The Media View

Scripps vs. Cablevision: What Will Carriage-Fee Battles Mean for the Future of TV?

Higher Prices for Consumers Could Renew a la Carte Push

By Published on .

David Campanelli
David Campanelli
NEW YORK (AdAge.com) -- Cablevision's fight with Scripps over carriage fees -- how much it has to pay Scripps to carry Food Network and HGTV -- is driving plenty of viewers crazy. But those viewers' short-term distress would pale in comparison to the industry upheaval that further carriage fee battles could bring. That's because higher fees, not just for cable networks but in all likelihood for broadcast company-owned stations as well, will almost certainly mean higher prices for consumers.

And there's only so much that consumers will bear before there's a new backlash against paying for bundles of channels stacked with networks that few people ever watch.

That backlash could eventually lead to a la carte selection, letting consumers pay just for the channels they want -- a potentially ruinous development for both service providers and the many cable networks that are not "must-see" for many.

Food and HGTV average a carriage fee below 12 cents per household from Cablevision, well below the industry average of about 50 cents and miles below the network with the highest carriage fee, ESPN, which reportedly receives over $4.00.

The current dispute led Scripps to pull Food Network and HGTV from Cablevision homes on Jan. 1, so Cablevision replaced them with static network logos and a voiceover blaming Scripps. Scripps then countered with ads on local TV and radio plus a PR campaign in venues including community message boards and Facebook pages. Both companies are running competing ads daily in local newspapers pointing fingers at the other one.

How does this affect the viewer? Well, first and foremost viewers of Food and HGTV are without their channels for the time being, so aside from anything else, the consumer is upset. By and large consumers do not know, or care to know, the details of the dispute; they really just want their channels back. What Scripps has working in their favor is that the viewers of Food and HGTV have always been very passionate towards these channels. So a logical assumption in these circumstances is that since the viewer has a stronger emotional connection to the network, rather than the provider, the provider is seen as "the bad guy" and Cablevision could be hurt by lost subscribers if the situation persists. The negative impact to Scripps would come in the form of lost audience delivery, which would cost them money from an ad sales standpoint.

These contentious carriage fee negotiations are hardly uncommon, but they're mostly private and rarely see channels go dark. Scripps recently avoided another messy situation when it agreed to an extension with Time Warner in order to keep the networks on air until the final details are worked out in their currently ongoing negotiation. In 2006 Lifetime was pulled from Dish network, however, while contract details were being worked out. And Versus has been missing from Direct TV households for two months due to an ongoing carriage fee dispute.

But these are no longer just fights over cable. The most intriguing aspect of the carriage fee situation for the future of the television business is the recently settled but very public fight between News Corp., which owns the Fox broadcast network, and Time Warner Cable.

Historically the broadcast model has survived with ad sales as its only revenue stream, while cable has had the benefit of two streams, ad sales and carriage fees. In the past broadcasters were satisfied with prime channel positioning in exchange for carriage rights, but slipping ratings combined with innovations such as DVRs, VOD and channel guides that minimize channel position importance, broadcasters are increasingly looking to get paid for the right to retransmit their programming.

One big problem is that the continued rise in carriage fees demanded from cable networks, and the additional expense to service providers to now pay broadcast carriage fees, will most certainly be passed along to the consumer. The same day that Time Warner Cable and Fox settled their dispute, Time Warner Cable announced a rate increase; it's possibly coincidental, but relates to the same issue.

So how much is too much for a consumer? Digital cable bills already average nearly $75 per month, according to the research firm Centris. How much more can be passed on to the viewer at home?

At some point providers will reach a limit in how much their consumer base will be willing to pay. That's particularly true when the consumer is being forced to pay for channels that they never watch, packaged in tiers with the channels that people do want. Resentment over high costs for these bundles could eventually lead to a la carte selection, which would allow a consumer to limit their bill by selecting the channels most important to them.

This would be a terrifying development for both service providers and the many cable networks that are not 'priority networks' for the consumer, which rely on consumer sampling to find new viewers. After years and years of network expansion, a la carte could lead to a retrenchment in available networks.

These questions will not be answered today, but a clearer picture will emerge as more of these conflicts arrive. The crucial element here is for the industry at large to be able to manage and solve conflicts -- such as the Scripps vs. Cablevision dustup -- without the need for outside intervention.

Before News Corp. and Time Warner Cable resolved their differences, Sen. John Kerry, who is chairman of the Senate Commerce Subcommittee on Communication, Technology, and the Internet, sounded a warning note in a letter to both parties. "As leaders of major companies that are FCC licensees and are obligated to serve the public interest, I hope and expect that you will resolve this matter consistent with those obligations," he wrote.

The clear threat was: fix it before Congress has to. Congressional hearings have previously considered a la carte selection, but those talks have died down in recent years. Events like this could help spur a return of those discussions.

ABOUT THE AUTHOR
David Campanelli is VP-director of national television at Horizon Media.
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