchange for carrying their TV stations.

Cable One claims the pact on the table from Nexstar would cost $1.3 million.

The Irving, Texas-based broadcaster wants cash compensation for Cable One to continue carrying NBC affiliate KTAL in Texarkana, Texas, and ABC affiliate KODE and NBC affiliate KSNF in Joplin, Mo.

Cable One had given away 1,500 rabbit ears in Joplin as of late last week, and had more coming in to pass out, according to Tom Basinger, vice president of Cable One’s central division.

Nexstar is asking Atlanta-based Cox for cash to continue carrying NBC affiliate KRBC in Abilene, Texas, and two San Angelo, Texas, stations, KLST, a CBS affiliate, and KSAN, an NBC affiliate.

Cox contends that its carriage of only two, not three, Texas stations is involved in the dispute. The MSO claims that according to its lawyers, its current retransmission deal for KSAN doesn’t expire until the end of 2005, Cox spokeswoman Amy Cohn said.

“That’s something we’re trying to work out with them [Nexstar] right now,” she said.

Cable One has about 22,000 subscribers in the Shreveport-Texarkana DMA and 34,000 in Joplin. Roughly 40,000 Cox subscribers are involved in Abilene and another 32,000 in San Angelo.

“There are no discussions going on,” Nexstar chief operating officer Duane Lammers said last Thursday. “I think we’re going to go off, and I think we may go off forever.”

Both Phoenix-based Cable One and Cox are refusing to pay Nexstar cash, saying that as a policy they don’t pay broadcasters license fees for retransmission consent. Cable One claims it would have to fork over more than $1 million to Nexstar during the next four years under the agreement the broadcaster has on the table.

“The issue is money,” Basinger said. “We refuse to pay cash compensation for a service that has historically been free. This is an important case for us.”

Cox first contacted Nexstar in November about the expiring retransmission-consent deals and didn’t get a response, Cohn said. It wasn’t until last Thursday that the broadcaster notified Cox in writing that it wanted a 30-cent license fee for its TV stations, according to Cohn.

“We have not paid them for retrans in the past,” she said. “We’re trying to protect our customers from higher cable bills, and if we’re forced to pay every broadcaster in the market, cable bills are going to rise. We think it’s unreasonable to pay the broadcasters for free over-the-air TV.”

Apart from cash, Cox is willing to negotiate “some reasonable compensation,” Cohn said.

30 CENTS AND RISING

The pact Nexstar initially proposed with Cable One called for a 25 cent-per-month, per-subscriber license fee for each of the stations, with that fee escalating over the term of the agreement.

But last week, Nexstar upped that license-fee request to 30 cents a subscriber, escalating by 5 cents per year each year afterward. Paying that money to Nexstar will make it harder for Cable One to go forward with a planned rate freeze in 2005, MSO officials said.

Many cable operators have said they won’t pay cash for retransmission consent, in that it would set a costly precedent, encouraging hundreds of TV stations across the country to demand similar payment.

The broadcaster’s position is that DirecTV Inc. and EchoStar Communications are paying to carry its TV stations, and Cable One should do the same.

“The DBS providers now pay us and so, going forward, this is going to be our business model,” Lammers said. “And frankly, I don’t understand why cable wouldn’t want to pay. Why would they want to give a competitive advantage to their major competitors? As long as we’re getting paid by the DBS companies, we’re always going to favor them.”

Some financially squeezed broadcasters have said publicly that cash for retransmission consent will provide them with a much-needed second revenue stream, one they intend to exploit.

Nexstar claims it is only seeking a cash license fee from an “already high cable bill.”

NEXSTAR DROPPED NIELSEN

Lammers pointed out that several years ago, when Nielsen Media Research threatened to dramatically raise rates in one market, Nexstar opted to stop subscribing to the data.

“I told them [Nielsen], 'Don’t give me an opportunity to learn how to do business without you, because you’ll lose all of our business,’ ” Lammers said. “Well today, four years later, 40 of our 46 TV stations are no longer clients of Nielsen. We learned to do business a different way. It didn’t hurt my business one iota.

“So my message to the cable industry is, don’t give us an opportunity to learn how to do business without you, because we will.”

All three parties in the retransmission-consent disputes have been running ads, both print and TV spots.

Lammers claimed that Cable One subscribers are turning to DBS because of the dispute and possible loss of broadcast signals. He knows a dealer who does Dish installations in Joplin.

“He tells us he’s installing 10 systems a day and is stacked up all the way through the month of January already,” Lammers said. “These are Cable One customers who have cancelled.”

Basinger claimed that the impact on Cable One’s subscribers so far in Joplin “is minimal,” and that subscribers will be able to pick up Nexstar’s signals with rabbit ears because both TV stations are in town.

Instead of cash, Basinger said he proposed five other options as possible compensation to Nexstar for retransmission consent, and also asked for an extension of the Dec. 31 deadline, all to no avail.

EARLY SHOWDOWN

The standoff between Nexstar, Cable One and Cox is unusual in that it is coming earlier than most, because many retransmission-consent pacts between broadcasters and MSOs are three-year deals that expire at the end of this year, 2005.

September