Retransylvania

The latest retrans tiff between Cablevision and Disney’s ABC affiliate in the NYC area was even more dysfunctional than producer Elinor Burkett’s Kanye moment during the Academy Awards (Thank heavens NYC area Cablevision subs were able to see that!). But when you think about it, the Cablevision-Disney dispute was kind of boring: Two behemoths fighting over a few cents, with consumers caught in the middle and policymakers jeering from the sidelines. Been there, done that. What’s different today is that price elasticity for cable is reaching its apex, and an industrywide breaking point now seems visible on the horizon. That’s scary. Very scary. Let’s just call this blood-curdling place Retransylvania because, well… I made that up and think it’s pretty darned clever. Cope with it.

 

Here’s the basic situation driving the resurgence of these retrans battles: The broadcasters are getting killed by cable networks and the Internet, both of which have siphoned off billions in ad revenue. The financial meltdown gave us a horrific recession, which has turned a bad ad market into a desperate situation for broadcasters. They need new revenue streams. So why not turn to retrans? This is the free market that cable operators so often reference when resisting government regulation. Some broadcasters’ retrans behavior may be obnoxious, standoff-ish and entirely dismissive of legitimate concerns about higher TV bills, but hey… can you really blame them for using every ounce of negotiating leverage provided to them by current law?

 

The larger moral question, of course, is whether the law must change. But that’s tricky. Let’s remember that millions of people in this country can’t afford even basic pay TV services, much less a computer. They depend on a financially healthy broadcast industry. Nonetheless, the vast majority of the U.S. population doesn’t use over-the-air broadcasting at all. So why should pay TV subscribers have to subsidize content using spectrum that taxpayers donated to for-profit entities on the very condition that it be freely available? Of course, the government could simply cap retrans fees at some reasonable level, assuming such a move could withstand inevitable court challenges. But that’s a slippery slope. Why not price regulation for all programming license fees? Or better yet, let’s just regulate cable rates again! See where this all goes? Remember the 1990s? None of this ends well for anyone.

 

New rate regulation is pretty unlikely at this point, but the FCC and Congress are watching. And you have to wonder whether pay TV bills have become high enough, the economy has become bad enough and the public has lost enough patience with these battles to force some kind of serious action. As Sanford Bernstein’s Craig Moffett so eloquently suggested in a recent note to clients, retrans fights also give comfort to a-la-carte proponents who would like nothing more than to alter the entire business model that nourishes cable operators and their programmer partners. The retrans brinkmanship increasingly used by both sides to ratchet up pressure on the other just strengthens these forces. And that’s a scary prospect for the continued health of an industry responsible for so many jobs and creative content that is, by the way, still one of our nation’s best international exports. This frightening drive through Retransylvania will end one of two ways: Either the industry comes out the other side wiser or it runs out of gas before learning its lesson. The ensuing hike through the wilderness could bring out all sorts of scary ghosts. Paging Kevin Martin.