The Trouble With Broadcast TV Networks

Posted by: David Birch-Jones at 11:11 am, December 17th, 2010

These days, it seems that the major broadcast networks are working overtime to tick off their viewers, especially when it comes to retransmission, where broadcast TV networks go head-to-head with cable and satellite carriers and charge them ever escalating fees. Years ago, broadcasters were only too happy to have their over-the-air signals re-distributed to cable customers, so as to maximize viewership and therefore be able to collect more advertising revenue.

Lately it seems that broadcasters have simply forgotten that they are granted a license by the government to transmit for free, over publicly-owned airwaves, their signals to viewers, and instead are aiming to extract as much as they can from cable and satellite companies who simply re-deliver those local broadcast signals to their subscribers. While it’s true that those same subscribers pay fees to their TV provider, much of the cable or satellite TV operators’ total revenue comes from charging for non-broadcast content. In truth, cable and satellite TV companies derive revenue by providing access to cable stations such as Comedy Central, MTV, CNN and the like, in addition to receiving additional income for access to pay TV channels such as HBO and Showtime (which they in turn have to pay for, essentially putting them in the same category as a traditional retailer).

For metro New York City viewers, this came to a head this past fall, when Fox pulled the plug on Cablevision (as well as Dish Network), depriving baseball fans in the region of the first two World Series games (it also affected some stations in Philadelphia). The brouhaha reached the point where Senator John Kerry, who is chairman of the Commerce Subcommittee on Communications, Technology, and the Internet, held hearings on the issue the following month, and proposed legislation to prevent the networks’ from unilaterally pulling the plug and causing blackouts similar to what happened in New York and Philly.

What galls me about all this is the networks are behaving as if they own the airwaves, which they do not. They are granted a free license for their chunks of spectrum, and although the number of viewers who rely solely on over-the-air reception for the TV viewing is indeed small overall, it is the aggregate number of viewers that a broadcast TV station can claim access to that allows them to charge the advertising rates they do.

Some might say that since a cable or satellite operator is making money off local broadcasts by charging their subscribers for the service, it should only be fair that local TV stations receive some of that revenue. There are a number of problems with this. First, over-the-air broadcast transmissions, in the majority of cases, simply don’t provide total coverage of a designated market’s viewership. There will always be at least a goodly chunk of viewers who can’t get local OTA signals via antenna. This is especially true for apartment and condo dwellers who often don’t have a say in the matter, as their co-op board or homeowner’s association has already decided the matter for them, forcing them to pay cable TV fees for local station service even if they could get those same broadcast channels for free via an indoor antenna.

Second, while cable and satellite operators co-share advertising revenues on some cable TV channels, that doesn’t happen with local TV; the local TV stations don’t share any of their advertising revenues with the cable or satellite operator, even though, and this is most important, their advertising revenue would wither to a trickle if they could only base their ad rates on actual OTA viewership. The only way they can survive is by having access to as many viewers as possible, and that’s simply impossible without cable and satellite TV retransmission.

I say that if broadcasters want cable and satellite companies to pay them for retransmission, then they should share their advertising revenue in a like fashion. It’s estimated that over 90% of viewers in America get their local TV stations via cable or satellite. Therefore, given that cable and satellite companies are providing access to 90% of the viewership in any given market, they should receive 90% of the local TV stations’ advertising revenues, less some percentage that partially offsets whatever the cable or satellite operator charges their viewers for local TV reception.

Further, there should be an impartial third-party arbitration mechanism setup so that disputes like the World Series fiasco go right to remediation. And no, the National Association of Broadcasters wouldn’t be on the list of potential arbitration candidates.