Networks Playing a Dangerous Game In Retrans Fights

The number of cable TV blackouts due to retransmission disputes has risen to its highest level in a decade, and there could be more on the way, as broadcasters seek ever-higher fees for cable companies to carry their content. But those blackouts — and the higher fees that networks secure for their content — could have unintended consequences as consumers may simply find entertainment elsewhere.

Networks typically leverage consumer demand for must-have content like the Academy Awards (which ABC (s DIS) blacked out in a dispute with Cablevision (s CVC) earlier this year) or live sports as a way to pressure distributors to settle retransmission disputes. Already there have been five such blackouts this year, according to Bloomberg, which is the most since the year 2000. Those blackouts have affected 19 million pay TV subscribers, and have led to service providers like AT&T, (s T) Cablevision  and Dish Network (s DISH) losing access to content.

And certain pay TV subscribers could endure even more blackouts over the coming weeks, as Cablevision and Dish are both negotiating with Fox Broadcasting (s NWS) to keep its programming on their cable systems. Cablevision’s contract with Fox expires on October 15, and Dish’s agreement expires on November 1, according to Bloomberg, which means that the broadcaster’s signal could go dark on one or both of these systems if deals aren’t reached soon.

But the networks’ typical response in these situations — shutting off access to their programming — may ultimately prove unproductive, as users could find entertainment elsewhere. What’s more, the end result of these negotiations — higher fees paid for their content, which end up being passed on to the consumer — could end up driving subscribers away for good.

TV programmers are demanding increasingly higher fees for their content, which is leading to higher rates for subscribers to pay TV content. According to Bloomberg, the average cost of content for cable distributors has risen 10 percent over the past year, while cable bills have increased about 8 percent on average in the same time.

The problem is that all of this is happening at the same time that broadcasters are seeing their audiences slowly disappear. The number of multichannel video subscribers declined by 216,000 last quarter, marking the first time that overall pay TV subscribers have ever fallen. In other words, programmers are charging cable companies more for content that fewer subscribers are watching, and their dwindling audiences are getting the bill passed on to them.

And the audiences that networks do attract are getting increasingly older; according to a CNET article from a few months ago, the median age for ABC viewers has risen from 37 years old twenty years ago to 51 today. Meanwhile, the the median age of Fox viewers has jumped from 29 to 44 in the same time period.

All of which is to say that the next generation of consumers aren’t tuning in to broadcast TV and they’re not paying for cable. It’s not a matter of those viewers cutting the cord — for the majority of young people in the so-called Millennial generation, they never had the cable cord hooked up to begin with.

Broadcasters already have a tenuous relationship with this generation of viewers, and will need to do everything they can to keep them from going elsewhere. But one sure way not to appeal to those viewers is by restricting, blacking out, or otherwise making it difficult to gain access to that content. Due to the infinite number of choices available to them, viewers are showing less and less loyalty to content as time has passed. If a certain program from Fox isn’t available on broadcast, those viewers will find it online — or worse, they’ll find something else to watch entirely. And it doesn’t necessarily have to be something on another network, or even on TV; younger viewers have proven that they are increasingly comfortable with web content as an alternative for traditional TV broadcast.

If the networks are to survive, they need a sustainable model for reaching the next generation of consumers that doesn’t include gouging distributors and subscribers for access to content that they’re giving away over the air and online for free.

Photo courtesy of Flickr user comedy_nose.

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