Is Free Television Heading For Extinction?

The 2010 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? Belinda Luscombe of Time reported that media companies are searching the ground for every revenue scrap they can find since being stung by the recession and the general - and apparently permanent - ebb of advertising dollars away from network TV. 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. 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. 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. 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 the telecast from Los Angeles' Kodak Theatre was underway. 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. Minutes after the show started, Bob Iger, of ABC 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. Moonves, one of the most enthusiastic proponents of getting cable companies to pay up, has said that by 2012, he expects CBS-owned stations to garner between $200 million and $250 million in retransmission fees from the cable giants and others. Analysts at SNL Kagan estimate that such fees will bring in north of $900 million for networks this year, not insignificant, but a fraction of the $28 billion expected to be brought in by cable networks. Nevertheless, providers like Cablevision, which are being asked to pay for something that used to be free, will vigorously oppose these moves. However, since cable providers operate at margins of about 40%, they can probably afford it. Who's going to win? A price war may be good for consumers, but the collateral damage in this battle will be the smaller content providers that are being paid but aren't bringing the audience- the cable providers will stop paying them. Ultimately, the cost will be passed on to the consumer. Meanwhile, the colorful spats between companies with plenty of broadcast capacity will continue to flare up. Fox had a similar altercation with Time Warner Cable in New York City in December, when Fox threatened to pull all its broadcast and cable channels if the cable company didn't pony up more money. As more contracts come up for renewal, more standoffs are expected - although few with such a glamorous sacrificial lamb as the Oscars at stake. Seems like "free" television is heading into extinction.