"TV Everywhere" Challenged

The concept of "TV Everywhere" - the ubiquitous access to TV programming on any device, at any time, and at any location (including while mobile) is facing a critical challenge from those seeking to control access so as to maximize licensing fees and revenues.  This can be seen in several recent trends:

1. Lawsuits against Aereo and similar services that seek to make local broadcast station signals accessible from mobile devices (without actually putting a tuner and antenna onboard).  Almost as soon as the product started trials in several cities, networks and big station groups filed suit challenging the legality of the practice.  The broadcasters have lost at every court level so far, and have asked the Supreme Court to weigh in on the temerity of anyone helping people to watch free over-the-air TV broadcasts without paying them.  I'm hoping that the case gets cert, so that a Justice can ask the network lawyers - "So, in essence, you want to prevent people from watching free over-the-air TV signals on anything other than a TV set?" - or - "You're arguing that you deserve to be paid so people can watch your free broadcast signal?"  The whole idea that stations - who are losing audiences to competition - wouldn't want to expand their potential audience base is kind of nonsensical, until you realize that stations and networks are increasingly turning to licensing fees as a major revenue source.
2. The drive for maximizing licensing fees through retrans fees for local stations.  CBS in particular is pushing the idea that cable MSOs need to pay $3-5/mo. per subscriber in retransmission fees for their local affiliates.  While this may seem a good short-term strategy, it's likely to lead to some MSOs (which remain - with DBS & telco cable operators - the major source for video programming for 90% of US households) dropping the local affiliates.  And if successful, it'll sure lead to sticker shock if the Big Four jacks up subscription costs $15-20 a month for watching "free" TV, and probably a lot of people selecting to not take that bundle.  The broadcasters seem to be realizing that "free" and loading up on licensing fees are incompatible, so they're resorting to classic fear-mongering of taking all the good programs (and sports) to pay cable.  
3. In the meantime, ABC is looking to regain control of online access to its programs, by seeking to block subscribers of DirecTV, the Dish, and TWC (TimeWarnerCable) from being able to access recently aired programs online.  It's also removing access to that programming from the free version of Hulu+.  Those wanting access will have to subscribe to Hulu Plus, or purchase episodes at $2.99 a piece from iTunes or Amazon.  CBS and Fox are also said to be blocking online access to recent programs and/or looking to move access behind paywalls.  The blocking is said to be limited to systems without "authentication" deals, which assure that only paying customers get access to current programming.

"TV Everywhere" had been set to take off, with big gains in mobile and online viewing, and an increase in authentication protocols.  But a lot of that is predicated on the idea that online and mobile viewing is free, or at least included in existing subscription levels.  Behaviors that seemed designed to make such viewing more costly, such as the efforts outlined above, are not likely to be well-received by consumers.  After all, they have an exploding universe of free content alternatives that they can choose from instead.  With a few exceptions, moving network series and programming from "free" to "pay" is likely to be disastrous - particularly for an industry that still is funded predominantly by advertisers and audience size.

Sources -  Supreme Court May Decide Jan. 10 Whether to Hear Aereo Case,  TheWrap

Could Supreme Court kill free sports, network programs on TV?  Philly.com

ABC to block DirecTV, TWC, Dish subs from watching TV series online, FierceCable

A glimpse at the numbers behind the CBS/TWC retrans fight.

An analysis of the CBS/TWC retrans consent deal by research firm SNL Financial suggests that CBS's demands are so far above current numbers that if CBS wins, it could establish a new standard that would likely "alter the economics" of the multichannel industry.

According to the report, CBS had been getting between $0.65 and $0.75 per subscriber per month from TWC (the range likely due to variations in individual station performance in markets).  According to the SNL report, this time CBS was demanding a minimum of $2.00 per month per subscriber. 
   That's a significant jump, for a network who's ratings (and thus value to multichannel operators and viewers) has been generally falling for decades.  For example, last week CBS's top program pulled down a 2.5 rating.  CBS was trumpeting its occasional success as top broadcast network in prime time ratings this last year, but a closer look shows that much of that was for sports, major one-off events, and its jumping the gun on the Fall season by starting several new series early (when every other broadcast network was in reruns). Ratings for regular programming was bad enough that at times the ratings for CBS shows fell below that of Spanish-language networks Telemundo and Univision.  Average viewership for CBS, in fact, was on a par with cable network USA in 2012.  That kind of performance doesn't seem to justify more than doubling carriage fees.

"Multichannel operators are experiencing programming cost growth from cable networks as well as from TV stations, leading to a decline in video margins for major operators from 32.4% in 2007 to 25.7% in 2012," Flynn wrote (in the SNL report). "Operators are walking a tightrope between stemming margin erosion via price increases and stanching basic sub losses via pricing restraint."

Carriage costs are already resulting in increased subscription fees, and are arguably leading to subscribers cutting multichannel services.  In the last fiscal quarter, total multichannel subscriptions fell by 366,000.  If CBS can set a new baseline for carriage rights, the next round of negotiations can see many more networks seeking a doubling of fees - and while generating more cash for the networks, the added costs would most likely be passed on to subscribers.  With the rise of alternative programming sources, or multichannel distributors choosing to drop carriage altogether (both of which could lead to a sharp decline in multichannel subscriptions and result in reduced net earnings for channels).  We're seeing this in the blackout already, where ratings for CBS O&O local news programs dropping by a third or more.  We're also  beginning to see it in sports channels, where exploding program rights is leading to increased carriage fees - and when combined with the increase in national and regional sports channels, is causing many multichannel distributors to package many of the channels into a separate tier (as they attempt to keep basic tier prices within reason).

My point is that carriage/retrans fees are not a zero-sum game, with gains for programmers coming out of multichannel distributors' monopoly profits.  This isn't the old days of cable local monopolies - TV and video distribution markets are highly competitive.  Furthermore, we may be reaching a threshold point where multichannel TV access transitions from being a necessity to being a luxury good - and where additional price increases tend to result in reduced overall revenues.  If channels are too greedy, they may find that pushing for high carriage fees results in declines in available audience - which results not only in lower revenues from carriage fees, but also lower revenues in advertising.  And that's the really critical issue, as advertising remains the dominant revenue stream.

Source -  Analyst: CBS/TWC retrans battle could 'alter the economics' of the industry, Fierce Cable
The changing economics of retrans consent and what's at stake, SNL Kagan report

CBS-TimeWarner battle continues - people notice

CBS and Time Warner Cable (TWC) have yet to reach an agreement on retransmission consent, and people are noticing.
  To recap, CBS and TimeWarner (as a cable operator) are required to regularly reach an agreement on the terms under which CBS's owned-and-operated (O&O) local broadcast stations are carried on cable systems in their broadcast areas.  During the last round of retransmission consent negotiations, reports indicate, CBS insisted on more money for carriage than Time Warner was willing to pay.  Under the 1996 Telecommunications Act, if agreement isn't reached within a certain time frame, the cable system is required to stop carrying the local station's signal.  As part of CBS's negotiating strategy, allegedly, was to also force Time Warner to pay higher carriage fees for CBS cable-only channels, Time-Warner dropped all of those channels as well.  CBS responded by cutting access to cbs.com (and the programs it provides access to) to all Time-Warner internet service customers.

The programming blackout extends to some 3.5 million homes in some of the largest TV markets in the US, and will inevitably have an impact on ratings as well as the value of the CBS and TWC brands.  CBS trumpeted that it remained in first place in Nielsen ratings for the first full week of the blackout, despite a small decline in total viewers.  But CBS shouldn't crow too much, it's top prime time show only grabbed a 1.4 rating and saw a 30% drop in viewing. (I'll note that August is traditionally a low viewing month, and that the ratings don't include the estimated 5 million people who get their programs online).

The impact on local station ratings - particularly for their local news programs - has been much more significant.  At LA's KCBS, viewership for their main local news programs fell 25-33% from the previous week; NY's WCBS saw 17% declines, and Dallas-Ft Worth O&O KTVT saw their news numbers fall 13-19% (depending on which news broadcast).  The declines are enough to trigger make-goods and is impacting last-minute ad sales.  Their is significant concern at the local level about continuing impacts, particularly if the blackout continues into the fall sweeps period (which traditionally determine local advertising rates).

That both parties are concerned about the impact of the blackout can be seen in some recent deals between CBS and TWC to temporary lifting of the blackouts - to carry the NY mayoral and comptroller campaign debates in New York, and offering the Tennis Channel during the U.S. Open Tennis championships.

This week, current FCC interim chairman Mignon Clyburn weighed in, expressing frustration that CBS and TWC haven't reached a settlement.  The FCC, though, has limited authority to intervene in negotiations or to order interim carriage of the signals in violation of current law.  Former FCC commissioner Michael Copps weighed in, arguing that CBS's actions may violate the FCC's Network Neutrality provisions.

“CBS is perpetrating an audacious violation of the FCC Open Internet ('net neutrality') rules... These rules guarantee consumer access to lawful content. They are designed to prevent just this sort of corporate censorship.”

Time Warner didn't go quite so far as to allege CBS wrongdoing, but in a filing with the FCC (which is looking into retransmission consent rules), they argued that CBS attempted to use the retransmission consent rules to "leverage the must--have nature of its broadcast network programming to force a multichannel video programming distributor (“MVPD”) to accept massive and unwarranted fee increases and oppressive carriage terms."

As I posted earlier, this ought to be fun to watch, unless you're a Time Warner customer and like CBS programming.

Sources - CBS tops ratings, but don't declare victory over Time Warner yet, Los Angeles Times

CBS stations' ratings drop as Time Warner Cable blackout continues, Los Angeles Times

Former FCC Commisioner Bashes CBS For Web Blackout, Daily Online Examiner

FCC filing on behalf of Time Warner Cable, FCC website

edited - fixed some language and grammar issues.

Cable Fee Blame Games Begin

If recent news stories are any indication, it's time for The Cable Fee Blame Games to begin.

  It's no surprise that cable (and other multichannel provider) subscription rates are going up.  Programming license fees keep rising, the number of channels increase, and the last round of retransmission consent negotiations didn't go well for the multichannel industry.  And the increases look to be even higher this year - perhaps enough that the industry is looking for others to blame.  Many licensing deals require system-wide carriage of top channels, and are often sold in conjunction with new or less-valuable channels. So now some cable execs are talking about possibly breaking the basic tier into mini-bundles, even as public interest groups raise the prospect of a la carte pricing.
  It's come to the point where Cablevision launched an anti-trust suit against Viacom, accusing it of forcing the cable MSO to carry (and pay for) less popular Viacom cable networks in order to get MTV and Nickelodeon.

"Without the 'take it or leave it' requirements of bundled programming packages at a wholesale level, cable companies could tailor smaller and lower-priced packages that could offer flexibility and have great appeal to specific interests and audiences," said Charlie Schueler, spokesman for Cablevision.

   Other multichannel providers are experimenting with partial unbundling.  Verizon's offering a basic mini-bundle that drops expensive sports channels and knocks $15 off monthly fees.  Mediacomm has been advocating a hybrid model with the most expensive channels offered a la carte on top of a basic bundle.
   And now the broadcast networks are talking about wanting to get big license fees from multichannel distributors, either directly or indirectly, by grabbing a big share of increased retransmission consent fees for affiliates.  Some of the amounts I've been hearing are unreasonably and exorbitantly high - but between what the broadcast nets are talking, and sports channels passing through sky-rocketing coverage rights fees, coming jumps could be as high as $25-$50 a month, as they can't afford not to have high-demand content in an increasingly competitive environment.  Thus, cable needs to try to put the blame for big rates increases elsewhere.


Here's some other recent headlines and highlights.

• Cable One is going public with what it says is AMC's demand for a 520% increase in license fees.  AMC has seen significant gains in viewing due to a number of successful original series.
  Cable One claims AMC is demanding 520% increase in license fees,  FierceCable
• Dish Network gets $4.86 million jury award from ESPN, after alleging it wasn't getting the "best licensing rates" its contract provided.  That's about 3% of the damages Dish claimed.  Don't expect anybody's rates to go down.
  Jury orders ESPN to pay Dish Network $4.86 million, FierceCable
• In 2012, Mediacom Broadband average video subscription revenues up 12%, subscribers down 7%. Mediacom LLC saw average video sub revenues up 10%, subscribers down 7%.
  Mediacom Broadband increases average video subscriber revenue by $14 in 2012, FierceCable

Sources -  Imagining a Post-Bundle TV World, Wall Street Journal

CBS makes News

The latest quarterly report on CBS's financial health showed gains from the tail end of 2012 political advertising, and growing retrans fees from their O&O (owned and operated) broadcast TV stations.

  Total revenues for CBS were up slightly (2%), sparked by a 3% increase in advertising revenues.  However, the gains were centered on their broadcast station operations, rather than the national TV network.  Upfront sales for the network's 2013 Fall season fell below expectations, showing only a 9% increase over last year.  Political advertising went primarily to their O&O TV stations.  Still, advertising revenues were the leading income sector for CBS, earning $2.4 billion in the fourth quarter of 2012/

  Licensing and affiliation fees are becoming a major revenue source for CBS, coming in at $1.98 billion. CBS said O&O retrans fees were on track to reach $500 million; cable network affiliation and subscription revenues up 8.6% to $505 million, while revenues from content licensing and distribution deals (primarily with Hulu and Netflix) dropped 6.6% to $25 million.
  CBS's outdoor advertising business saw steady revenues, at $340 million for the quarter.  CBS said it was sticking with plans to sell off its international outdoor advertising business as opportunities presented, and restructure the US outdoor business as a real estate investment trust.

  In a separate announcement, CBS said it was expanding its interest in cable networks by becoming a minority partner in Mark Cuban's new AXS cable network.

Les Moonves, president/CEO of CBS Corp. stated: “This is an innovative way to use our tentpole programming to gain more ownership in the cable network business. AXS TV will now serve as a terrific complement to our existing broadcast television entertainment programming.”

Details on the proposed deal were not revealed at the time.

Sources - Moonves: CBS Revs, Retrans Fees Up, Cable Fees Rise 9%, Media Daily News
CBS Buys Into Cable, Secures Stake in Cuban's AXS,  Media Daily News

Retrans Fees News

Hot on the heels of an SNL Kagan report projecting a bog hike in future revenues from Retransmission Consent fees, comes a report that U.S. broadcasters will seek retransmission payments from Canadian cable, satellite, and Internet TV providers that include their signals.

  The SNL Kagan report projects that revenues from U.S. retransmission consent fees will total $2.36 billion in 2012, or about $1 per MVPDS  subscriber (multichannel video programming delivery service - includes cable, satellite, telco-TV).  They also significantly raised their retrans revenue estimate for 2018 - $6.05 billion, or $4.86 per subscriber in aggregate.  There's two ways to look at this - that it would be only 10% of what cable operators pay for all carried programming, and that all broadcaster-based fees combined will be still be less than what ESPN earns just for its primary channel; alternatively, you can think of this as saying viewers will be paying nearly $5 per month to access "free TV" through cable or other MVPDS services.

  The money's good enough to get border-area stations to to seek payments from Canadian MVPDS services now, rather than waiting for a proposed WIPO Broadcasting Treaty that would explicitly give broadcasters the right to seek payment for carriage of their signals beyond national borders.  They argue that they should be treated the same as "distant" Canadian stations are under a new set of consent and compensation rights in Canada.  The new Canadian regulations can into effect in 2011 after Canadian authorities looked into "fee-for-service" video platforms.  The new regulations provide consent and remuneration rights to "distant" or out-of-market TV stations in Canada, that are similar to US retransmission consent rights in the U.S.

“Our channels deliver value for Canadians,” said Chris Musial, General Manager for WIVB and WNLO-TV in Buffalo, New York. “We expect the right to negotiate appropriate compensation for the full value that our signals and programming deliver to Canadian markets.”

While it may seem like a winner for these U.S. stations, it likely won't be long before non-US stations seek reciprocal rights from US MVPDS operators.  That could negatively impact carriage decisions and retrans payments in the U.S. as well as in Canada.
  Even with the additional revenues from Canada, it's likely that local stations won't be able to keep most of it.  As copyright holders for most of the broadcast content local stations transmit, networks are already grabbing significant chunks of retransmission consent revenues from stations.  Retrans consent payments are contributing to higher prices for syndicated programming.

As for TV viewers, remember that these carriage fees get passed on to subscribers; or result in denying them access to channels (if no deal is reached.

Sources  -  Kagan: Retrans to Top $6 Billion by 2018,  Broadcasting & Cable
US Broadcasters Seek Retransmission Fees, Broadcaster