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Summary:

The fight over retransmission fees between Fox and Time Warner Cable last week highlights an increasingly contentious relationship between the big four broadcast networks and the cable companies that carry them. Other broadcasters will most likely join the battle for retrans fees over the next few […]

The fight over retransmission fees between Fox and Time Warner Cable last week highlights an increasingly contentious relationship between the big four broadcast networks and the cable companies that carry them. Other broadcasters will most likely join the battle for retrans fees over the next few years, with CBS and ABC expected to push harder for their share of cable subscriber fees.

While broadcasters seek to offset a weakening ad market and better compete with cable networks, cable providers are being forced to negotiate higher fees for all of their programming — fees that will eventually get passed onto subscribers. It’s a tussle that will result in higher costs for everyone, and it’s happening at the same time broadcast TV is becoming less relevant to viewers, for a number of reasons.

For one thing, broadcasters have seen their ratings slip over the past 10 years, as viewers have increasingly turned to cable for their TV programming. According to research from Nielsen, broadcasters owned 46.8 percent household share in 2000, compared with cable networks’ 41.2 percent. Since then, cable’s household share has risen to 60.6 percent, while the share among broadcasters has dipped to 32.1 percent.

That’s happening as the cable nets are emboldened by high-quality original programming. USA Network and TNT, which were once just the home of second-run movies and syndicated TV shows, have had a number of hits with original scripted series like Burn Notice and The Closer. ESPN, which draws the largest share of cable fees — around $4 per subscriber on average — has made Monday Night Football a hit, averaging 14.4 million viewers per game this NFL season.

Broadcasters would argue that cable nets have an unfair advantage, since they derive per-subscriber fees from cable companies and other distributors in addition to advertising revenue. This dual revenue stream is at the heart of their desire for retrans fees that would put them on more of an equal footing with the cable competition.

But the broadcast model is also being undercut by web video, and to a certain extent, the broadcasters’ own web video strategies. The onset of Hulu, while acting to raise awareness of some broadcast programming, has also given users the opportunity to catch up on their favorite TV shows without actually tuning into them live. While some programming — in particular, live sporting events and reality shows like American Idol — will still draw audiences at the time they air on network TV, the vast majority of video that shows up on Hulu is just as good a week after it airs.

Broadcasters say they need retrans fees to continue producing high-quality original programming, and that might be true. But there’s probably no reversing the larger trends that are affecting their audience. So while they may seek to get paid for their programming, they’ll be doing so at the same time they’re becoming less important to viewers, advertisers, and ultimately, the cable companies they’re seeking retrans fees from.

This article also appeared on BusinessWeek.com.

  1. give me forty percent…

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  2. [...] else, we can expect game consoles and other over-the-top options to become a huge bargaining chip in the ongoing negotiations over retrans fees. Broadcasters will simply say: Pay us more — or we’re going to shift our cable [...]

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  3. [...] course, broadcasters are trying to use retrans fees as a way to prop up their businesses in light of flat advertising revenues and declining ratings numbers. As I wrote previously: [...]

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