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Retransmission disputes highlight the rising costs of pay television

As cable television fees continue to rise in a tight economy, many viewers are “cutting the cord” to services costing over $60 per month in lieu of free television over the Internet. Yet, as retransmission agreements are negotiated, television stations are now asking for cash payments — forcing cable bills to soar even higher.

In fact, the average household cable bill in the United States hit $64 a month in 2009, up from $47.50 in 2004, according to Leichtman Research Group, a specialist in media research. After each retransmission deal, the rate inches up further.

The retransmission rules “have repercussions for what Americans can view and how much they pay for it,” Sen. John Kerry, D-MA, wrote in a letter last week to Julius Genachowski, the FCC chairman. Kerry, who has been vocal about the cable fee issue, asserted that the current rules are outdated, adding, “We need to fix the system.”

The programming providers said broadcasters alone enjoy channel location, and tier placement guarantees that they maximize their access to viewers. Broadcasters alone are guaranteed undue leverage in carriage negotiations by virtue of a detailed set of program exclusivity and blackout rules.

“Additionally, broadcasters alone have been the beneficiaries of mandatory carriage rights — must carry — that have allowed them over decades to grow their audiences through the free use of facilities built by video providers while at the same time having been granted the freedom to dictate the terms on which they will allow the retransmission of the same programming that is available over the air and increasingly over the Internet for free,” the programmers wrote.

The NAB, chief lobbyist for the broadcasters, sees the issue another way. “Modest retransmission consent revenues help local TV stations fund news operations, community service, and life-saving weather information that viewers across America rely on every day,” said the NAB.

“The unintended consequences of pay TV providers attacking the free-market-based retransmission consent model could be the demise of local programming,” said Dennis Wharton, the NAB’s vice president. “Vertically-integrated cable operators routinely compensate each other for their own less-watched cable-owned networks, while raking in profit increases five times the amount of their programming costs. To see billion-dollar pay-TV companies asking for government intervention to protect their exorbitant profits is just plain wrong.”

The NAB noted that last month DIRECTV announced its fourth-quarter operating profit had increased 49 percent to $862 million. Time Warner Cable, according to Yahoo Finance!, had gross profits of more than $9 billion dollars and an operating margin close to 20 percent in the trailing 12 months.

Paul Karpowicz, president of the Meredith Broadcast Group and NAB Television Board chairman, said there is no evidence that broadcasters have failed to negotiate retransmission agreements in good faith.

“Cable operators and satellite companies derive enormous value from carrying local broadcasters’ signals, and broadcast content is among the most popular programming enjoyed by cable and satellite subscribers,” he said. “Retransmission consent rules simply ensure that broadcasters have the opportunity to negotiate for compensation for such highly regarded content. The retransmission consent process is a private, marketplace negotiation.”