# Proposal to end channel black-outs and contract negotiations



## tsmacro (Apr 28, 2005)

Ok I think it's time for a serious revamp of the way channel owners and channel providers negotiate contracts with each other. How about the following: every channel provider will pay the channel owners via profit sharing. For the sake of illustrating an example I'm just going to make numbers up here with full knowledge they don't actually represent reality. So lets just say the channel providers agree they'll pay for the channels by paying 40% of their profits to the channel owners. The amount each channel owner gets paid depends on the ratings of their channels. So lets just say all the channels that Viacom owns ends up representing 15% of total viewers on Directv, well then Directv then takes 15% of that pool of money set aside for paying for the channels and pays it to Viacom. Every channel provider pays for it's programming using this formula end of story. No more bickering back and forth no more channels going dark. The only thing to negotiate would what would the percentage of profits going to channel owners be and once that was set the rest is just done by the formula. I know this is very simplistic but I think simple is what we need rather than the hodge-podge of contracts for every individual channel owner and provider.


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## Stewart Vernon (Jan 7, 2005)

The problem is...

Dish/DirecTV (to use examples) are like Wal-Mart. They sell some products of their own, but largely they sell other companies' products to viewers. The channels are those products... much like the items on the shelves at Wal-Mart.

Some companies make deals for certain shelf-space at Wal-Mart... other publicity are there for free to get publicity... and others are strictly there because Wal-Mart pays to have them because they know customers want them.

Similar thing with channels on pay-TV providers.

So... you really don't want laws or regulations determining who can sell products to Wal-Mart, how Wal-Mart can purchase those, and whether or not any company is obligated to do business with another. Maybe Wal-Mart doesn't want to pay $5 for a certain toy, if the toy company doesn't want to sell it for less than that they can sell elsewhere or negotiate or go out of business... but you don't want that company forced to provide toys at a lower-than-desired rate while some negotiation process is underway. That isn't good for anyone.

I wish companies would negotiate in a more responsible and adult-manner... but adults seem to be "adults" frankly when it comes to such things... but I don't want a scenario where companies are forced to negotiate in a way that forced carriage of a channel. Blackouts are annoying, but the alternative isn't pretty either.

Companies and their representatives just need to stop behaving like children in these contract negotiations.


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## KyL416 (Nov 11, 2005)

The problem is the costs of doing business don't always match the ratings.

A higher rated reality show doesn't cost as much to make as a scripted show. Sports ratings vary widely based on which teams are playing, because of the limits imposed by the league to prevent things like CBS always picking Alabama or NBC always picking the Cowboys, there will be games that get lower ratings while the cost of the rights package is fixed. Should TLC and MTV get more money just because shows that are much cheaper to produce like The Cake Boss and The Real World scored higher than a late season New York Jets game that week? Plus there's the operations side, all the Viacom, Discovery, Turner, and Disney channels pretty much share operation costs (uplinks, accounting, etc), standalone channels without a bunch of sister channels like UP or RFD-TV are on their own. Reruns are a lot cheaper to air than new programming, but TBS's Family Guy and Big Bang Theory reruns rank in the top every week, should they get more money because of that?

How do you measure channels that aren't rated by Nielsen? Not every channel subscribes to Nielsen's data, some channels with lower distribution can't even qualify until they reach a benchmark as Nielsen's math wouldn't work for them compared to channels that are available on most major providers, even if they get a decent number of viewers on the few providers that do carry them.

What about the screwups Nielsen had this year where ABC incorrectly got higher numbers at the expense of other channels like CBS and NBC. Would the station have to issue refunds months later and the provider have to recompensate the other channels when it happens again?


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## Herdfan (Mar 18, 2006)

Stewart,

For standard cable channels I agree 100%.

But for networks, there needs to be a set rate. Ideally there would be no retrans fees for something that can be gotten free, but since we don't live in a world where I am King, we have them. But they probably need to be set by statute.


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## Stewart Vernon (Jan 7, 2005)

Herdfan said:


> Stewart,
> 
> For standard cable channels I agree 100%.
> 
> But for networks, there needs to be a set rate. Ideally there would be no retrans fees for something that can be gotten free, but since we don't live in a world where I am King, we have them. But they probably need to be set by statute.


Speaking to the LiLs... It's a bit of a sticky wicket.

The locals are available for free via OTA. IF you can receive them, you can watch them all you want for free. That's all you're really entitled to do... The stations have the right to control retransmission of their signal and they should keep this right.

Some argue that cable/satellite does these locals a "favor" by extending them to customers who otherwise couldn't get the signal... and perhaps this is true... but they don't do it as an act of charity, they advertise carriage of LiLs to sell customers their company (be it Dish, DirecTV, or cable companies)... Those LiLs get customers to pay for pay-TV... and on top of that, they do charge for the LiLs either as an add-on fee OR as part of the bundle/tier packages they sell. As such, the local stations have a right to a piece of that fee that gets charged to the customers.

There was a time when local stations in my area made a point of saying that cable and Dish and whomever could have their signals for free IF they gave them to customers instead of charging for them... but Dish, DirecTV, cable all wanted to charge because of the costs they extend to provide the Lils... so the local stations exercised their right to restrict the retransmission unless they are paid.

All that said...

given the way the FCC regulates the local stations... I wouldn't be averse to the FCC putting a cap on the rate that local stations could request in these situations. The problem is, they couldn't set a fixed rate for all channels I don't think because some channels have more desired content than others... so I could see them regulating a maximum, but not a fixed one-fits-all rate per channel. Even with that, though, stations could still petition the FCC yearly for a rate increase... and while that might not make the stations go dark IT would mean the negotiation for the rates would be out of customer and provider's hands... and if the FCC approved a rate increase, it would be mandated across the board without any other recourse.

I'm not convinced that is better than what we have now. The threat of going dark helps curb pricing more than potential FCC refusal does I would think.


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## inkahauts (Nov 13, 2006)

Stewart Vernon said:


> Speaking to the LiLs... It's a bit of a sticky wicket.
> 
> The locals are available for free via OTA. IF you can receive them, you can watch them all you want for free. That's all you're really entitled to do... The stations have the right to control retransmission of their signal and they should keep this right.
> 
> ...


I always hear the argument that DIRECTV etc charges for locals and channels should get some of that. Do you really think it only costs DIRECTV say $5 a month to supply me with about 60 channels? I seriously doubt it and I seriously doubt they make money on that. Locals are a huge deal to consumers and they are a loss leader or break even maybe for providers imho. I'd like to see the books to know for sure but it's not cheap to supply thousands of channels around the country and launch new satelites that can handle them all.


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## harsh (Jun 15, 2003)

Rather than owners and providers, it would have been less confusing to use channels and carriers.

The recent Comcast/TWC investigation shows that the parties don't want to give up any financials so anything based on actual financials is probably not an option.


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## slice1900 (Feb 14, 2013)

inkahauts said:


> I always hear the argument that DIRECTV etc charges for locals and channels should get some of that. Do you really think it only costs DIRECTV say $5 a month to supply me with about 60 channels? I seriously doubt it and I seriously doubt they make money on that. Locals are a huge deal to consumers and they are a loss leader or break even maybe for providers imho. I'd like to see the books to know for sure but it's not cheap to supply thousands of channels around the country and launch new satelites that can handle them all.


Most customers get more like 6 locals not 60, so while the cost to deliver to you might be more than $5, it probably isn't for everyone. We could only guess at the true cost of setting up and running all the infrastructure needed to deliver locals nationwide, but the costs are different for different markets depending on how many locals are delivered and how they're delivered.


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## James Long (Apr 17, 2003)

All of the reception sites, backhauls, uplinks and much more complicated satellites add up. I can't imagine it costing DISH less than 85 million or DirecTV less than 60 million per month to uplink the thousands of channels nationwide that make up "local into local" television service. Yet DISH used to charge $5 per month when locals were optional and DirecTV discounts $3 where locals are not available. "Give" 50c per subscriber to the major networks and affiliates (who would rather have $1 per major network) and that further increases the cost of delivering locals.

LIL is expensive ... but when satellite is competing against cable with locals not having channels is not a good thing. Especially when many of the most popular programs are on OTA television. FCC rules prohibit carrying just the popular OTAs (cable must dedicate a percentage of their channels to OTA, satellite must offer carriage to all stations in each market). So the cost of delivering ABC, NBC, CBS and Fox affiliates includes the cost of delivering every "unpopular" local. The cost of NOT providing LIL in a market may be make or break ... DirecTV losing customers to DISH or cable in markets where they do not have LIL. A problem that is easily fixed by carrying every local market.

I wish OTAs were not compensated via negotiated rates for their channel content. If there needs to be some sort of copyright fee let it be a statutory fee such as the one used for distants and superstations. That way *ALL* stations would benefit from the fee - not just the popular stations.

As for non OTAs I am torn ... I do not like the current state of the industry but I also do not want the government to interfere. I do not want a fix that is worse than the problem.


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## Stewart Vernon (Jan 7, 2005)

I know James and I have had this particular discussion before... with James pointing out that Dish (and DirecTV for that matter) spend money on infrastructure to capture and deliver OTA via LiL to their subscribers... so I recognize that isn't free. I can understand how Dish might want to charge for the service... but once they do that, it calls attention to those locals who say "hey, you're taking our free product and monetizing it"... now even if Dish doesn't charge enough to recoup their expenditures, they clearly use the locals as a selling point to sign up subscribers "we have your local channels" the adverts will say... so, no matter how you slice it Dish (and DirecTV) believe they make more money by having the LiLs than not having them OR they would not go through the exercise of setting things up to deliver those local channels.

Now... since we have established that there is some value to these LiLs... it's only fair that the local channels get a piece of that value. I don't know what that piece should be... it's hard to put a number on such things... but it is larger than zero because viewers want the channels and Dish/DirecTV wants those viewers to be customers.

Imagine... if you do the work of mowing your lawn and raking leaves and such... and then I come along and pick up all your trimmings and take them somewhere and sell them. I might say "you were going to throw them away, they were in bags at the curb for free to the trash people"... and you would say "yes, free to the trash people to haul away but not free to you to take and sell for a profit unless you give me a piece of that profit." I argue "but they were being given away free" and you counter with "free to the intended trash collector NOT free to just anyone."

Free OTA is free to the intended audience... that being, someone who can put up an antenna and receive that free signal. You are not permitted, however, to receive that free signal and retransmit it and sell that signal to other people. You can, however, ask for permission and pay for those rights... and that's where we are.


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## inkahauts (Nov 13, 2006)

slice1900 said:


> Most customers get more like 6 locals not 60, so while the cost to deliver to you might be more than $5, it probably isn't for everyone. We could only guess at the true cost of setting up and running all the infrastructure needed to deliver locals nationwide, but the costs are different for different markets depending on how many locals are delivered and how they're delivered.


The cost to have a sat up there and to beam stuff up and down is high no matter what. Some could argue that the more you have to broadcast from one area the cheaper they are too. It's a mixed bag. There is a massive cost for each market. Then there is added cost for each station in terms of getting the signal into their system. It's not cheap no matter how many stations.


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## slice1900 (Feb 14, 2013)

inkahauts said:


> The cost to have a sat up there and to beam stuff up and down is high no matter what. Some could argue that the more you have to broadcast from one area the cheaper they are too. It's a mixed bag. There is a massive cost for each market. Then there is added cost for each station in terms of getting the signal into their system. It's not cheap no matter how many stations.


I agree, but spot beams are add ons to satellites they're already building and launching, so the incremental cost isn't terribly high, and is a one time cost. The main added cost is probably maintaining all the LRFs and fiber backhauls to the regional uplink centers.


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## James Long (Apr 17, 2003)

Stewart Vernon said:


> Free OTA is free to the intended audience ...


The intended audience are people living in the station's television market. The same people satellite and cable want to deliver the channels to. It is a weird "partnership". Cable and satellite are helping stations reach the homes of their viewers ... and the thank you that cable and satellite carriers get for helping to extend the reach of these stations is an increasing bill. 25c per month? 50c per month? $1 per month?

Meanwhile there is NO compensation going to non-commercial or less popular channels ... despite the fact that their signals are also being "stolen" from the curb by "greedy" satellite and cable. Their compensation is carriage ... being able to reach the homes of their viewers. I wish that delivery was enough compensation for all stations ... and if they need cash then charge a statutory fee that compensates all stations ... not just the big ones that start out with more money than their competition. The rich get richer!


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## SamC (Jan 20, 2003)

Relative to OTA television (AKA ABC, NBC, CBS, Fox, CW, etc)

Dear station owner:

The Fortnightly case was rightly decided. As they did for 40 years before Congress screwed it up, everyone in your service area will receive your signal, which you transmit into the public's airwaves, at no charge. Either with an antenna, via cable, via satellite, or in whatever new form is coming. 

If you do not like this situation, please sign the enclosed surrender of your broadcast license on the back, shut down, and the channel slot will be open for rebid to someone who wishes to be in the broadcasting business. The profit from the rebid will be used to pay the national debt. 

Enjoy.

Yours,

FCC.


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