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Year 2009 ends with broadcasters and cable operators in retransmission battle royale

As the year was about to come to an end, the News Corporation threatened to remove its Fox stations from Time Warner Cable systems if the cable company did not agree to pay sizable subscriber fees — just as it does for cable channels.

In negotiations, News Corporation was reported to be pushing for about $1 a month per subscriber. At one point, News Corp. rejected Time Warner Cable’s offer to submit their dispute over fees to carry the Fox broadcast network to binding arbitration.

The Federal Communications Commission was called in to mediate the dispute and a last-minute deal — which included Bright House Networks — was reached just before the broadcast of the college football Sugar Bowl on Friday, Jan. 1.

FCC Chairman Julius Genachowski congratulated both companies and his staff for the deal, however, Sen. John Kerry, D-MA, raised concerns about the effectiveness of a 1992 cable law that allows broadcasters to seek compensation from cable and satellite operators for their signals.

“I will reach out to both parties, the FCC, and consumer advocates to assess lessons learned from this dispute and what, if any, changes to law are necessary,” Kerry said in a statement.

The dispute came about because like every major network, Fox is looking for a new revenue stream to fill in for declines in 2009 advertising.

Time Warner Cable ran an ad campaign to prepare viewers for the prospect of a January without college bowl games or “American Idol.” Time Warner’s retransmission agreements cover Fox’s stations in New York, Los Angeles, Dallas, Orlando and other cities. The current agreements were set to expire on Dec. 31.

Disputes over retransmission fees inevitably result in an increase in monthly cable bills for subscribers. Time Warner had already announced annual rate increases for customers earlier in the month.

News Corporation reportedly was demanding the significant added fees on behalf of its 27 owned stations, but it was also pressuring about 150 affiliates for a share of their retransmission payments. The poor economy is forcing beleaguered networks and their affiliates to seek direct payments for their programming.

The negotiations have pitted Glenn A. Britt, the chief executive of Time Warner Cable, against Chase Carey, the new president and chief operating officer of the News Corporation. Carey was recently on the other side of the negotiating table as chief of DIRECTV, the satellite distributor, until last June.

Carey has said publicly that Fox is worth $5 a month, given its sports programming and primetime hits. At that rate, Fox would be more valuable than ESPN, the most costly cable channel, which earns about $4 for each subscriber.

Behind the News Corp. strategy is Rupert Murdoch, who has been talking higher prices for months. “We realize this is going to be a tough challenge,” Murdoch told investors two months ago, “but we’re determined to take a leadership position in creating an economic template for the future.”