It wasn’t a particular surprise when Block Communications Inc. complained to federal regulators that high retransmission-consent fees, like those sought by The Walt Disney Co., hurt consumers and ultimately aren’t “the right way to support local broadcasting.”
These arguments, in support of a petition filed by the American Cable Association, were predictable in that BCI is a cable-systems owner, with 146,000 subscribers in Ohio.
But BCI’s interests range beyond cable: It’s also a broadcaster that owns five TV stations.
“We’re in both businesses; we know both businesses,” BCI chairman Allan Block said. “I’m perfectly positioned to make a judgment about the merits of the different arguments.”
Block believes it’s foolish for cable operators and TV stations to engage in “a duel” over retransmission-consent compensation and he warns against broadcasters being “aggressive” in seeking big bucks for carriage. He thinks that tactic will backfire and won’t be tolerated by Washington.
“Free over-the-air should mean free over-the-air,” Block said.
Block’s views on retransmission consent are tantamount to heresy among his broadcast brethren. They are in direct conflict with the party line among his fellow TV-station owners — such as a very-vocal CBS — who are crying out for cash compensation from cable systems that carry their signals.
“I hope they understand that I am a loyal broadcaster, but I’m against some of the stupidity that I see,” Block said. “But I don’t honestly believe that the answer is what some of these people think. The answer is deregulation. An answer is technology. I think the broadcasting business has to be reinvented.”
Disputes over retransmission consent are likely to intensify in the coming months. The deadline for broadcasters to elect retransmission-consent compensation (retrans) or guaranteed carriage (must-carry) for their stations falls on Saturday (Oct. 1), kicking off what are expected to be difficult negotiations between MSOs and the stations that opt for retrans.
When a company owns both cable systems and TV stations, like BCI, it makes for strange bedfellows on contentious issues such as retransmission consent.
“We have some very interesting philosophic discussions about these very conflicts,” said Bill Lamb, president and general manager of two BCI stations, WDRB in Louisville, Ky., and WFTE in Salem, Ind.
Other companies with TV stations and cable systems (as well as newspapers) in their portfolio include The Washington Post Co., which owns the MSO Cable One Inc. and Post-Newsweek TV Stations Inc.; and Cox Enterprises Inc., with MSO Cox Communications Inc. and Cox Television.
Such cross-ownership makes for some ironies when it comes to retransmission consent.
For nearly nine months now, Cable One and Cox have been engaged in a bitter battle with the Nexstar Broadcasting Group Inc., which wants cash for carriage. Yet Post-Newsweek and Cox TV in the past have tried to charge cable operators in their markets for their broadcast signals, just like Nexstar.
Toledo, Ohio-based BCI is a media mini-conglomerate. The 100-year-old family company not only owns Buckeye CableSystem in Toledo, the largest independently owned urban cable system, but also two newspapers, The Blade of Toledo and the Pittsburgh Post-Gazette.
In addition to Louisville and Salem, BCI has stations in Lima, Ohio and Boise, Idaho, and owns two-thirds of one in Decatur, Ill.
BCI’s broadcast holdings didn’t stop it from filing that 10-page comment earlier this year with the Federal Communications Commission in support for the ACA’s request for changes regarding network non-duplication and syndicated exclusivity.
Simply put, the ACA, a lobbying group for small, independent operators, was seeking approval so that small cable systems could in effect “shop around” — bringing in an out-of-market station’s signal if that retransmission-consent fee is cheaper than what the in-market station demands.
The ACA’s petition, still pending before the FCC, was opposed by the Big Four networks and the National Association of Broadcasters.
Cable operator-broadcaster BCI was among dozens of companies that filed comments supporting the ACA.
PRAISE FROM THE ACA
“I give Block Communications, and Allan Block particularly, a lot of credit for being courageous to come out and take the position it has,” ACA CEO Matt Polka said. “They have a unique perspective, from seeing it truly from both sides of the tracks, so to speak, in operating both cable and broadcast entities.
“Basically, they’ve said it’s bad business and bad policy to try to solve these problems by broadcasters trying to impose exorbitant costs on consumers in general.”
Polka joked that as a result of publicity about its position on retransmission consent, BCI will “probably get a call from the NAB membership department.”
But BCI has nothing to worry about on that front. The NAB says BCI is one of its valued members, even though the broadcast-trade group doesn’t buy into the company’s anti retransmission-consent opinions.
“We respect Block’s position, but we disagree with it,” NAB spokesman Dennis Wharton said. “I can’t think of another local broadcaster who doesn’t support the concept of retransmission consent and that there ought to be a recognition of the value that local broadcasters bring to cable companies.”
Because direct-broadcast satellite companies and telcos are willing to pay a “nominal” fee to TV stations for retransmission consent, “the odd man out here is the cable companies,” according to Wharton.
In its FCC filing months ago, BCI warned that “substantial retransmission-consent fees” and “new cash demands” from broadcasters in the upcoming round of retransmission-consent negotiations — for contracts that expire at year’s end — will jack up cable rates, a notion the NAB disputes.
BCI hasn’t backed off from its position. Cable operators and TV stations have enjoyed a mutually beneficial relationship that shouldn’t be marred by disputes over retransmission consent and payment, according to Block.
“The broadcasters’ problem really is their business model is breaking down, so they’re looking for something to bail them out,” Block said. “And the problem with retransmission payment is that’s not the answer to the problem for TV broadcasters.”
In the face of declining ratings and advertising, Block said ownership of TV stations needs to be deregulated so broadcasters can take advantage of economies of scale.
TV stations could also get a revenue lift by taking advantage of cable’s technology to begin offering highly targeted advertising, according to Block.
'NEVER THREATENED CABLE’
Block isn’t claiming his stations have never sought, or won’t seek, some kind of retransmission-consent compensation. But he said they haven’t made extravagant demands or asked for the kind of per-subscriber fees for its stations that companies like Disney have.
“I don’t think we’re the most aggressive,” Block said. “We’re not filled with wrong ideology and dreams in our attitude towards dealing with cable. … I can guarantee this: No one’s ever said we’re [the BCI stations] worth a dollar [license fee]. No one’s ever been radical about it. We’ve never threatened cable.’’
That said, Block conceded that some of the general managers at his TV stations “probably have more traditional broadcasting views than I have, and talk to their broadcast peers a lot, and may think more like the broadcast industry.”
In fact, some of them sound very much like “traditional” broadcasters.
BCI has a Fox affiliate in Boise, KTRV, run by president and general manager Rick Joseph. Like most broadcasters, KTRV’s retransmission deal expires at the end of the year, and the station will be negotiating with Cable One to renew it.
“I know Cable One has refused to pay in other markets, with the Nexstar stations,” Joseph said. But he pointed out the Fox has great programming, like American Idol, and that he gets paid by direct-broadcast satellite providers for his signal.
“That’s not a bad thing,” Joseph said. “For us to get paid by them and then to look at our cable people — and they don’t pay, or they haven’t in the past — we’re kind of between and betwixt. I feel it’s at the point right now we should try to see what we can get out of it.”
In the second quarter, BCI stations saw a $110,000 increase in “other income,” which was “primarily due to DBS retransmission-consent fees,” according to a company Securities and Exchange Commission filing.
Citing all the viewership that broadcast shows attract on cable, Joseph said, “Shouldn’t we get something? Whether you want make it 10 cents a sub or 12 cents a sub, just throw me a bone so I can feel like it’s a competitive level playing field.”
Joseph said he’s still trying to figure out his retransmission-consent strategy, and he expects that securing carriage for KTRV’s digital signals from Cable One will be a major negotiating point.
General manager Lamb — head of BCI’s Fox affiliate, WDRB, and its UPN affiliate, WFTE — in the past has received “promotional consideration” from cable operators in exchange for retransmission consent.
SEEKING DIGITAL SLOTS
During this year’s round of talks with cable systems, Lamb said he’ll be asking for cable slots for several digital channels, not cash license fees.
“In our particular situation, I think we’re probably one retransmission cycle away from being able to demand monetary compensation,” Lamb said. “I just don’t think we’re ready to stick our necks out alone, and I haven’t heard of anyone else in our market who’s willing to stick their neck out. Sometimes you just get it chopped off.”
He added: “If we had a CBS O-and-O [owned-and-operated station] in this market, and had a Nexstar station in this market, we would be getting bolder and bolder.”
BCI’s NBC affiliate in Lima, WLIO, has never asked for license fees for its station from cable operators, just carriage, according to general manager Bruce Opperman.
This year, WLIO will seek to get distribution for its digital as well as its analog signal on cable, according to Opperman.
“My guess is that if we wanted to play hardball, we could probably get some fees simply because of the fact that we have such a strong [local] news presence,” he said. “But I’ve always thought that the carriage is more important than the fees.”
That in fact, sums up Block’s attitude — that cable operators and broadcasters shouldn’t be “shooting” each other in retransmission-consent wars.
“I have the highest regard for some of the broadcasters that have been most aggressive, but I don’t think it will work,” Block said. “I don’t want to name names, but I think some of those people are hurting themselves where there is a retransmission-consent struggle going on right now. I think the broadcaster is getting the worst of it.”
