Time Warner Cable, it seems, wants to make the phenomenon of deja vu all its own. At least, that’s the impression I got a few days ago when an e-mail came from the company, asking me whether it should “roll over or get tough” with some nasty TV network trying to extort a few more bucks for programming.
“Didn’t I just live through this nightmare?” I asked myself.
Yes, it was only last November that the cable company unveiled its first “roll over or get tough” campaign, aimed at enlisting its subscribers in its battle to hold the line against the fee demands of News Corp., the owner of Fox broadcast stations and the Fox Sports Net regional sports channels.
This time the target is Walt Disney Co., the owner of ESPN and ABC, among other TV offerings.
But the pitch is the same: The networks are demanding enormous increases in the fees they charge the cable company to provide me, the consumer, with their shows. This is cutting into the money the cable company has left over “to make sure we can keep bringing you more great products and services.” (For the record, Time Warner Cable recorded net income of more than $1 billion last year.)
The contract allowing Time Warner, the nation’s second-biggest cable company, to retransmit the Disney channels expires Sept. 2. Disney, for its part, has uncorked a counter-campaign suggesting that Time Warner customers migrate to DirecTV, Verizon FiOS and even the modern equivalent of rabbit ears.
The usual course of such negotiations is that the two sides reach an impasse, at which point the broadcaster threatens to cut its signal and a deal is struck at the last moment.
But if we’re going to have to go through this nonsense every six or eight months, we should have a working grasp of the facts behind the incessant squabbling.
At its root are the Federal Communications Commission’s retransmission consent rules, implemented for cable companies in 1992 and for satellite services a few years later. The rules say that broadcasters can negotiate with cable and other video distribution services for compensation for the programming those services carry into our homes. In the past, the broadcasters held out for prime placement for new cable channels they were trying to launch; more recently, as advertising revenue has dwindled, they’ve asked for cash.
The biggest biceps in this tug of war belong to Disney’s ESPN, which gets about $4 per subscriber. In recent years networks such as Fox and CBS have tried to push their fees up toward $1.
The cable firms and the satellite TV and phone companies offering video bundles today (that’s DirecTV, Dish, AT&T, and Verizon) like to contend that they’re at the mercy of the networks. But it’s not so simple. They may have a poorer bargaining position than they’d like against some networks — those with programs that mass subscribers consider essential, such as ESPN’s SportsCenter, ABC’s Oscar show, or Fox’s Super Bowl.
But other channels can only wish they could manhandle the cable operators like ESPN; some have to pay the cable firms for a place on their channel lineup. (To be fair, some small cable channels get pushed off the basic grid by channels affiliated with the big broadcasters, who make their advantageous placement a condition of giving the cable operators the channels they want.)
The cable companies just pass the increased retransmission fees on to their subscribers, but they’re certainly aware that the higher the costs of basic service, the fewer the subscribers there may be for premium movie channels and pay-per-view services. Still, for Time Warner Cable the trend line remains green: The company says its revenue per customer increased last year nearly 6% to $97.83 a month.
That illustrates the advantage in being the only entity in the video distribution stream that actually has a direct relationship with the customer — it’s what allows the cable firm to pitch me Internet and phone service and pay-per-view. But there’s a drawback: When the negotiations fail and the broadcast signal is cut off at the very moment when Sandra Bullock is stepping onto the red carpet or the Saints and Colts are taking the field, it’s the cable firm that gets blamed.
The roll over or get tough business, therefore, is all about trying to pin the blame on the other donkey.
The most amusing irony about all this is that the cable firms and other distribution companies are pleading for the regulators to step in. In a petition filed in March with the Federal Communications Commission, they argued that the retransmission rules are outdated, and that the high level of competition among cable, satellite, and fiber-optic services gives the broadcasters too much power to extract higher payments from each. “Consumers are held hostage,” they say.
Among their suggestions is for the FCC to mandate that broadcast signals remain on during negotiation impasses, thus removing the broadcasters’ surest point of leverage.
They point out that the FCC’s 2009 survey of the state of competition in the video market found that “a number of commenters” were concerned about the ability of broadcasters to jack up retransmission fees. They don’t mention that those commenters were lobbyists for the cable and satellite industry. Just to keep the lineup straight, their adversaries, the lobbyists for the broadcast industry, told the FCC that the existing system “is working well and serves the public interest.” (I read the 208-page report so you don’t have to.)
This is how regulation-averse industries come to love their regulators. Let’s say Time Warner were so big it could impose an effective nationwide blackout on Disney channels, pushing back on Disney’s fee demands. I’d bet that if the FCC ordered it to restore the signal, Time Warner would file a motion telling the agency to buzz off.
How do I know this? Consider that in a separate proceeding, Time Warner has told the FCC that “now is not the time” to discuss enhancing “net neutrality” rules, which might prohibit broadband providers like Time Warner from giving preferential treatment to some websites over others — say, those that pay Time Warner a hefty fee.
“Robust competition” ensures that Internet providers “will act in the consumers’ best interests,” the company says, though it also argues that regulators should keep their noses out of any broadband market where there’s even one provider, which sounds more like a robust monopoly. Then again, it may be easier for Time Warner to monopolize broadband in many markets, because it’s difficult for satellite companies to provide full broadband and the phone companies’ DSL service often has geographic or speed limitations.
That just shows that Time Warner tries to tailor regulatory policy to fit its own corporate needs. No surprise there. But it does mean that it should offer a third option to customers besides “roll over” and “get tough.” How about “get stuffed”?