Americans can look forward to additional rate increases in their monthly cable bills on top of the usual annual rate increases already underway as broadcast stations demand, and get, cash in return for cable carriage.

Just a few days after Time Warner Cable and Bright House Networks concluded their precedent-setting agreement in principle with News Corporation’s Fox network, other networks and television stations owners are lining up to get their piece of the action.

The cable operators’ agreement to pay an estimated 50-60 cents per month per subscriber for the right to put Fox-owned local broadcast stations on the cable dial will likely be used as the starting point for negotiations between other cable operators like Comcast, Cox, Cablevision, and Charter when their agreements with stations and broadcast networks come up for renewal.  If every major broadcast network and station owner gets the same 50-60 cents per month, or more, those costs will certainly be passed on to subscribers.  That’s just the beginning says David Joyce, media analyst for Miller Tabak , a Wall Street trading firm.  Joyce believes annual increases demanded by networks could easily be in the 7-8 percent range.  Bloomberg News predicts that could add up to more than $5 billion dollars a year.

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Bloomberg News interviews David Joyce, a media analyst who predicts annual 7-8% increases for retransmission consent. (3 minutes)

Sinclair owns stations in these communities

There is nothing new about these kinds of disputes — just the sums involved.

Sinclair Broadcast Group owns television stations serving nearly 22% of the United States (mostly Fox affiliates), and has contentious negotiations for retransmission consent agreements with Mediacom, a cable operator serving mostly smaller cities in the midwest and south.

The two companies just agreed to an eight day extension of their negotiations over a new agreement to replace the one that expired December 31st.

“We just decided we wanted to avoid, with such important events coming up, the disruption that it would cause customers,” Sinclair General Counsel Barry Faber said. “I don’t expect there will be a further extension. We recognize we’re giving up, perhaps, a small amount of (negotiating) leverage, but we don’t think it’s very much. Our channels are worth so much more than we are asking for.”

Sinclair has been willing to force its stations off Mediacom cable systems in the past to prove its point.  But another experience with angry sports fans upset over the interruption of Fox programming was apparently sufficient to give negotiations another week.

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Bloomberg News explains how Rupert Murdoch bullied his way into an agreement with Time Warner Cable and Bright House Networks that could change the landscape of broadcast television forever.  (4 minutes)

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The ‘Holy Grail’ of cable programming essentially boils down to silly ball games.  Sports programming is one of cable’s biggest expenses, yet few would dare to alienate sports fans, as this Bloomberg report explores.  (2 minutes)

After much sound and fury, and plenty of media attention, Fox programming remained on Time Warner Cable and Bright House Networks systems through the New Year’s festivities, as the three companies reached “an agreement in principle” to make cable customers ultimately pay more for the right to watch Fox broadcast stations and cable networks.

The wide-ranging agreement covers all of Time Warner Cable’s more than 12 million subscribers as well as 2.4 million Bright House customers.  The deal encompasses Fox-owned, Fox-affiliated television stations covering nearly four million Americans and Fox’s sports and entertainment cable networks seen nationwide.

The major point of contention between Fox and the two cable companies was the fee for carriage rights to Fox television stations.  Known as “retransmission consent,” cable operators must obtain permission from television station owners before they are allowed to put them on cable lineups.  For years, broadcasters were happy just getting clear pictures to cable’s extended reach into suburban and rural communities.  But over the years, broadcast interests have sought cash payments from cable operators in return for that consent.

Leveraging their popularity, station owners feel they have plenty to room to negotiate higher payments, and the cable industry has tried to avoid setting any precedent for cash payments, fearing a new benchmark set with one station owner will soon become the asking price for every other major station in a community.  Cable operators have traditionally signed agreements that launch station or network-owned cable channels instead of large direct cash payments, but Fox’s game of hardball suggests those days are over.

While none of the companies involved would disclose the terms of the final agreement, industry analysts suggest the parties met somewhere near the middle of their respective asking price.  Fox had demanded $1.00 a month per subscriber for each of its affiliated television stations, while Time Warner Cable suggested a quarter per month per subscriber was a fair offer.  Most agree the final deal is in the 50-60 cent range, not including any extras Time Warner Cable threw in on the cable network side.

Chase Carey

All of the parties represented at the negotiating table were pleased with the outcome.

“We’re pleased that, after months of negotiations, we were able to reach a fair agreement with Time Warner Cable — one that recognizes the value of our programming,” News Corp. president and COO Chase Carey said in a press release. Time Warner Cable president and CEO Glenn Britt adds that his company is “happy to have reached a reasonable deal with no disruption in programming.”

Amusingly, Bright House Networks’ own press release is a mirror copy of Time Warner Cable’s — only the names have been changed:

“We’re pleased that an agreement has been reached with no disruption in programming for our customers,” said Steve Miron, Chief Executive Officer, Bright House Networks.

Who wasn’t represented at the negotiating table?  Customers.  Ultimately, whatever amount agreed to, it will be added to customers’ bills in future rate increases.

If other networks seek similar terms, cable operators may have to fork out as much as $5 billion a year — and would likely pass the cost on to subscribers, Craig Moffett, an analyst at Sanford C. Bernstein in New York told Bloomberg News.

“The broadcast networks are really struggling to find a viable business model,” Moffett said. “They’re looking at the cable networks that make money both on advertising and the money that the cable operators pay them and saying, ‘We need a dual revenue stream to survive too.’”

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CNBC reports on the deal reached just in time to prevents sports fans from missing out on their New Year’s football games on Fox. (2 minutes)

Time Warner Cable and Fox are now into their final day of negotiations before the agreement expires governing Fox-owned affiliate stations and cable networks.

One thing that the dispute has accomplished is increasing media attention on both companies and a spotlight on the business models of television programming and distribution.  It used to be so simple – television programming would air on broadcast television, enjoy massive audiences and the lucrative ad revenue that comes from having top-rated programming.  Cable networks couldn’t survive on the much smaller ad revenue they earn from their smaller audiences, so they charged cable operators a small fee for every subscriber who could watch their channels.

With the advent of TiVo and other digital video recorders, online viewing, and the audience erosion that comes from both, what worked for more than 50 years didn’t work so well anymore.  Time-shifting viewers no longer felt committed to watching live television, satisfied with being able to watch when they want and fast forward past the increasing amount of advertising television stations crammed into programming.  With broadband, viewers could download or stream their favorite programs online, often for free and with limited (if any) commercials.  Cable networks that used to be content running older syndicated programming, movies, and low budget documentaries and specials began creating their own original programming, often just as good as anything the networks produced.  Subscription fees charged programmers increased accordingly to help finance these shows.

Today, some cable networks are coming close to rivaling the viewership of broadcast networks’ lesser-watched programming.  If the economic downturn didn’t challenge the advertising industry, the ongoing loss of network television viewers would have accomplished the same thing – lower ad rates for ABC, CBS, NBC, and Fox.

At the heart of the debate is a new discussion about whether “free over the air television” is a sustainable business model.  Networks like Fox evidently don’t think so, which is why they seek payment from the pay television industry, be it cable, FiOS, U-verse, or satellite.  Since the majority of Americans now watch television through one of these services or through their broadband connection, there is plenty to be made from such payments.  Of course, those costs are passed on to you.

The result?  You are now paying for “free television.”

The hardball game between Fox and Time Warner Cable will be replayed often between the other networks and programmers and pay television companies.

Today’s video reports include another update from the business side of the story, several additional reports from impacted Fox stations, and basic education about what television antennas are all about.

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New York Times reporter Brian Stelter reports the two parties remain “pretty far apart” from an agreement in this report from Bloomberg News. (2 minutes)

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CNBC discusses the business side of the Time Warner Cable-Fox dispute, and now Sen. John Kerry (D-Mass.) has put himself in the middle of the dispute as well. (1 minute)

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In Austin, KXAN-TV reports Time Warner Cable has been telling Texas viewers they can watch most of the Fox Network programming on Hulu for free.  Some Austin residents are sick of hearing about the dispute and are abandoning Time Warner Cable for DirecTV.  “Football is everything in Texas,” say some who are watching the dispute with concern. (3 minutes)

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Some local Fox stations are teaching their viewers how to receive their stations if Time Warner Cable no longer carries them on their lineup.  KDFW-TV in Dallas went to Best Buy where they’re only too happy to sell antennas and digital converter boxes to Metroplex residents. (2 minutes)

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WOFL-TV in Orlando spent part of the newscast teaching people what a TV antenna is.  For many under 30, television viewing has always been through cable or satellite, never over-the-air, so the concept of rabbit ears is a new one for some. (1 minute)

Lots more to watch below the page break.  Click the link below to continue!

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Tomorrow is the final full day when Fox cable network programming will be available to Time Warner Cable subscribers, unless negotiations achieve a breakthrough.  Spectators watching the back and forth don’t anticipate any agreement, but suspect the companies will agree to some sort of extension over the holiday weekend to keep the viewing public reasonably happy.

Today several Fox-owned broadcast affiliates began reporting on their own potential involvement in the dispute — Time Warner Cable stands to lose the rights to carry several Fox broadcast stations in major television markets like New York, Los Angeles, and Dallas.  Stories about the dispute began appearing today on several TV news outlets.  In areas where Fox affiliates are independently owned and operated, most have tried to reassure viewers they won’t immediately lose access to the Fox station in their area, but several Fox cable networks could be impacted.

We have several reports on where things stand at the moment, including some additional background to help people get up to speed on why this battle is taking place in the first place.

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CNBC ran this extended piece today debating the changing business model for television programming, which explains why these carriage disputes are increasingly contentious. Brian Seltzer, New York Times media reporter and Vanity Fair columnist Michael Wolff join Julia Boorstin to discuss Time Warner Cable’s showdown with News Corporation’s Rupert Murdoch. (6 minutes)

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Bloomberg News also explores the changing business model of broadcast “free” television.  Can it survive against cable and online program distribution?  News Corporation and Time Warner Cable are pessimistic that question can be answered before the deadline expires at midnight, December 31st. (6 minutes)

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WNYW-TV, the Fox affiliate in New York, started reporting to its viewers Fox’s position on the carriage dispute, warning them an agreement by December 31st is critical if Time Warner Cable customers are to be assured of watching Fox sports coverage on New Year’s Day.  (3 minutes)

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KDFW-TV, the local Fox affiliate in Dallas, took issue with Time Warner Cable’s claim that even without an agreement the Fox station would still be shown on the local cable system. (2 minutes)

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Some Time Warner Cable customers in smaller cities have been confused by national wire service reports which, to them, suggest their local Fox station will be affected by the potential programming blackout as well.  Some Fox affiliates have devoted time on their newscasts to clear up what programming or channels will be affected in their respective areas.  WLUK-TV in Green Bay, Wisconsin was one such station.  (1 minute)

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Another small community getting some local coverage of the story, and its potential impact on Time Warner Cable-carried Fox-owned cable channels, is Elmira, New York.  WENY-TV, which serves southwestern and south-central New York around Elmira and Corning, explained things to viewers.  (1 minute)

Time Warner Cable’s Roll Over or Get Tough campaign was tailor-made to bolster the company’s defenses as the deadline nears for the nation’s second largest cable operator and Fox to reach an agreement on carrying Fox-owned stations in the new year.

For sports fans, the relentlessly ticking 24-like clock may run out on some important football games airing on Fox on New Year’s Day, requiring viewers to pull out the rabbit ears and settle for whatever over-the-air signal they can get.  At the moment, the two companies remain far apart in reaching a settlement over exactly how much Time Warner Cable will have to pay to carry Fox affiliates in some of the nation’s top TV markets.

Fox wants a reported $1 per subscriber per month.  Time Warner Cable prefers to pay nothing for Fox broadcast stations — the cable industry typically cuts deals to carry network-owned cable channels for which they will pay.  That’s how many Time Warner Cable customers ended up with channels like Sleuth, CNBC World, and other little-watched NBC-Universal cable channels just to smooth the way for retransmission consent for NBC-owned broadcast affiliates.  Fox shoved the dismally-rated Fox Business News and several regional sports channels onto many Time Warner Cable systems to win retransmission consent deals with higher-rated Fox networks just a few years ago.

Now Fox insists on cash money for carriage.

News Corporation’s Rupert Murdoch, who runs the company that owns Fox, has been making plenty of noise this year about the “business model” of broadcast television being broken in the United States.  Murdoch wants everyone to pay for News Corporation content, be it online from the Wall Street Journal or on your local cable system where the Fox family of cable and broadcast networks occupy at least a half-dozen channels on the lineup.

The level of nastiness has approached that of last year’s vicious battle with Viacom over how much Time Warner Cable would pay for channels like Nickelodeon, Comedy Central, and MTV.  Last year the low point was achieved when Viacom ran full page newspaper ads with a crying Dora the Explorer lamenting the fact she was about to be ripped off the television screens of millions of cable customers.

Time Warner Cable hopes its preemptive strike will earn it some peace and understanding when upset subscribers call the cable company to complain about the loss of Fox on their cable dial.  After all, you did want them to “get tough” with those nasty programmers, right?  Time Warner Cable has pointed the finger specifically at Fox in the newest round of attack ads, and Fox returned fire with a new slap against Time Warner Cable.

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Time Warner Cable characterizes a missed deadline in the dispute as the equivalent of Fox taking your TV hostage.

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Fox returns fire with another direct shot at Time Warner Cable in their latest ad.

Meanwhile, local newscasts around the country are sporadically updating viewers about the fight.  Because football is involved, amazing efforts are underway to force the two to reach an agreement, or at least leave the games on.  One Orlando attorney is filing a lawsuit to get an emergency injunction to make sure Orlando’s WOFL-TV stays on Bright House Networks.  That cable company is being represented by Time Warner Cable over the Fox matter.

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Bright House Networks in central Florida is also impacted by the Fox-Time Warner Cable stalled negotiations.  WESH-TV and WFTV-TV in Orlando report on the major impact the loss of WOFL-TV – Orlando’s Fox station, would have on area sports fans. (WESH-2 minutes WFTV-3 minutes)

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Time Warner Cable’s Alex Dudley, familiar to Stop the Cap! readers from the cable operator’s effort to launch a major Internet Overcharging scheme on customers last April, is back in a decidedly pro-Time Warner piece on the cable company-owned NY1.  Dudley can’t resist taking that last shot at Fox, pointing out impacted customers can always watch a lot of Fox programming for free online, thanks to Hulu. (3 minutes)

With these kinds of battles becoming increasingly contentious, Time Warner Cable CEO Glenn Britt hinted the cable operator may look at offering customers more choice in what channels make up a subscriber’s package.  Consumers have howled for years over rate increases that outpace inflation, as cable operators keep expanding the number of channels on offer, and keep raising the rates to pay for them.

“People want more choice, and collectively, we should be responsive to that,” Britt said at a investor conference in New York City. “I haven’t been a big fan of a la carte. The economics don’t work for the programming part of the business and ultimately don’t work for consumers. They do like to buy packages, maybe not as big as the packages we offer now, but they do like packages.”

“The comments are pretty consistently saying, ‘We would like the choice to buy smaller packages,'” Britt said.

The cable industry has traditionally resisted true a-la-carte pricing, which permits customers to choose and pay for only the channels they wish to watch.  Basic cable networks depend on both advertising revenue and the subscription payments they charge every customer who can watch their channels.  With the millions of cable subscribers pooled together, the cost per subscriber for each channel is usually less than 50 cents per month.  Letting subscribers opt-out increases the prices networks have to charge to those still receiving the channel.  Many niche networks would likely not survive such a transition.  The cable industry also argues it would force every subscriber to rent a set top box or similar device for every television in the home, as every channel would have to be scrambled.  Billing costs would also be higher.

Britt’s suggestion that Time Warner Cable could look into adding more “packages” of programming could resemble how C-band satellite dish owners paid for their programming.  Before the days of DISH Networks and DirecTV, millions of Americans placed large satellite dishes (typically 10-12 feet in diameter) in their yards to receive satellite-delivered programming.  When programmers encrypted their signals, satellite dish owners purchased programming in mini-packages comprising a handful of channels.  Some packages were theme-based — news packs with CNN, Headline News, MSNBC, Fox News, and CNBC for $5 a month or company-based, such as a package containing channels formerly owned by Ted Turner or those from Scripps-Howard (HGTV, Food, Style, etc.) for a few dollars a month.  Most subscribers paid for a “basic package” of popular basic networks grouped together and then added on more expensive premium channels or sports channels individually.  It often didn’t make economic sense to purchase each channel individually because of their relative high cost, but consumers could save quite a lot excluding some of the most expensive channels from their lineup (especially sports programming).

Whether Britt would follow through with the threat of “mini packages” is open for debate.  Any savings consumers realize from such offers would reduce Time Warner Cable’s revenue per subscriber, and that’s a sure fire way to upset Wall Street.

Watch more video and learn how Time Warner Cable customers nationwide may be facing the loss of Fox-owned cable channels, even if the local broadcast affiliate stays put.  We also have a more in-depth report on why retransmission consent agreements are increasingly important to broadcasters and pay television operators, all below the page break.

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