More TV-Fee Fights Loom

Sunday night’s Oscar program almost didn’t happen for millions of TV viewers in the New York City area, in the latest high-stakes battle between media giants over the cost of TV programming. Why are these battles happening now, and who will ultimately win?

If you happened to be one of Cablevision’s 3.1 million subscribers in New York, New Jersey or Connecticut on Sunday, you missed some classic TV: a closeup of Academy Award winner Mo’Nique’s hairy legs on Barbara Walters’ Oscar special, Kathy Ireland’s freaky posture on the red carpet and Neil Patrick Harris singing about why inmates drop soap. That’s because ABC cut off the signal of its New York City station to Cablevision subscribers just after midnight on Sunday morning, in a dispute over “retransmission fees,” the money the cable company pays for carrying local broadcast stations.

The red carpet showdown was not the first battle over these fees, and it won’t be the last. Stung by the recession and the general – and apparently permanent – ebb of advertising dollars away from network TV, media companies are searching the ground for every revenue scrap they can find. And their expensive-to-make network programming is a potentially juicy source. Whereas they used to pipe that content to cable companies for little or no cost, they now expect to be paid for it.

“Network programming is at the top [of the programming heap],” said CBS president and CEO Leslie Moonves at a conference in early March. “If we’re spending millions of dollars on NFL [games] or CSI, we should get paid as much as a cable network showing repeats.”

Cable companies, not surprisingly, have resisted, asking why they should pay for content that’s broadcast over the airwaves to non-cable subscribers for free. They say they already give companies like Disney, which owns ABC, plenty of money – Disney gets about $200 million a year from Cablevision alone, for the right to carry cable networks like ESPN and the Disney Channel. (ESPN is reputed to get $4 per month per subscriber, the highest of any cable channel.) And any increases in costs, they note, will likely be passed on to consumers.

Nor is it just cable companies that are being hit with higher programming costs. “We’re getting a lot of pressure to increase rates at extraordinary levels,” DirecTV executive Derek Chang told a trade magazine. As a satellite provider, DirecTV competes with cable companies and telcos to be the business that provides the signal to consumers’ homes. It faces similar fees for carrying cable programming. “There are limitations on what we can do on rates with customers,” Chang said.

In this dispute, ABC reportedly asked initially for about $1 per month per customer. Cablevision felt that that price, for programs that can be received for free over the air, was way too high. Negotiations, which have been going on for two years, came down to the wire as Los Angeles’ Kodak Theatre filled with big frocks and bigger egos. In a high-stakes game of chicken, neither side would budge, each one blaming the other for the impending blackout of one of the year’s highest-rated programs. The negotations, which had been vigorous, became frantic. Finally, “we found something that was in line with what we pay other programmers,” says Charles Schueler, Cablevision EVP. Minutes after the show started, Bob Iger reportedly gave his OK from the red carpet, just in time for PenÉlope Cruz to glide onto the screens of Cablevision customers in the New York City area to present the award for Best Supporting Actor. Reports of the agreed-upon price between ABC and Cablevision varied widely but were not above 60 cents. In other words, the whole dispute was about a relatively nominal $18 million to $19 million a year.

But that’s just for one network in one market. Similar negotiations are likely to take place in major TV markets across the country.