# Retransmission Consent and Other Federal Rules Affecting Programmer-Distributor Negotiations: Issues for Congress

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URL: https://www.frixlaw.com/law-library/documents/crs%3ARL34078

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** July 9, 2007
- **Citation:** RL34078

## Text

Order Code RL34078

Retransmission Consent and Other Federal Rules
Affecting Programmer-Distributor Negotiations:
Issues for Congress

July 9, 2007

Charles B. Goldfarb
Specialist in Industrial Organization and Telecommunications Policy
Resources, Science, and Industry Division

Retransmission Consent and Other Federal Rules
Affecting Programmer-Distributor Negotiations:
Issues for Congress
Summary
When conflicts arise between a programmer (a broadcaster or a cable network
owner) and a multichannel video programming distributor (MVPD, usually a cable
or satellite operator) about the carriage of particular video programming, the price for
that programming, or the tier on which the programming is to be offered to the end
user, many consumers can be affected. Recently there have been several incidents
in which a negotiating impasse between a programmer and a distributor has resulted
in the programmer refusing to allow the MVPD to carry, or the MVPD choosing not
to carry, a program network. While contractual terms, conditions, and rates are
determined by private negotiations, they are strongly affected by a number of federal
statutory provisions and regulatory requirements, including the statutory
retransmission consent and must-carry rules, the FCC program exclusivity rules,
local-into-local and distant signal provisions in satellite laws, copyright law
provisions relating to cable and satellite, statutory commercial leased access
requirements and program carriage and nondiscriminatory access provisions, and the
FCC’s media ownership rules.
The recent increase in negotiating impasses appears to be the result of structural
market changes that have given programmers with “must-have” programming much
greater leverage, particularly when they are negotiating with small distributors.
Competitive entry in distribution — almost all cable companies now face
competition from two satellite companies, and are beginning to face competition
from telephone companies — has emboldened programmers with popular
programming to demand cash payment from distributors for the right to carry that
programming. In particular, local broadcasters increasingly are using the statutory
retransmission consent requirement to demand cash payment from small cable
companies who could lose subscribers to the satellite providers and new telephone
entrants if they reach an impasse with the broadcaster and can no longer carry the
local broadcast signals. In the past, the cable companies were the only MVPD in a
market and could use that countervailing power to refuse to pay cash for carriage.
Thus, ironically, competition in the distribution market may be resulting in higher
programming costs that MVPDs may have to pass on to their subscribers.
The small cable companies have argued that some of the existing statutory and
regulatory requirements were implemented at a time when cable was a monopoly and
were intended to protect broadcasters. Now that the market dynamics have changed,
they argue, some of these rules should be changed to allow for more even-handed
negotiations. At the same time, however, as a result of consolidation and clustering
in the cable industry there are a few very large cable companies, which primarily
serve major markets, as well as the two national satellite operators, that appear to
have sufficient market strength to be able to withstand many of the demands of the
programmers with must-have programming and to place small independent
programmers at a negotiating disadvantage. This report will be updated as warranted.
For a condensed version of this report, see CRS Report RL34079.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Market Changes Affecting the Programmer-Distributor Relationship . . . . . . . . 11
More Distribution Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Consolidation and Clustering of Cable Operators . . . . . . . . . . . . . . . . . . . . 13
Negotiating with a cable program network . . . . . . . . . . . . . . . . . . . . . 18
Negotiating with a national broadcast network . . . . . . . . . . . . . . . . . . 19
Negotiating with a local broadcast station or non-network
broadcast group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
More Program Networks/Fragmented Audiences . . . . . . . . . . . . . . . . . . . . 20
Cable System Revenue is Growing From High Speed Internet Access
and Telephone Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Specific Examples of Programmer-Distributor Conflicts . . . . . . . . . . . . . . . . . . 31
Nexstar: The First Broadcaster to Aggressively Seek Cash Payments
for Retransmission Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
CBS: The Only Major Broadcast Network to Aggressively Seek Cash
Payments for Retransmission Consent . . . . . . . . . . . . . . . . . . . . . . . . . 35
DISH Network/Lifetime/Hearst-Argyle: An Example of the Complexity
of Programmer-Distributor Negotiations . . . . . . . . . . . . . . . . . . . . . . . 36
Sinclair’s Negotiations with Various MVPDs: A Case Study
of Factors Affecting Negotiating Strength . . . . . . . . . . . . . . . . . . . . . . 40
Sinclair-Mediacom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Sinclair-Suddenlink . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Sinclair-Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sinclair-Comcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Sinclair-Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Measuring Retransmission Consent Revenues . . . . . . . . . . . . . . . . . . 53
Time Warner: A Large Cable Company Demands Cash Payments
from Broadcasters to Retransmit Their Non-Primary Signals . . . . . . . 54
Issues for Congress: Proposals for Statutory and Regulatory Change . . . . . . . . . 56
Economic Factors Relevant to Analysis of the Proposals for Statutory
and Regulatory Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Specific Proposals to Modify Current Statutes and Regulations . . . . . . . . . 60
Proposal: Allow the importation of distant signals when a
retransmission consent impasse develops . . . . . . . . . . . . . . . . . . 60
Proposal: Require broadcasters to publish rate cards that would
apply to all MVPDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Proposal: Require parties to submit to binding arbitration to resolve
leased access, program carriage, or retransmission
consent disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Proposal: Strengthen the FCC test for what constitutes
“good faith” retransmission consent negotiations . . . . . . . . . . . . 64
Proposal: Prohibit tying carriage of popular programming
to carriage of less popular programming . . . . . . . . . . . . . . . . . . . 66

Proposal: Require programmers to offer their broadcast and
cable networks to distributors on an à la carte basis . . . . . . . . . . 67
Proposal: Prohibit programmers from requiring their networks
to be placed on the expanded basic service tier . . . . . . . . . . . . . . 69
Proposal: Prohibit the ownership or control of more than one
television station in a market or prohibit a “duopoly”
owner from tying retransmission consent for one
station to another . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Proposal: Place set-top boxes in customer premises that pick up
local broadcast station signals off the air without
requiring MVPDs to retransmit
broadcast signals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Proposal: Close the “terrestrial loophole” exception to the
requirement for nondiscriminatory access to
programming in which a cable operator
has an attributable interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Proposal: Clarify the definition of a regional sports network . . . . . . . 73

List of Tables
Table 1. Consolidation in the National Market for the Purchase
of Video Programming (Percentage of
MVPD Subscribers), 2002-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Table 2. The 25 Largest Cable Operators as of December 2006 . . . . . . . . . . . . . 15
Table 3. Cable Television System Clusters Serving More Than 100,000
Subscribers, as of December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 4. Cable Program Networks with the Largest Number of Subscribers,
as of December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table 5. Nielsen Data on Total Television Households, Time Spent
Viewing Per Household, and the Average Number of Video
Channels Received Per Household, 1985-2006 . . . . . . . . . . . . . . . . . . . . . . 21
Table 6. Estimated Share of U.S. Television Home Set Usage by Program
Source (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table 7. The Average Weekly Cumulative Audience Reach of the Largest
Broadcast and Cable Program Networks, First Quarter 2007 . . . . . . . . . . . 24
Table 8. The Individual Television Programs with the Largest Audience
Ratings, 2005-2006 Television Season . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Table 9. The Advertiser-Supported Cable Networks with the Highest
Average License Fees Per Subscriber Per Month, 2005 . . . . . . . . . . . . . . . 27
Table 10. Cable Company Revenues, by Service, 1996-2005, in Millions
of Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Table 11. Estimated Number of Television Program Sources Viewed
per Adult, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Retransmission Consent and
Other Federal Rules Affecting
Programmer-Distributor Negotiations:
Issues for Congress
Overview
Virtually all U.S. households have a television and almost 86% of these
television households get their video programming by subscribing to a multichannel
video programming distributor (MVPD) — in most cases a cable operator or a direct
broadcast satellite (DBS) operator — rather than relying upon “free” over-the-air
broadcast television signals.1 As a result, when conflicts arise between programmers
and MVPDs about the carriage of particular video programming, the price for that
programming, or the tier on which the programming is to be offered to the end user
(for example, on a basic or premium tier, on a “top 60” or a “top 120” tier, or on an
analog or digital tier), many consumers can be affected.
Recently, there have been several incidents in which a negotiating impasse
between a programmer and an MVPD has resulted in the programmer refusing to
allow the MVPD to carry, or the MVPD choosing not to carry, a program network,
forcing the MVPD’s subscribers to choose between foregoing that program network
or switching to a competing MVPD that does carry the program network.2 There also
have been a number of situations in which programmer-distributor negotiations have
been resolved without any disruption in program carriage, but only after the
negotiations played out in public, with subscribers and public officials being warned
of the danger of losing access to particular programming and being encouraged by

1

In the Matter of Annual Assessment of the Status of Competition in the Market for the
Delivery of Video Programming, Federal Communications Commission, MB Docket No.
05-255, Twelfth Annual Report, adopted February 10, 2006, released March 3, 2006, at
para. 8. As of June 2005, there were 109.6 million television households, of which
approximately 94.2 million subscribed to an MVPD service. Of the latter, 69.4% received
video programming from a franchised cable operator and 27.7% from a DBS operator.
2

Even where the impasse involves broadcast programming that is transmitted over the air,
most households that subscribe to an MVPD no longer have an antenna and therefore at a
minimum would have to obtain and install an antenna to continue to receive the
programming. In these cases, the MVPD typically has offered to provide a free “rabbitears” antenna, although in many cases a higher quality rooftop antenna is needed to get good
over the air reception, and some households cannot get decent reception even with a rooftop
antenna. Indeed, that inability to receive broadcast signals over the air was the original
impetus for cable television, which was then called community antenna television, or
CATV.

CRS-2
each side to contact the other side in order to place pressure on them to compromise.
Often these public negotiations have occurred when the programming at risk included
upcoming sports events that some subscribers placed a high value on viewing.3 Also,
there have been incidents in which an MVPD has announced a price increase to
subscribers shortly after the conclusion of contentious negotiations with a
programmer, with the MVPD attributing the price increase to higher programming
costs, and the programmer denying the causal connection.
Although the contractual terms, conditions, and rates at which content providers
make their content available to programmers, and at which programmers make their
programming available to distributors, are determined by private negotiations, there
are a number of federal statutory provisions and regulatory requirements that strongly
affect those negotiations.4 These include:
!

the retransmission consent and must-carry rules, which govern
the carriage of television broadcast signals by cable operators.5
Under these rules, every three years each local commercial broadcast
television station must choose between (1) negotiating a
retransmission consent agreement with each cable system operating
in its service area, whereby if agreement is reached the broadcaster
is compensated6 by the cable system for the right to carry the
broadcast signal, and if agreement is not reached, the cable system
is not allowed to carry the signal; or (2) requiring each cable system
operating in its service area to carry its signal, but receiving no
compensation for such carriage.7 With this mandatory election,

3

See, for example, Peter Grant and Brooks Barnes, “Channel Change — Television’s
Power Shift: Cable Pays for ‘Free’ Shows; Broadcasters Want Cash to Carry Their Signal;
Super Bowl is Hostage,” Wall Street Journal, February 5, 2007, at p. A1.

4

For a detailed discussion of many of these statutory provisions and regulatory
requirements, see Federal Communications Commission, Retransmission Consent and
Exclusivity Rules: Report to Congress Pursuant to Section 208 of the Satellite Home Viewer
Extension and Reauthorization Act of 2004 (FCC Retransmission Consent Report),
September 8, 2005, available at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC260936A1.pdf], viewed on June 28, 2007.

5

The Cable Television Consumer Protection and Competition Act of 1992 (P.L. 102-385)
established new rules, placed into Sections 325 and 614 of the Communications Act, as
amended (47 U.S.C. 534). These rules apply to all cable operators. AT&T has claimed that,
due to the technology employed, its MVPD service is an information service rather than a
cable service, and thus not subject to cable rules. It views the retransmission consent rules
as part of the copyright licensing framework and has agreed to negotiate for retransmission
consent, but it views the must-carry rules as part of the cable regulatory regime that does not
apply to its service. This is a controversial position.

6

Compensation can take the form of cash payments, the MVPD’s purchase of advertising
time on the broadcast station, the broadcaster being given free advertising time on the
MVPD’s system, the MVPD’s carriage (and tier placement) of other program networks
owned by the broadcaster, or some combination of these.

7

Section 614(b)(3)(A) of the Communications Act states that “A cable operator shall carry
(continued...)

CRS-3
broadcasters with popular programming that are confident the local
cable systems will want to carry that programming can make the
retransmission consent election and be assured compensation for
such carriage, and broadcasters with less popular programming that
the local cable systems might otherwise not choose to carry can
make the must carry election and be assured that their signal will be
carried by all local cable systems. In many cases local broadcasters
that are affiliated with a national broadcast network and have elected
the retransmission consent option have (as part of their affiliation
agreement) assigned to the network the right to negotiate the terms
of retransmission consent.
!

a number of Federal Communications Commission (FCC or
Commission) exclusivity rules8 that give local broadcasters the
exclusive right to distribute certain programming (the network
program non-duplication rules9 and syndicated exclusivity protection
rules10) or that protect a sports team’s or sports league’s distribution

7

(...continued)
in its entirety, on the cable system of that operator, the primary video ... transmission of each
of the local commercial television stations carried on the cable system....” As broadcasters
have deployed digital technology, they have been able to use their new digital spectrum to
transmit multiple video streams, not just a single stream, and/or to transmit their
programming in high-definition as well as standard format. The broadcasters have sought
an interpretation of the must-carry rule that would require cable operators to carry both their
analog and their digital transmissions and, where they are offering multiple video streams
or high-definition transmissions, that would require cable operators to carry their multiple
streams and high-definition transmissions. To date, the FCC has not adopted that
interpretation, but it is currently under discussion. As a result, carriage of these additional
video transmissions has been subject to retransmission consent negotiations, and is not
mandatory on the part of cable or satellite operators.

8

These rules are found in Part 76 of the FCC’s rules. For a description of these rules, see
the FCC Retransmission Consent Report, at footnote 8 and at paras. 17-30.

9

Commercial television station licensees are entitled to protect the network programming
they have contracted for by exercising non-duplication rights against more distant television
broadcast stations carried on a local cable television system that serves more than 1,000
subscribers. Commercial broadcast stations may assert these non-duplication rights
regardless of whether or not their signals are being transmitted by the local cable system and
regardless of when, or if, the network programming is scheduled to be broadcast. Generally,
the zone of protection for such programming cannot exceed 35 miles for stations licensed
to a community in the Commission’s list of top 100 television markets or 55 miles for
stations licensed to communities in smaller television markets. In addition, a cable operator
does not have to delete the network programming of any station which the Commission has
previously recognized as significantly viewed in the cable community.

10

With respect to non-network programming, cable systems that serve at least 1,000
subscribers may be required, upon proper notification, to provide syndicated protection to
broadcasters who have contracted with program suppliers for exclusive exhibition rights to
certain programs within specific geographic areas, whether or not the cable system affected
is carrying the station requesting this protection. However, no cable system is required to
(continued...)

CRS-4
rights to a sporting event taking place in a local market (the sports
programming blackout rules11). These rules, which tend to mirror
the terms found in most network-affiliate contracts and stationsyndicator contracts, limit the ability of a cable operator that has not
been able to reach a retransmission consent negotiation with a local
broadcaster that transmits network or syndicated programming to
import the same programming from a more distant broadcaster.
!

the local-into-local and distant signal provisions in various
statutes that govern the carriage of television broadcast signals by
satellite operators,12 which define which households are eligible to
receive distant broadcast network signals and local network signals
and include several copyright provisions. Under the Satellite Home
Viewer Act, direct-to-home satellite providers were granted a
compulsory copyright license to retransmit television signals of
distant networks stations to unserved households and to retransmit
signals of certain non-network broadcast stations (called
“superstations”) to any household. The Satellite Home Viewer
Improvement Act created a new statutory copyright license for
satellite carriage of stations to any subscriber within a station’s local
market, without distinction between network and non-network
signals or served or unserved households.

10

(...continued)
delete a program broadcast by a station that either is significantly viewed or places a Grade
B or better contour over the community of the cable system.
11

A cable system located within 35 miles of the city of license of a broadcast station where
a sporting event is taking place may not carry the live television broadcast of the sporting
event on its system if the event is not available live on a local television broadcast station,
if the holder of the broadcast rights to the event, or its agent, requests such a blackout. The
holder of the rights is responsible for notifying the cable operator of its request for program
deletion at least the Monday preceding the calendar week during which the deletion is
desired. If no television broadcast station is licensed to the community in which the sports
event is taking place, the 35-mile blackout zone extends from the broadcast station’s
licensed community with which the sports event or team is identified. If the event or local
team is not identified with any particular community (for instance, the New England
Patriots), the 35-mile blackout zone extends from the community nearest the sports event
which has a licensed broadcast station. The sports blackout rule does not apply to cable
television systems serving less than 1,000 subscribers, nor does it require deletion of a sports
event on a broadcast station’s signal that was carried by a cable system prior to March 31,
1972. The rule does not apply to sports programming carried on non-broadcast program
distribution services such as ESPN. These services, however, may be subject to private
contractual blackout restrictions.
12

Satellite Home Viewer Act of 1988 (SHVA), P.L. 100-667, 102 Stat. 3935, Title II;
Satellite Home Viewer Improvement Act of 1999 (SHVIA), P.L. 106-113, 113 Stat. 1501,
1501A-526 to 1501A-545; and Satellite Home Viewer Extension and Reauthorization Act
of 2004 (SHVERA), P.L. 108-447, 118 Stat. 2809. For a discussion of these rules governing
satellite carriage of local and distant signals, see CRS Report RS22175, Satellite Television:
Provisions in SHVERA Affecting Eligibility for Distant and Local Analog Network Signals,
by Julie Jennings.

CRS-5

13
14

!

cable-related statutory copyright provisions, which set specific
terms, conditions, and rates, including mandatory licenses, for
certain uses of programming.13 For example, cable systems enjoy a
royalty-free permanent compulsory copyright license — that is, do
not have to pay copyright fees — for the carriage of broadcast
signals of stations located in their local market areas (called
“designated market areas” or DMAs). But cable systems are
required to pay royalties under a congressionally granted compulsory
copyright license for the carriage of the signals of broadcasters
located outside the DMA within which the cable system is located.
The royalty-free license extends to the secondary transmission of
out-of-DMA broadcast stations, however, if it can be shown that
those out-of-DMA signals are “significantly viewed” by those
households within the cable system’s service area that only receive
their television signals over-the-air.

!

the commercial leased access requirements in section 612 of the
Communications Act, which require a cable operator to set aside
channel capacity for commercial use by video programmers
unaffiliated with the operator.14

Copyright Act of 1976 (17 U.S.C. §§ 111, 119, and 122).

Communications Act of 1934, as amended, Sec. 612 (47 U.S.C. § 532). This statutory
framework for commercial leased access was first established by the Cable Communictions
Policy Act of 1984 (P.L 98-549, 98 Stat. 2779). Cable operators with fewer than 36
channels must set aside channels for commercial use only if required to do so by a franchise
agreement in effect as of the enactment of Sec. 612. Operators with 36 to 54 activated
channels must set aside 10% of those channels not otherwise required for use or prohibited
from use by federal law or regulation. Operators with 55 to 100 activated channels must set
aside 15% of those channels not otherwise required for use or prohibited from use by federal
law or regulation. Cable operators with more than 100 activated channels must designate
15% of such channels for commercial use. The Cable Television Consumer Protection and
Competition Act of 1992 (P.L. 102-385) established new rules, modifying Sec. 612, that
required the FCC to (a) determine the maximum reasonable rates that a cable operator may
establish for commercial use of designated channel capacity; (b) establish reasonable terms
and conditions for such use, including those for billing and collections; and (c) establish
procedures for the expedited resolution of disputes concerning rates or carriage. In
implementing the statutory directive to determine maximum reasonable rates for leased
access, the Commission adopted a maximum rate formula for full-time carriage on
programming tiers and for à la carte services, and a prorated rate for part-time programming.
One condition of the FCC’s approval of the transfer of licenses of the bankrupt Adelphia
Communications Corporation to Comcast Corporation and Time Warner Inc., is that if an
unaffiliated programming network is unable to reach an agreement pursuant to the
Commission’s commercial leased access rules with Comcast or Time Warner, that network
may elect commercial arbitration of the dispute, where the arbitrator would be directed to
resolve the dispute using the rate formula specified in the Commission’s rules. Another
condition allows an unaffiliated regional sports network that is unable to reach a carriage
agreement with Comcast or Time Warner to elect commercial arbitration of the dispute. See
In the Matter of Applications for Consent to the Assignment and/or Transfer of Control of
Licenses: Adelphia Communications Corporation (and subsidiaries, debtors-in-possession),
(continued...)

CRS-6
!

the program carriage provisions in section 616 of the
Communications Act directing the FCC to establish regulations
governing program carriage agreements and related practices
between cable operators or other MVPDs and programmers that
would prevent an MVPD from requiring a financial interest in a
program service as a condition for carriage, from coercing a
programmer to grant exclusive carriage rights, or from
discriminating against an unaffiliated programmer in a fashion that
unreasonably restrains the ability of that programmer to compete,
when the programming is distributed over satellite.15

!

the requirements for nondiscriminatory access to programming
in which a cable operator has an attributable interest in section
628 of the Communications Act, which directs the FCC to establish
rules to prevent a vertically integrated cable operator from
discriminating in the prices, terms, and conditions at which it makes
its programming available to non-affiliated MVPDs or have
exclusive access to the programming in which it has an attributable
interest.16 But these prohibitions do not hold if the vertically
integrated company’s programming is distributed over terrestrial
facilities (for example, over broadband lines), an exception that
frequently applies to regional sports networks and potentially could

14

(...continued)
Assignors, to Time Warner Cable Inc. (subsidiaries), Assignees; Adelphia Communications
Corporation (and subsidiaries, debtors-in-possession), Assignors and Transferors, to
Comcast Corporation (subsidiaries), Assignees and Transferees; Comcast Corporation,
Transferor, to Time Warner Inc., Transferee; Time Warner Inc., Transferor, to Comcast
Corporation, Transferee, Memorandum Opinion and Order, adopted July 13, 2006, released
July 21, 2006, at paras. 109 and 181.
15
16

Communications Act of 1934, as amended, Sec. 616 (47 U.S.C. § 536).

Communications Act of 1934, as amended, Sec. 628 (47 U.S.C. § 548). When
NewsCorp, which owns many cable networks, acquired from Hughes Electronic Corporation
a large ownership interest in DirecTV, thus creating a vertically integrated programmerdistributor entity, the FCC conditioned the transfer of the spectrum licenses upon a
agreement to abide by the same non-discrimination requirements, even though the new
company would not have been so required under the existing statutory provisions. (In the
Matter of General Motors Corporation and Hughes Electronic Corporation, Transferors,
and the New Corporation Limited, Transferee, for Authority to Transfer Control,
Memorandum Opinion and Order, FCC 03-330, Appendix F, 2004.) The FCC imposed a
similar condition on the transfer of the licenses of the bankrupt Adelphia Communications
Corporation to Time Warner and Comcast. See In the Matter of Applications for Consent
to the Assignment and/or Transfer of Control of Licenses: Adelphia Communications
Corporation (and subsidiaries, debtors-in-possession), Assignors, to Time Warner Cable
Inc. (subsidiaries), Assignees; Adelphia Communications Corporation (and subsidiaries,
debtors-in-possession), Assignors and Transferors, to Comcast Corporation (subsidiaries),
Assignees and Transferees; Comcast Corporation, Transferor, to Time Warner Inc.,
Transferee; Time Warner Inc., Transferor, to Comcast Corporation, Transferee,
Memorandum Opinion and Order, adopted July 13, 2006, released July 21, 2006, at
Appendix B.

CRS-7
apply to all cable program networks as broadband fiber optic cable
becomes more widely deployed. This exception has been termed by
some the “terrestrial loophole.”
!

the broadcast ownership rules17 and cable ownership rules18,
which can affect the relative negotiating strength of programmers
and distributors by restricting or allowing their reach in national or
local markets. For example, some parties have argued that changes
in broadcast ownership rules that allow broadcasters to own more
than one television station in a market has significantly strengthened
the retransmission consent bargaining position of those broadcasters
that own or control more than one station in a local market.19

!

certain statutory exemptions from the antitrust laws for sports
leagues.20

In addition to these federal rules, there sometimes is informal government
intervention into programmer-distributor negotiations because of political sensitivity
to consumers losing access to programming — and especially local programming.
Parties involved in negotiating impasses, or consumers affected by those impasses,
often will seek intervention by an elected official or regulatory agency, even where
there is no formal process for such intervention. In some instances, political pressure

17

The FCC has long regulated broadcast ownership as a means of promoting diversity,
competition, and localism in the media without regulating the content of broadcast speech,
pursuant to sections 307, 308, 309(a), and 310(d) of the Communications Act (47 U.S.C. §§
307, 308, 309(a), 310(d)), which authorize the Commission to grant and renew broadcast
station licenses in the public interest.
18

Section 613(f) of the Cable Television Consumer Protection and Competition Act of 1992
amended the Communications Act of 1934, directing the FCC to conduct proceedings to
establish reasonable limits on the number of subscribers a cable operator may serve
(horizontal limit) and the number of channels a cable operator may devote to its affiliated
programming networks (vertical, or channel occupancy limit). Congress intended the
structural ownership limits mandated by Section 613(f) to ensure that cable operators did
not use their dominant position in the MVPD market, acting unilaterally or jointly, to
unfairly impede the flow of video programming to consumers. (47 U.S.C. § 533(f))
19

See, for example, Linda Moss and Mike Farrell, “Dueling for Dollars,” Multichannel
Newswire, March 5, 2007, available at [http://www.multichannel.com/index.asp?layout=
articlePrint&articleid=CA6421302], viewed on June 28, 2007.
20

In its 1922 ruling in Federal Baseball Club of Baltimore v. National Baseball Clubs, the
Supreme Court ruled that baseball is a sport subject to state regulations, not a business
involved in interstate commerce that would be subject to the federal antitrust laws.
Although the Supreme Court acknowledged in its 1953 decision in Toolson v. New York
Yankees, Inc. and again in its 1972 decision in Flood v. Kuhn that the baseball’s antitrust
exemption was “an anomaly,” it ruled that it is up to Congress to change baseball’s antitrust
exemption. Other sports leagues do not enjoy the same broad antitrust exemption as
baseball. But the Sports Broadcasting Act of 1961 (15 U.S.C. 1291) created a limited
antitrust exemption that allows a league to negotiate the broadcasting rights for all the teams
in a football, baseball, basketball, or hockey league. The Act was amended in 1966 to
exempt the combining of any professional football leagues.

CRS-8
can be placed on a party to resolve a contractual conflict in a fashion that it would not
agree to in a strictly private negotiation.21 In at least one situation in which a cable
company and broadcast station reached an impasse in retransmission consent
negotiations and the local broadcast signal was removed from the cable company’s
offering, a city attorney threatened legal action against the cable company unless the
broadcast signal were restored, claiming that not providing the signal was a violation
of the franchising agreement between the city and the cable company.22
Recently, there have been more frequent incidents of programmers and MVPDs
failing to reach contractual agreements, and in several instances one or the other party
— or end users who were affected by the impasse — have sought federal
government intervention either at the FCC or with Congress. The parties seeking
intervention often propose modification of existing statutory provisions or regulatory
requirements that allegedly favor one side in the negotiations or undermine the
successful consummation of negotiations.23 Although these impasses have involved
a number of different issues, the most controversial (and widely publicized) conflicts
have involved unresolved retransmission consent negotiations or agreements that
would award a single distributor exclusive rights for sports programming or that
would require that high-priced sports networks be placed on the expanded basic tier.
There are three basic functional components to the provision of video
programming: producing content; assembling content into a programming package,
such as a network, that can be efficiently distributed; and distributing the
programming to end users. (For convenience, in this report, the content assembler
is called a programmer.)

21

Some cable companies have complained that although, once a broadcast station has
chosen the retransmission consent option rather than the must-carry option, there is no
statutory requirement for a cable company to reach a retransmission consent agreement with
the broadcast station if it is not in the cable company’s interest to do so, in practice the
political pressure placed on the cable company can force it to accept a detrimental contract.
See, for example, the lengthy interview of Fred Dressler, executive vice president of
programming, Time Warner Cable, presented as “Past, Present and Future: An Oral History;
Fred Dressler reflects on his career, the industry and its future,” An Advertising Supplement
to Multichannel News, December 18, 2006, at pp. 18a-36a.
22

See Anne Veigle, “Cox Maneuver Puts TV Stations Back on Cable,” Communications
Daily, February 3, 2005, at pp. 4-5.
23

There is precedence for changing regulations affecting the programmer-distributor
relationship as market conditions change. For example, in 1970, prior to the development
of cable and satellite television, when the then-three major broadcast networks (CBS, NBC,
and ABC) captured approximately 90% of television viewers, the FCC implemented
Financial Interest and Syndication Rules (Fin-Syn Rules) that prohibited the networks from
holding a financial interest in the television programs they aired beyond first-run exhibition
and from creating in-house syndication arms. Consent decrees executed by the Department
of Justice in 1977 solidified the rules and limited the amount of prime-time programming
the networks could produce themselves. In 1991, based in part in the decrease in major
broadcast networks’ audience market share to approximately 65%, the FCC relaxed the FinSyn Rules. Appeals courts later relaxed the rules even further, in effect eliminating the rules
by November 1995.

CRS-9
In most cases, the programmer is a media company that packages individual
programs or program series to create an over-the-air broadcast network or a cable
network. That programmer may or may not own the production studio or sports team
where the creative talent (actors, directors, athletes, etc.) directly produces the
content, that is, may or may not vertically integrate “backwards” into direct
production. On occasion, a sports team or league will vertically integrate forward by
packaging its own games and other programming into a network under its own brand
name (for example, a National Football League, Major League Baseball, or Yankees
network). Also, sometimes a company is both a programmer and a distributor. For
example, while an over-the-air broadcaster is just a programmer for the majority of
households that receive their video programs from an MVPD, it is also a distributor
of that programming to the minority of households that continue to receive their
programming over-the-air. Similarly, most of the large MVPDs have vertically
integrated backward and now have partial or total equity interests in some of the
cable networks distributed over their cable or satellite systems. Several MVPDs also
own sports teams (for example, Cablevision owns the New York Knicks) and thus
are content producers, as well. Moreover, the large media companies that own
broadcast networks also own cable networks and often tie distributor access to their
broadcast networks to agreement to carry some of their cable networks.
Further complicating these relationships, although existing statutory rules give
the local broadcast station the right to negotiate the terms under which it makes its
programming available for retransmission by MVPDs, many of those local
broadcasters are affiliated with a national television network and, in their affiliation
agreements with the national network, give the network the right to negotiate the
terms of retransmission consent. Moreover, increasingly the negotiations between
large programmers and large distributors also involve video-on-demand rights to
large portions of the programmer’s library of content, as well as provisions setting
conditions on how the programmer can make its programming available for Internet,
cellphone, and other new avenues of distribution. In addition, during the transition
from analog to digital transmission and the initial deployment of high definition
technology, programmer-distributor negotiations increasingly involve issues of
whether a program will be carried in multiple formats (analog and digital, high
definition and standard definition) and whether a network will be placed on an analog
or digital tier.
Despite all these complexities, the relationships among content producer,
programmer, and distributor are characterized by mutual need — both the content
producer and the programmer need distributors that have direct contact with the
potential audience; the distributor needs content producers and programmers with
good content to attract subscribers. At the same time, there is an inherent tension as
each seeks to capture the lion’s share of the value that consumers place on the
content. Each must weigh the potential loss if an impasse occurs and the
programmer refuses to permit the distributor to carry the programming or if the
distributor chooses not to carry the programming. For example, for the programmer
that potential loss could take the form of foregone compensation from the MVPD

CRS-10
and/or foregone advertising revenues as advertisers respond to a reduced audience,24
both of which could be substantial if the MVPD’s subscribers represent a significant
portion of the programmer’s total audience and if those subscribers do not switch to
another MVPD that does carry the programmer’s network. For the distributor, that
potential loss could take the form of foregone subscriber revenue if, without the
programming as part of its offering, some end users shift to a competing MVPD, as
well as foregone advertising revenues. The losses could be substantial if many
subscribers switched to a competing MVPD. Given these risks, negotiating impasses
usually are avoided. Over time, market forces have led to the adoption of business
models that serve content providers, programmers, and distributors.
But these business models represent an unstable equilibrium. When market
conditions that affect the relative negotiating strength of content providers,
programmers, and distributors change, the newly strengthened party typically
attempts to change the prevailing business model to its advantage. That is happening
today. Content providers and programmers are taking advantage of structural market
changes favorable to them to pressure MVPDs to make cash payments for
programming that until now was available either for free or for non-cash
considerations (or, where cash payments have been made in the past, to make higher
cash payments). Some MVPDs have had sufficient countervailing market power to
resist, or limit, these changes, but others have not. This had led to calls by the
smaller, often rural, MVPDs for modifications to the retransmission consent rules
and other federal rules that allegedly favor programmers — and, in particular, local
broadcast stations — in their negotiations with distributors.
There is one critical business practice that tends to hold for the contractual
relationships at all levels — the practice of including a strict non-disclosure provision
that prohibits the parties from revealing the terms, rates, and conditions in the
contract. This practice limits the information publicly available to the negotiating
parties and thus tends to favor the larger parties (whether programmers or
distributors) who are involved in more negotiations and thus privy to more
confidential information. This practice also severely limits public policy makers’
access to information, since even parties that would be willing to make such
information available to government agencies are prohibited from doing so.
This report first analyzes the changing programmer-distributor market dynamics
for non-sports programming that are threatening to undermine traditional business
models.25 It then provides examples of recent programmer-distributor conflicts that

24

Kagan Research reported in Economics of Basic Cable Networks, 2006 (at p. 5) that the
advertiser-supported cable networks had gross advertising revenues of $13.7 billion and also
had license fee revenues of $13.7 billion in 2004. Kagan projected that in 2009 those totals
would be $25.4 billion and $24.2 billion, respectively. In contrast, broadcast networks
historically have received almost all of their revenues from advertising, not from per
subscriber fees imposed on MVPDs. Broadcaster attempts to increase those per subscriber
fees have been at the core of the recent broadcaster-MVPD retransmission consent conflicts.
25

This report does not directly address sports programming because there are a number of
factors that are unique to sports programming — such as vertical integration by the content
(continued...)

CRS-11
reflect these market changes. Finally, it discusses proposals made by various parties
to modify current statutory and regulatory rules in light of the market changes.

Market Changes Affecting the ProgrammerDistributor Relationship
The increase in programmer-distributor conflicts is, in large part, the result of
several structural changes in the video market that are affecting the relative
negotiating strengths of the various parties and hence undermining prevailing
business models and affecting the availability and pricing of video programming for
consumers.

More Distribution Options
The most significant structural change in the video market is the increase in the
number of program distribution options. Today, programmers can distribute their
product not only through traditional broadcast television stations and cable operators,
but also through direct broadcast satellite operators and other satellite companies, the
new multichannel video offerings of the major telephone companies, cable
“overbuilders,”26 on-line video streams, and even cellular telephones. As a result,
programmers have more options available to them to reach audiences and are able to
negotiate with distributors from a position of strength, often demanding terms,
conditions, and rates that are more favorable to themselves and less favorable to
distributors than those that have prevailed in the past.27 The market implications are
greatest for “must-have” programming, such as major sports programming and the
programming of the four major broadcast networks, for which a significant portion
of subscribers have a sufficiently strong intensity of demand that they consider
carriage of that programming a prerequisite for subscribing with an MVPD. An
MVPD that does not offer must-have programming may find itself at a significant
competitive disadvantage in the market. By contrast, the prevailing business model
was developed — and some of the programmer-distributor contracts that are

25

(...continued)
providers into distribution, the unique demand characteristics of sports fans, the lack of
close substitutes for major sports leagues, and the seasonal nature of sports — that yield
viable business models that do not apply to non-sports programming. Sports programming
is addressed in this report to the extent it represents “must-have” programming that affects
programmer-distributor negotiations that affect non-sports as well as sports programming.
26

These are companies that have been awarded franchises by local franchising authorities
and have built their own wireline networks in areas already served by an incumbent cable
operator. These overbuilders frequently offer broadband access service as well as cable
service and often serve smaller geographic areas than the incumbent cable operator,
sometimes serving only high-rise buildings.
27

For example, a Sinclair Broadcast Group executive reportedly has stated that as cable,
satellite, and telephone companies all seek to distribute Sinclair’s broadcast signals, Sinclair
has more bargaining power than it had in the past. See Joe Morris, “Cable, WCHA at Odds:
Broadcast Dispute Might Go To Court,” Charleston Gazette, July 7, 2006, at p. 1.C.

CRS-12
currently expiring were negotiated — in the early and mid 1990s, when cable
operators typically were the monopoly MVPD in their service area and therefore had
countervailing market power when negotiating with programmers, including those
programmers with must-have programming.
One group of distributors — small and mid-sized cable companies — has been
placed in a particularly difficult position by this structural market change, while a
second group of distributors — the newly-entering telephone companies — has
hastened this change. And both, in turn, have had an impact on all distributors.
Small and mid-sized cable companies often face direct competition from the two
major satellite companies, DirecTV and DISH Network. These cable companies
have far fewer subscribers than the major satellite companies and thus when
negotiating with programmers typically do not pose a serious risk to the programmers
if there is an impasse and the programming is not carried; a programmer’s foregone
per subscriber fees from these cable companies and foregone advertising revenues
would not be substantial. By contrast, a programmer’s revenues could be
significantly reduced if one of the satellite companies discontinued carriage, since
each of the satellite carriers have more than 13 million subscribers.28 Moreover,
many of the smaller cable companies have limited or no ability to offer telephone and
broadband access services and therefore limited ability to offer bundled
video/telephone/broadband services that tend to foster customer retention even when
favored programming is no longer carried. Thus, if an impasse were to occur, a
smaller cable company would face significant risk of losing subscribers to satellite
companies. In fact, where a smaller cable company has had an impasse with a
programmer, sometimes the programmer — or a satellite operator that has an
agreement with the programmer and is competing with the cable company — has
offered a “bounty” of upwards of $200 to households to switch to the satellite
service, with these offers marketed over the programmer’s network while the
programmer-cable company negotiations are still on-going.29
The telephone company entrants, which are starting to offer multichannel video
service and therefore must offer a wide array of programming to attract consumers
away from incumbent cable and satellite providers, also have very limited leverage
28

This is a greater concern for a national programmer (such as a cable network or a
broadcast network) than for a local programmer (such as a local broadcast station).
29

It is not always clear whether it is the satellite company or the programmer that is actually
paying the customer to switch MVPD. For example, when Sinclair Broadcast Group and
Mediacom Communications were in an impasse in retransmission consent negotiations late
in 2006, Mike Wilson, the general manager of Sinclair’s Fox 17 station in Iowa issued a
statement to viewers, stating in part that “the termination of our relationship with Mediacom
need not limit your ability to continue to watch us.... you may choose to subscribe to either
DirecTV or to the Dish Network, both of which will continue to carry FOX 17. We
particularly encourage you to call DirecTV ... because if you sign up with them prior to
December 1, 2006 and comply with certain requirements, FOX 17 WILL PAY YOU $150
(which will be applied as a rebate against your DirecTV bill, which will be applied as fifteen
$10 rebates against each of your first 15 monthly DirecTV bills)!” The Wilson statement
is available at [http://www.longren.org/2006/10/30/more-on-mediacom-vs-sinclair/], viewed
on June 27, 2007.

CRS-13
in their negotiations with programmers. But this situation may not be particularly
harmful to the telephone companies’ business plans for several reasons. First, they
may be less resistant to a higher per subscriber charge for access to programming
than has previously prevailed in the market because they currently have very few
subscribers and thus this cost represents a very small portion of their market entry
costs. Their costs for programming, even if paying a premium, pale in relation to the
capital investments and operating costs associated with truck rolls to customer
premises needed to bring fiber or other wireline broadband technologies close to the
home. Moreover, in contrast with the smaller cable companies, the telephone
companies have significant revenues streams from telephone and broadband access
services that contribute toward the fixed costs of their infrastructure.
The willingness of the telephone companies to pay more than the previously
prevailing rates for programming and the inability of many smaller cable operators
to withstand programmer demands for higher payments have adversely affected the
ability of the large incumbent MVPDs — cable and satellite — to resist less
favorable terms for programming, despite the countervailing market strengths that
they bring to their negotiations. Although these large MVPDs have rarely had an
impasse in negotiations that resulted in carriage of particular programming being
disrupted, the trade press has noted very contentious negotiations and (despite
contractual language requiring all parties to keep all terms confidential) evidence that
the cash payments that the large cable and satellite companies are paying for popular
programming are increasing.30
Ironically, the market consequence of greater competition in the distribution of
video programming appears to be greater negotiating leverage for programmers with
popular — and especially must-have — programming, resulting in higher
programming prices that MVPDs tend to pass through at least partially to subscribers.

Consolidation and Clustering of Cable Operators
At the same time that additional distribution options have become available to
video programmers, consolidation (acquisitions resulting in a small number of large
firms serving an increasing portion of total subscribers, nationwide) and clustering
(acquisitions resulting in individual firms serving an increasing portion of subscribers
in a particular local market) are occurring among cable operators and the two major
satellite operators are growing, so that the largest video distributors are serving a
higher share of total MVPD subscribers than they have in the past and the large cable
operators’ serving areas have become increasingly concentrated into a small number
of very large clusters. These trends are the result of acquisitions by the large cable
30

The very large cable companies appear to have been more successful than the two large
satellite companies in resisting cash payments, for several reasons. Their strategy to cluster
their systems in a limited number of local markets has given them high subscriber
penetration in those markets, which helps in negotiations with local broadcast stations.
Also, their ability to offer bundles of video, voice, and data services reduces the likelihood
that subscribers will change provider based solely on the loss of a particular video program.
Finally, they are negotiating from a history of not making cash payments (at least to
broadcasters), and this has created an inertia that takes greater effort for the programmers
to overcome.

CRS-14
companies of smaller cable companies, swaps among cable systems of local cable
systems that have allowed single companies to become the dominant cable provider
in metropolitan statistical areas or beyond, and successful market growth by the two
large DBS operators, DirecTV and DISH Network. As shown in Table 1, which
reproduces data provided in the FCC’s most recent report on the status of
competition in the market for the delivery of video services, since 2002 the
percentage of total MVPD subscribers served by the largest MVPDs has grown and
concentration in the market for the purchase of video programming, as measured by
the Herfindahl-Hirschman Index,31 has increased. These figures do not reflect the
2006 purchase by the two largest cable companies, Comcast and Time Warner, of the
cable operations of Adelphia, which had been the fifth largest cable operator but fell
into bankruptcy. Thus concentration is even greater today, although it is likely that
the trend will be reversed as the two major telephone companies, AT&T and
Verizon, continue to roll out their video service offerings, which currently are
available in only a few geographic markets.

Table 1. Consolidation in the National Market for the Purchase
of Video Programming (Percentage of MVPD Subscribers),
2002-2005
Largest
MVPDs

2002

2003

2004

2005

Top 1

14.75%

22.69%

23.37%

22.99%

Top 2

29.04%

35.01%

35.47%

38.71%

Top 3

41.03%

46.63%

47.34%

50.99%

Top 4

50.48%

55.98%

57.97%

62.67%

Top 10

84.44%

81.95%

84.72%

88.39%

Top 25

90.26%

87.45%

90.41%

94.00%

Top 50

92.05%

89.29%

92.32%

95.73%

HHI
884
1031
1097
1201
Source: Federal Communications Commission, In the Matter of Annual Assessment of the Status of
Competition in the Market for the Delivery of Video Programming, Twelfth Annual Report, adopted
February 10, 2006 and released March 3, 2006, at p. 119, Table B-4.

Table 2 lists the 25 largest cable operators, which are often referred to as
multiple system operators or MSOs, and the number of subscribers they had as of
December 2006. It is noteworthy that the largest MSO, Comcast, had almost as
many subscribers as numbers 3 through 25 combined.

31

The Herfindahl-Hirschman Index (HHI) is the most commonly accepted measure of
market concentration. It is calculated by squaring the market share of each firm and then
summing the resulting numbers. The higher the HHI, the more concentrated the market.
The HHI can range from close to zero for a market of many tiny firms to 10,000 for a
monopoly. The Department of Justice and Federal Trade Commission use the HHI when
evaluating mergers. They consider a market with an HHI of 1,000 to 1,800 to be moderately
concentrated and a market with an HHI of 1,800 or greater to be highly concentrated. As
a general rule, if a merger in an already-concentrated market would increase the HHI by
more than 100 points, that would raise antitrust concerns.

CRS-15

Table 2. The 25 Largest Cable Operators as of December 2006
Rank

Cable Operator

Number of
Subscribers

Rank

Cable Operator

Number of
Subscribers

1

Comcast

24,161,000

14

Service Electric

287,800

2

Time Warner

13,402,000

15

Armstrong Group

231,600

3

Charter

5,398,900

16

Atlantic Broadband

231,500

4

Cox

5,395,100

17

Midcontinent

195,900

5

Cablevision

3,127,000

18

Pencor Services

182,900

6

Bright House

2,307,400

19

Knology

178,600

7

Mediacom

1,380,000

20

Millenium Digital

157,100

8

Suddenlink

1,360,000

21

Buckeye

145,500

9

Insight

1,322,800

22

Northland

144,300

10

CableOne

641,500

23

MidOcean

138,400

11

RCN

371,100

24

Grande

137,500

12

WideOpenWest

361,200

25

MetroCast

137,300

13
Bresnan
294,000
Source: Table prepared by National Cable and Telecommunications Association based on data from
Kagan Research, LLC, available at [http://www.ncta.com/ContentView.aspx? contentId=73], viewed
on June 28, 2007.

Had the satellite operators, DirecTV and DISH Network, been included in this
list, they would have ranked second and fourth, respectively.32 But satellite operators
have a somewhat different market impact because they have subscribers dispersed
all around the country, while cable companies tend to cluster their systems in a
limited number of geographic areas. (An individual cable cluster most likely consists
of multiple cable franchises negotiated with many local jurisdictions.) In the early
years of the cable industry, most of the larger firms bidding for cable franchises did
not focus their efforts on narrow geographic regions. As a result, the larger cable
operators tended to have cable franchise that were widely scattered geographically.
Subsequently, many of these large firms traded franchises, to develop clusters in a
smaller number of geographic areas. Clustering provides economies of scale in
operations, marketing, and customer service. It also strengthens a cable operator’s
retransmission consent negotiating position with broadcasters, who are less likely to
risk the foregone subscriber fees and advertising revenues from an impasse with (and
discontinued signal carriage by) a cable operator if that operator serves a large
portion of the broadcaster’s viewing area.

32

According to the 2006 10-K reports filed by DirecTV and EchoStar Communications (the
parent of DISH Network) with the Securities and Exchange Commission (SEC), as of
December 31, 2006, DirecTV had approximately 16 million subscribers in the United States
(at p. 3) and DISH Network had 13.105 million subscribers (at p. 1).

CRS-16
As shown in Table 3, there are 113 cable clusters serving at least 100,000
subscribers. But reviewing this table in conjunction with Table 2, it is notable that
102 of those clusters are owned by the five largest cable operators and only two are
owned by cable operators that are not among the 10 largest.

Table 3. Cable Television System Clusters
Serving More Than 100,000 Subscribers, as of December 2005
Company

Basic Subs

Rk

1

Cablevision, New York Area

3,026,994

58

Charter, Georgia

298,900

2

Comcast, Boston, MA

1,937,802

59

Charter, Los Angeles
Metro

292,500

3

Time Warner, Los Angeles

1,928,340

60

Charter, North Wisconsin

292,100

4

Comcast, Philadelphia

1,916,460

61

286,900

5

Comcast, Chicago

1,800,000

62

6

Comcast, San Francisco Area

1,654,358

63

7

Time Warner, New York

1,400,000

64

8

1,032,013

65

1,021,281

66

Time Warner, Rochester

264,603

1,000,000
962,059

67
68

833,223

69

777,428

70

14

Cox, Middle America Cox

776,000

71

15

Cox, Arizona

773,000

72

16

Time Warner, Houston, TX

754,611

73

17
18
19
20
21
22

Comcast, Atlanta, GA
Comcast, Miami, FL
Mediacom, South Central
Comcast, New York
Mediacom, North Central
Comcast, Denver, CO

733,691
740,274
723,000
705,736
698,000
666,012

74
75
76
77
78
79

23

Comcast, Baltimore, MD

649,366

80

24

Comcast, Pittsburgh, PA

607,574

81

Cox, Northern Virginia
Comcast, Ft. Myers-Naples
Time Warner, PortlandAuburn, ME
Charter, West Virg.
Comcast, Salt Lake City,
UT
Charter, No. Car./Virginia
Charter, Southern
Wisconsin
Cox, West Texas
Charter, Mid America
Comcast, Fresno-Visalia
Comcast, Tampa/Sarasota
Cox, Omaha, NE
Comcast, Memphis, TN
Charter, Northern
Michigan
Comcast, WheelingSteubenville

262,000
259,752

13

Comcast, Seattle, WA
Bright House, Tampa Bay,
FL
Comcast, Washington, DC
Comcast, Detroit, MI
Time Warner, ClevelandAkron- Canton, OH
Bright House, Central FL

Charter, Northwest
Time Warner, Syracuse,
NY
Insight, Louisville, KY
Comcast, RichmondPetersburg
Comcast, Indianapolis, IN

546,814

82

Charter, Easter Michigan

195,700

539,627

83

Charter, Central California

190,600

538,000

84

188,900

535,294

85

Charter, West Michigan
Comcast, AlbuquerqueSante Fe

9
10
11
12

27

Comcast, Hartford-New H,
CT
Comcast, St. PaulMinneapolis
Cox, San Diego, CA

28

Comcast, Sacramento, CA

25
26

Company

Basic
Subs

Rk

280,100
276,400
272,821
270,755

252,630
247,300
244,680
239,000
229,100
219,000
217,200
208,386
203,947
203,000
201,201
199,600
197,660

186,533

CRS-17
Rk

Company

Basic Subs

Rk

Company

29
30

501,000
487,700

86
87

Cox, Baton Rouge, LA
Charter, Louisiana/Miss.

470,809

88

Cox, Gulf Coast/Florida

168,100

32

Cox, Oklahoma
Charter, Tennessee/Kentucky
Time Warner, RaleighDurham
Cox, New England

Basic
Subs
180,000
168,400

456,000

89

164,700

33

Charter, St. Louis Metro, MO

452,900

90

34
35

426,507
415,000

91
92

412,517

93

Comcast, Knoxville, TN

157,693

37
38

Time Warner, Charlotte, NC
Cox, Hampton Roads, VA
Time Warner, Milwaukee,
WI
Cox, Las Vegas
Comcast, Portland, OR

Charter, Ft. Worth, TX
Time Warner, Columbia,
SC
Comcast, Eugene, OR
Comcast, Salisbury, MD

410,000
398,996

94
95

146,501
145,100

39

Time Warner, Hawaii

393,280

96

40

Time Warner, Cincinnati, OH

388,592

97

41

Time Warner, San Antonio

384,400

98

42

380,319

99

51
52
53

Time Warner, Albany, NY
Comcast, Harrisbrg-LncstrLeb-York, PA
Comcast, W. Palm Beach-Ft.
Pierce, FL
Time Warner, Columbus, OH
Comcast, Gand RapidsKalamazoo-B.Cr, MI
Comcast, Jacksonville,
Brunswick
Charter, New England
Charter, Alabama
Time Warner, Greensboro,
NC
Comcast, Nashville, TN
Charter, Minnesota/Nebraska
Time Warner, Austin, TX

Time Warner, Green Bay
Charter, Nevada
Atlantic Broadband,
Western PA
Charter, Inland Empire
Comcast, Colorado Spr.Pueblo
Comcast, Chattanooga, TN
Buckeye Cable, Toledo,
OH
Comcast, BurlingtonPlattsburgh
Insight, Peoria, IL
Comcast, RoanokeLynchburg, VA

54

Cox, Kansas

55

Charter, South Carolina

31

36

43
44
45
46
47
48
49
50

56

370,267 100
370,216 101
364,608 102
362,231 103

163,455
161,308
159,192

142,935
138,900
137,121
126,859
126,150
126,013
123,000
121,520

357,707 104 Insight, Northern Illinois

117,000

356,200 105 Insight, Northeast Indiana
350,200 106 Comcast, Orlando, FL
Time Warner, Wilmington,
348,290 107
NC
327,920 108 Comcast, Savannah, GA
327,800 109 Insight, Springfield, IL
316, 911 110 Comcast, Charleston, SC
Time Warner, Waco307,000 111
Temple-Bryan, TX
Comcast, Johnstown302,600 112
Altoona, PA
301,656 113 Comcast, Augusta, GA

116,900
116,081
115,905
112,113
111,600
109,506
108,714
107,800

Time Warner, San Diego, CA
106,343
Time Warner, Kansas City,
57
300,317
MO
Source: Kagan Research, Broadband Cable Financial Databook, 26th edition, 2006, at pp. 27-28.
Note: Pro forma Comcast/Time Warner acquisition of Adelphia Communications.

CRS-18
Cable system consolidation and clustering have different programmerdistributor negotiating implications when the programmer has national reach (for
example, a national cable program network or a national broadcast network) vs. local
reach (for example, a local broadcast station). As explained below, consolidation
increases the leverage of a cable system relative to national program networks, while
clustering increases the leverage of a cable system relative to local broadcast stations.
Negotiating with a cable program network.
Cable program networks get approximately half their revenues from per
subscriber fees imposed on MVPDs and half from advertising.33 And those
advertising fees depend on the number of subscribers reached, so the more
subscribers an MVPD reaches, the more valuable that MVPD is to the program
network. Cable program networks that fail to achieve substantial penetration on
MVPD systems face financial peril. In recent proceedings at the FCC, parties have
filed comments asserting that in order to generate the advertising revenues necessary
for success, a national program network must reach between 40 and 60 million, and
perhaps as many as 75 million, subscribers.34 Carriage on the major MVPD systems
— Comcast, Time Warner, DirecTV, and DISH Network — therefore is key to cable
program network success. Cable program network business strategies therefore focus
on obtaining and retaining such carriage. For a new cable program network, that
might involve giving one of the major MVPDs an equity interest in exchange for
carriage. For an established cable network with a strong brand identity, that might
involve creating a sister network and demanding MVPDs to carry the new network
in lieu of cash for carriage of the established network. But even an established
program network is unlikely to risk a negotiating impasse that results in discontinued
carriage by any of those large MVPDs.
As shown in Table 4, the 20 most widely distributed advertiser-supported cable
program networks each are available to more than 90,000,000 households vias
MVPD subscription. Comparing Table 2 to Table 4, it is clear that the cable
program networks that have achieved penetration rates of 90,000,000+ enjoy carriage
on each of the four largest MVPD systems — the systems of the two largest cable
operators as well as on the systems of the two major DBS operators.35 As shown in
Table 2, subscriber reach falls quite quickly beyond those large MVPDs. While
cable program networks will seek carriage on all MVPDs, as the subscriber reach of

33

See footnote 24 above.

34

See In the Matter of Applications for Consent to the Assignment and/or Transfer of
Control of Licenses: Adelphia Communications Corporation (and subsidiaries, debtors-inpossession), Assignors, to Time Warner Cable Inc. (subsidiaries), Assignees; Adelphia
Communications Corporation (and subsidiaries, debtors-in-possession), Assignors and
Transferors, to Comcast Corporation (subsidiaries), Assignees and Transferees; Comcast
Corporation, Transferor, to Time Warner Inc., Transferee; Time Warner Inc., Transferor,
to Comcast Corporation, Transferee, Memorandum Opinion and Order, adopted July 13,
2006, released July 21, 2006, at para. 101 and fn. 354.
35

Moreover, these cable program networks most likely have attained carriage on the most
basic tier offered by these MVPDs — that is, the one with largest number of subscribers, for
example, the “top 60” tier, rather than the “top 120” tier.

CRS-19
the MVPD falls, the financial risk to a cable program network provider of failing to
reach a carriage arrangement with the MVPD falls. This may make it easier for the
cable network provider to push harder for a high per subscriber fee from a smaller
MVPD. From the perspective of a small or mid-sized cable operator, however,
failing to reach a carriage arrangement for a relatively popular cable program network
that is carried by DirecTV and/or DISH Network can be risky. Thus, a cable
operator’s negotiating position vis-a-vis cable network programmers will be
strengthened by consolidation.

Table 4. Cable Program Networks with the Largest Number
of Subscribers, as of December 2006
Rank

Network

Subscribers

Rank

Network

Subscribers

1

Discovery

92,500,000

10

A&E

91,800,000

2

ESPN

92,300,000

12

TBS

91,700,000

2

CNN

92,300,000

12

Learning Channel

91,700,000

4

TNT

92,100,000

12

Spike TV

91,700,000

4

Lifetime

92,100,000

15

CNN Headline News

91,500,000

4

USA

92,100,000

16

ABC Family Channel

91,300,000

7

Weather Channel

92,000,000

16

MTV

91,300,000

8

Nickelodeon

91,900,000

18

Home and Garden

91,200,000

8

History Channel

91,900,000

19

Food Network

91,100,000

10
ESPN2
91,800,000
19
Cartoon Network
91,000,000
Source: Table prepared by National Cable and Telecommunications Association based on data from
Kagan Research, LLC, available at [http://www.ncta.com/ContentView.aspx? contentId=74], viewed
on June 28, 2007.

Negotiating with a national broadcast network.
When a local broadcast station that is affiliated to a broadcast network has
assigned its retransmission consent rights to the network, the negotiations between
the network and the MVPDs are likely to be somewhat akin to those between large
cable programmers and MVPDs — with the national subscriber reach of the MVPD
an important factor. The major broadcast networks own both multiple broadcast
streams and cable networks, and are likely to seek compensation in some
combination of: the MVPD’s carriage (and tier placement) of other program
networks owned by the broadcaster, the MVPD’s purchase of advertising time on the
broadcast station, the broadcaster being given free advertising time on the MVPD’s
system, and cash payments. The broadcast networks, in offering the most popular
programming, enjoy an even stronger negotiating position than most cable program
networks, but even the major broadcast networks are unlikely to want to risk an
impasse with a large MVPD that serves 10 million or more subscribers.

CRS-20
Negotiating with a local broadcast station or non-network
broadcast group.
The negotiating dynamic may be quite different when a broadcast station is
conducting its own negotiations with MVPDs — which appears to be happening
more often these days. In this situation, the broadcaster’s reach is limited to the local
market (DMA) in which its station is located or, in the case of a station that is part
of a non-network broadcast group, the local markets in which the group has stations.
Its concern will not be with the total subscriber reach of the MVPDs with which it
is negotiating, but rather with the subscriber reach of those MVPDs within the local
markets in which the group has stations. DBS operators are likely to offer service in
many or all of those markets, but an individual cable company, even one as large as
Comcast or Time Warner, is unlikely to operate in all those local markets. What
becomes most important, then, is whether the cable company is clustered in the
market or markets in which the broadcaster has stations. Comparing the subscriber
reach of cable clusters presented in Table 3 to the populations of the markets covered
by those clusters, it is clear that there are many cable clusters that serve a substantial
portion of the households in the local broadcast markets in which they are located.
In these situations, the local broadcasters are less likely to risk a negotiating impasse
with the clustered cable company and therefore likely to face constraints on the
demands they can make for retransmission consent compensation.
Charter Communications CEO Neil Smit has stated that actions it has taken to
increase the densities of its existing clusters have strengthened its position in
retransmission consent negotiations, making it more difficult for station groups to
play hardball given that they would put greater portions of their ad revenues at
stake.36 One industry observer has described this negotiating situation as follows:
Cable operators have more clout than telcos and even DBS. Cable operators are
big enough in major markets to take a broadcaster dark in 60%-80% of local
homes overnight. That would guarantee immediate pain as major advertisers
cancel. But a DBS operator might serve just 10%-20% of local homes so it can
inflict far less pain. Telcos are in the weakest position.37

More Program Networks/Fragmented Audiences
Another major structural market change has been the dramatic expansion in the
number of program networks (sometimes referred to as channels) available to
consumers, with a resulting fall in average audience size per channel. As shown in
Table 5, the number of video channels received by the average U.S. household
increased from 18.8 channels in 1985 to 104.2 channels in 2006, but neither the
number of television households nor the average household viewing time per day
increased nearly so dramatically during that period. Thus the average audience size

36

See Mike Farrell, “Smit: Charter System Sales Could Help Retrans Talks,” Multichannel
Newswire, March 7, 2007, available at [http://www.multichannel.com/index.asp?layout=
articlePrint&articleid=CA6422613], viewed on June 27, 2007.
37

John M. Higgins, “Money Talks: CBS Braces for Cable Showdown,” Broadcasting &
Cable, March 27, 2006, at p. 10.

CRS-21
per program network has fallen substantially. Although the rapid growth in the
number of channels received by the average household has slowed in recent years,
channel availability continues to grow faster than total viewing hours. Moreover,
even the largest MVPD networks, which offer customers more than 200 channels,
cannot carry all available cable networks, which now number more than 500 national
networks as well as numerous regional networks.38

Table 5. Nielsen Data on Total Television Households,
Time Spent Viewing Per Household, and the Average Number
of Video Channels Received Per Household, 1985-2006
Year

Average Number of
Video Channels
Received

Television
Households in
the U.S. (millions)

Time Spent Viewing
Television, Per Day,
Per Household

2006

104.2

110.2

8 hrs 14 mins

2005

96.4

109.6

8 hrs 11 mins

2004

92.6

108.4

8 hrs 01 mins

2000

61.4

100.8

7 hrs 35 mins

1995

41.1

95.4

7 hrs 17 mins

1990

33.2

92.1

6 hrs 53 mins

1985
18.8
84.9
7 hrs 10 mins
Sources: All data from Nielsen Media Research, as follows — number of channels received, National
People Meter Sample, presented in a press release dated March 19, 2007, available at
[http://www.nielsenmedia.com] (under “Latest News,” then “More,” then “Last Six Months,” the
March 19, 2007), viewed on June 27, 2007; television households, NTI, September each year,
available at [http://www.tvb.org/rcentral/mediatrendstrack/tvbasics/02_TVHouseholds.asp], viewed
on June 27, 2007; time spend viewing television, per day, per household, NTI annual averages,
Audimeter sample for 1985, People Meter Sample for all other years, available at [http://www.tvb.org/
rcentral/mediatrendstrack/tvbasics/08_TimeViewingHH.asp], viewed on June 27, 2007.

This proliferation in program networks has had two general market implications.
On the one hand, the typical program network has an audience share of less than 1%,
and unless its programming has very strong appeal to a subset of subscribers who
would be willing to pay separately for that programming, is not likely to command
much compensation from MVPDs for carriage rights. It may well be that if such a
program network is not affiliated with an MVPD or with a major programmer it will
have to rely on the commercial leased access rules and pay to gain access to an
MVPD.39
On the other hand, the relatively few program networks that attract larger
audiences are valuable to MVPDs for two reasons. First, a program network that
attracts a larger audience is, other things equal, likely to have more viewers who

38

National Cable and Telecommunications Association, 2007 Industry Overview, at p. 7,
available at [http://i.ncta.com/ncta_com/PDFs/NCTA_Annual_Report_04.24.07.pdf],
viewed on June 27, 2007.

39

See footnote 14.

CRS-22
might choose among competing MVPDs based on the availability of that network’s
programming; there is greater business risk to MVPDs not to carry that program
network. Second, larger audiences tend to attract more advertising revenues for the
MVPD.
According to Kagan Research, in 2005, of the several hundred advertisingsupported cable networks, only 8 received from MVPDs average monthly license
fees of 40 cents or more per subscriber, only 24 received fees of 20 cents or more,
only 51 received fees of 10 cents or more, and only 112 received fees of 2 cents or
more.40 Clearly, the current price-driven programmer-distributor impasses do not
directly involve the vast majority of program networks; programmers cannot
command significant price increases for them and, in any case, losing the right to
carry such a program network is unlikely to result in significant subscriber migration
to competing MVPDs.
Some program networks, however, remain extremely valuable to MVPDs and,
in fact, in some ways network proliferation has increased the value of these networks,
even if their audience share has shrunk over time. Table 6 shows that although the
major broadcast networks’ share of U.S. television household usage has fallen
substantially over time, they continue to capture relatively large audiences. More
than 25% of all television usage (including usage to watch VCRs and to play video
games) is spent viewing the national programming offered by the four major
broadcast networks and the local and syndicated programming offered by those
networks’ local broadcast station affiliates, and that is projected to continue to
approach 25% of all usage at the end of the decade. Since both the national
programming and the local programming offered by these major network affiliates
attract such relatively large audiences, an MVPD in a market where there is
competition from other MVPDs could find itself at risk of losing substantial numbers
of subscribers if a contract negotiation impasse resulted in it not carrying the
programming of one of those affiliates.41 Interestingly, recent reports that the four
major broadcast networks lost 2.5 million viewers during the spring of 2007
specifically raised the impact that this might have on the advertising rates charged by
the networks, but did not address the potential impact on the broadcast networks’
negotiations with MVPDs.42

40

Kagan Research, The Economics of Basic Cable Networks, 2006, 12th Annual Edition,
2005, at pp. 58-60.

41

As will be discussed below, where a broadcaster owns or controls two major network
affiliated stations in a local market, it is likely to wield significant leverage in retransmission
consent negotiations with local cable systems because the latter would not want to risk
losing carriage of the programming of two major networks and two local stations.
42

See, for example, David Bauder, “Data Says 2.5 Million Less Watching TV,” Associated
Press wire, May 8, 2007.

CRS-23

Table 6. Estimated Share of U.S. Television Home Set Usage
by Program Source (%)
Source

Early
1950s

Early
1960s

Early
1970s

Early
1980s

Early
1990s

Early
2000s

Mid
2000s

Late
2000s

ABC/CBS/
NBC

60

58

55

49

31

19

17

15

DuMont

4

—

—

—

—

—

—

—

Fox/WB/
UPN/Paxnet

—

—

—

—

2

4

5

5

Network
Affiliates

30

29

25

23

18

10

7

6

Independent
Stations

6

11

16

20

16

12

11

10

PBS Stations

—

2

4

3

3

3

2

2

Pay Cable

—

—

—

4

4

5

4

4

AdSupported
Cable

—

—

1

3

20

38

44

48

Other Cable

—

—

—

—

1

3

4

4

VCR Play

—

—

—

—

5

5

3

3

Video Games

—

—

—

1

1

2

3

3

Average
Hours of Set
35
39
46
51
55
63
65
67
Usage
Weekly
Source: Media Dynamics, Inc., TV Dimensions 2006, Annual Report. The usage shares attributed to
broadcast networks covers their network-originated programming. The usage shares attributed to
network affiliates covers their locally-originated programming plus syndicated programming. The
average hours of set usage weekly counts multiple-set usage to different sources at the same time as
separate exposures.

The data in Table 7 on the cumulative weekly reach of various program
networks also show the breadth of viewership enjoyed by the major broadcast
networks. In any given week each of the four major networks is viewed (for at least
one ten-minute segment) by more than 70% of all U.S. television households, almost
double the viewership of the largest cable network.43

43

If the recent decreases in major broadcast network audiences persist, however, the gap
between broadcast network reach and cable network reach may shrink.

CRS-24

Table 7. The Average Weekly Cumulative Audience Reach
of the Largest Broadcast and Cable Program Networks,
First Quarter 2007
Program Network

Average Weekly Cumulative Market Reach

Broadcast Networks
CBS

74.5%

NBC

72.8%

ABC

72.6%

FOX

70.6%

CW

44.1%

MNT

29.8%

Cable Networks
USA

37.7%

TBS

37.1%

TNT

36.6%

A&E

29.5%

FX

28.9%

DISCOVERY

28.2%

LIFETIME

27.2%

COMEDY CENTRAL

27.2%

NICKELODEON

26.9%

SPIKE

26.8%

HISTORY

26.7%

AMC

25.9%

ESPN
25.1%
Source: Nielsen Media Research Television Activity Report, NHI First Quarter 2007, available at
[http://tvb.org/rcentral/mediatrendstrack/tvbasics/ 10_Reach_BdcstvsCable.asp], viewed on June 27,
2007.

Moreover, the four major broadcast networks provide almost all of the most
popular television programs. As shown in Table 8, during the 2005-2006 television
season, the 100 individual television programs with the largest audiences all were
major broadcast network programs. Although other broadcast programmers provided
shows that ranked among the second one-hundred in ratings, the highest-rated
advertiser-supported cable network program was ranked 236, the second highestrated cable network program was ranked 389. This table slightly overstates the
dominance of broadcast programming because it does not include premium cable
programming, such as The Sopranos, which despite seeing its audience size fall from

CRS-25
a high of 13 million households for some episodes in 2002 to 9 million household for
some episodes in 2006, still would have had some episodes among the 100 most
highly watched programs.44 Nonetheless, and despite the recent fall in the major
broadcast networks’ audiences, for the foreseeable future those broadcast networks
are likely to continue to provide the lion’s share of the most popular television
programs.

Table 8. The Individual Television Programs
with the Largest Audience Ratings,
2005-2006 Television Season
RK
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

PROGRAM
SUPER BOWL XL (6:26P)
ACADEMY AWARDS
ROSE BOWL
FOX NFC CHAMP (6:47P)
AMERICAN IDOL-TUESDAY
AMERICAN IDOL-WEDNESDAY
AFC DIVISIONAL PLAYOFF- SA
DANCING WITH STARS-2/26
WNTR OLYM THU PRIME 2
CSI
AMERICAN IDOL THU SP-3/9
WNTR OLYM TUE PRIME 2
AMERICAN IDOL THU SP-3/2
CSI - THANKSGIVING
GREY’S ANATOMY SP 2-5/15
AFC/NFC PLAYOFF GM2
DESPERATE HOUSEWIVES
WNTR OLYM MON PRIME 2
WNTR OLYM PRIME 1
AMERICAN IDOL THU SP-2/23
WNTR OLYM SUN PRIME 1
FOX WORLD SERIES GAME 4
WNTR OLYM MON PRIME 1
WNTR OLYM OPEN CEREM
GREY’S ANATOMY
CRIMINAL MINDS PREVIEW SP
GOLDEN GLOBE AWARDS
WITHOUT A TRACE
ORANGE BOWL
DANCING WITH THE STARS
WITHOUT A TRACE-THANKS
WNTR OLYM THU PRIME 1

44

NW
ABC
ABC
ABC
FOX
FOX
FOX
CBS
ABC
NBC
CBS
FOX
NBC
FOX
CBS
ABC
ABC
ABC
NBC
NBC
FOX
NBC
FOX
NBC
NBC
ABC
CBS
NBC
CBS
ABC
ABC
CBS
NBC

%
41.62
23.08
21.71
20.77
17.72
17.24
16.14
16.02
15.77
15.68
15.52
15.48
15.29
14.62
14.23
13.95
13.86
13.59
13.46
13.38
13.3
12.96
12.86
12.81
12.58
12.48
12.46
12.38
12.25
11.98
11.93
11.92

RK
56
57
58
59
60
61
62
63
63
65
66
67
68
69
70
71
71
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87

PROGRAM
WNTR OLYM FRI PRIME 2
TWO AND A HALF MEN
WNTR OLYM SAT PRIME 3
FOX NFC CHAMP-POST
DANCING W STARS RSLTS
DEAL OR NO DEAL-MON
FOX WORLD SERIES GAME 1
CSI: THU 8P SPECIAL
CSI MIAMI SPECIAL
FOX MLB NLCS GAME 6
COLD CASE
LOST
BARBARA WALTERS PRES
CSI-THU 8P SPECIAL
CSI: MIAMI - SPCL
CSI: NY
LAW AND ORDER: SVU
DESTINATION LOST
SURVIVOR: PANAMA-EX FIN
SURVIVOR: GUAT REUNION
FOX MLB LCS: GMS 1&2
DEAL OR NO DEAL - WED
SUGAR BOWL
60 MINUTES
BARBARA WALTERS PRES
FOX MLB DIV: AL GM 5
24 PRVW SP-1/15 9P
WNTR OLYM CLOSE CEREM
HOUSE SP-2/20 8P
CSI THU 8P-SPECIAL
TWO AND A HALF MEN SPL
ABC PREMIERE EVENT-4/10

NW
NBC
CBS
NBC
FOX
ABC
NBC
FOX
CBS
CBS
FOX
CBS
ABC
ABC
CBS
CBS
CBS
NBC
ABC
CBS
CBS
FOX
NBC
ABC
CBS
ABC
FOX
FOX
NBC
FOX
CBS
CBS
ABC

The Television Advertising Bureau, which tabulates these ratings based on data collected
by Nielsen, explains that it does not include ratings data for the premium cable programs
because those programs are aired multiple times in a week, but the Nielsen data are
presented as the average audience, per showing, and therefore fails to measure the audience
size for the initial showing of each episode.

%
9.74
9.73
9.68
9.64
9.57
9.48
9.47
9.47
9.47
9.41
9.36
9.29
9.28
9.26
9.25
9.24
9.24
9.22
9.21
9.18
9.1
9.04
8.99
8.97
8.96
8.95
8.94
8.88
8.83
8.75
8.74
8.68

CRS-26
RK
33
34
35
37
37
38
39
40
41
42
43
44
45
46
47
47
49
49
51
52
53
54
55

PROGRAM
CSI: MIAMI
SURVIVOR: GUATEMALA FIN
WNTR OLYM SUN PRIME 2
WNTR OLYM SAT PRIME 2
WNTR OLYM WED PRIME 1
WNTR OLYM FRI PRIME 1
WNTR OLYM TUE PRIME 1
CBS NCAA BSKBL CHAMP
CMA AWARDS
FOX WORLD SERIES GAME 2
FOX WORLD SERIES GAME 3
GRAMMY AWARDS
SURVIVOR: GUATEMALA
OSCAR COUNTDOWN 2006 PT 2
HOUSE SP-5/3 8P
HOUSE
SURVIVOR: GUATE THNKSGV
NFL MON NIGHT FOOTBALL
24 PRVW SP-1/15 8P
WNTR OLYM WED PRIME 2
NCIS
UNIT, THE
SURVIVOR: PANAMA-EXILE IS.

NW
CBS
CBS
NBC
NBC
NBC
NBC
NBC
CBS
CBS
FOX
FOX
CBS
CBS
ABC
FOX
FOX
CBS
ABC
FOX
NBC
CBS
CBS
CBS

%
11.88
11.85
11.6
11.33
11.27
11.27
11.26
11.17
11.08
11.06
11.01
10.95
10.87
10.86
10.6
10.6
10.59
10.16
9.99
9.79
9.77
9.76
9.75

RK
88
90
90
92
93
93
95
96
97
98
99
99
99

PROGRAM
WILL & GRACE CLIP SPCL
RUDOLPH-RED NOSE-RNDEER
NCIS 9P SPECIAL
EXT MAKEOVER: HOME ED.
CSI: MIAMI - SPECIAL
LOST SP-1/11
COLD CASE-SPECIAL
CHARLIE BRWN CHRISTMAS
24 PRVW SP-1/16
CROSSING JORDAN 4/16
DEAL OR NO DEAL 12/21
TWO AND HALF MEN-SPCL
COMMANDER IN CHIEF

NW
NBC
CBS
CBS
ABC
CBS
ABC
CBS
ABC
FOX
NBC
NBC
CBS
ABC

%
8.57
8.57
8.56
8.56
8.55
8.53
8.53
8.51
8.49
8.45
8.4
8.39
8.39

236
389
419
476
487
49
526
562
569
586

NFL REGULAR SEASON L
MLB DIVISIONAL SERIES L
2006 NBA ALLSTAR GAME
STATE OF THE UNION 2006
S JIMMY TIMMY PWRHR2
NBA PLAYOFF-CONF FINALS L
S KIDS CHOICE 06
WWE ENTERTAINMENT
FOP MOVIE FAIRY IDOL
NBA ALLSTAR SAT NIGHT

ESPN
ESPN
TNT
FXN
NICK
ESP
NICK
USA
NICK
TNT

5.66
4.43
4.26
3.8
3.73
3.6
3.51
3.28
3.21
2.94

Source: Television Bureau of Advertising, Viewer Track, “Top-rated programs of 2005-06 in
Households,” based on data from Nielsen Galaxy Lightning 9/19/05-5/24/06, Advertising-Supported
Subscription TV only, available at [http://www.tvb.org/rcentral/ViewerTrack/FullSeason/05-06season-hh.asp], viewed on June 27, 2007.

Table 8 highlights another key factor in programmer-distributor negotiations.
There often is a timing element to must-have programming that programmers can use
strategically in their negotiations with distributors. Television households are far
more likely to switch MVPD providers if they fear the loss of particular timesensitive programming, such as the Super Bowl, the Olympic Games, the National
Football League season, or the finale of American Idol or some other extremely
popular series. Some programmers have effectively timed their negotiations with
distributors to take advantage of such program schedules.45 In some cases,
programmers with the rights to sports events have agreed to month-to-month
extensions of lapsed agreements with MVPDs until a time when a key sports event
was imminent and then used the threat of lost access to that sports event as leverage
to complete a more favorable distribution agreement with the MVPDs.46
Table 7 shows that, despite the dominance of the four major broadcast
networks, at least a dozen cable networks have succeeded in attracting more than
45

See, for example, Linda Moss and Mike Farrell, “Dueling for Dollars,” Multichannel
Newswire, March 5, 2007, available at [http://www.multichannel.com/index.asp?layout=
articlePrint&articleid=CA6421302], viewed on June 27, 2007, which includes a discussion
of how broadcasters have used timing to their negotiating advantage.
46

Id.

CRS-27
25% of all television households for at least one 10-minute segment each week. Not
surprisingly, these cable networks generally have been able to command larger than
average per subscriber fees from MVPDs, as shown in Table 9. Those networks
commanding high per subscriber license fees that did not have broad reach into
households tended to fall into one of two categories — sports networks or news
networks — that have unique demand characteristics.47

Table 9. The Advertiser-Supported Cable Networks with the
Highest Average License Fees Per Subscriber Per Month, 2005
Network

Monthly Fee

Network

Monthly Fee

ESPN

2.60

Discovery

0.24

Fox Sports

1.68

ESPN2

0.23

TNT

0.86

AMC

0.22

Disney Channel

0.78

ABC Family

0.22

USA

0.45

A&E

0.21

CNN

0.44

Golf Channel

0.21

Nickelodeon

0.40

Independent Film

0.21

NBA TV

0.34

Lifetime

0.21

Sundance

0.29

Fox Soccer

0.20

TBS

0.29

E!

0.19

Turner Classic Movies

0.28

NFL Network

0.19

MTV

0.28

Natl. Geographic

0.19

FX

0.27

Spike TV

0.18

Fox News

0.25

History Channel

0.18

CNBC
0.25
Source: Kagan Research, Economics of Basic Cable Networks, 2006, 12th Annual Edition,
2005, at p. 58.

The proliferation of program networks may be having another market impact.
In the early and mid 1990s, the average U.S. television household received 41
channels; with the lesser audience fragmentation that existed then, a larger proportion
of networks could expect to capture enough audience share to be profitable. The key
strategic element was to gain a threshold penetration level on basic cable tiers. With
such penetration, there was a reasonable chance to become profitable. Thus one
strategy attractive to large programmers whose existing programming had already
gained some brand identity was to introduce additional program networks under the

47

For example, in an interview that appeared in the May 7, 2007 edition of Broadcasting
& Cable (at pp. 14-16), Jim Bewkes, president and chief operating officer of Time Warner,
stated that about half of CNN’s viewers do not watch any other television, “so if you’re
trying to reach that audience, you want to reach them there.”

CRS-28
corporate brand umbrella, such as Disney, Discovery, ESPN, or Fox. Since then, the
increase in the number of channels available to households and continued
competitive entry by new program networks has resulted in more and more video
networks being only marginally profitable; most program networks do not generate
revenues in excess of production costs and the likelihood of a new program network
proving very popular and profitable is diminishing. This may be constraining the
incentive, which has been strong in the past, of large programmers to introduce
additional program networks, sometimes even when they can use their entrenched
successful networks to cross-market their new networks.48 Thus, although it has been
common for distributors to compensate a programmer for carriage of that
programmer’s popular programming by agreeing also to carry the programmer’s new
program networks, that is becoming a less attractive form of compensation unless the
programmer has an extremely strong brand identity to exploit. It appears that
increasingly a more attractive alternative is for the programmer to extract the value
from its popular programming directly, by demanding cash payment from distributors
for carriage of that popular programming.
Audience fragmentation also appears to be affecting the relationship between
the large broadcast networks and their affiliated broadcast stations. Traditionally,
under the network-affiliate contracts, the networks assumed the retransmission
consent rights of their affiliates, in exchange for making cash payments to the
affiliates. The broadcast networks then typically negotiated retransmission consent
agreements in which the MVPDs agreed to carry new, or less popular, cable program
networks owned by the broadcast networks (for example, MSNBC or ESPN Classic)
as partial compensation for carrying the broadcast network. Recently, the broadcast
networks seem to be changing their business strategy, giving back to their affiliate
broadcast stations the right to negotiate retransmission consent compensation from
MVPDs in exchange for reducing or eliminating the cash payments they make to
their affiliate stations. According to a report in Multichannel Newswire:
And during the past several years, the “Big Four” networks have renegotiated
affiliate deals to eventually eliminate once-lucrative network compensation fees
paid to stations to carry programming from ABC, CBS, Fox, and NBC.
Perhaps not coincidentally, those fees began to decline precipitously in 2005,
right around the time that retransmission consent revenue [for the affiliate
stations] began to rise. For example, in 2005, network compensation at HearstArgyle fell 35.9% from $28.8 million to $19.1 million and dipped another 48.7%
in 2006 to $9.8 million.
At Nexstar, network compensation dipped 22.4% in 2005, to $6.6 million, and
fell 36.4% to $4.2 million in 2006. At Sinclair, the drop-off was less dramatic
— 7% in 2005, from $14.3 million to $13.3 million (the company has not yet

48

However, despite the fact that most advertising-supported cable network are not able to
command substantial per subscriber fees from MVPDs, in The Economics of Basic Cable
Networks, 2006, 12th Annual Edition, 2005, at p. 3, Kagan Research concluded:
There’s no question why so many want to enter this business — the economics
are very attractive if one is successful. The industry posted an estimated $9.0
billion in cash flow in 2004, with an enviable margin of 34.1%.

CRS-29
released 2006 network compensation) — but the station owner expects more
dramatic declines in the coming years.
In its 2005 annual report, Sinclair even went so far as to say that retransmission
consent fees have “replaced the steady decline in revenues from television
network compensation.”49

The trend toward greater program network proliferation and fragmented
audiences is complicated by several significant technologically-driven forces. During
the transition from analog to digital technology, programmers of both cable networks
and broadcast networks are trying to get MVPDs to carry their programming in both
analog and digital format — and to carry their digital programming in high definition
as well as standard format. Thus, a single program network now might seek multiple
channels on an MVPD system to offer analog, digital, and high-definition feeds. At
the same time, the deployment of digital technology is allowing broadcasters to
provide multiple digital signals (that is, multiple video programs) on their licensed
spectrum, not just a single signal. A broadcaster that previously provided
programming for one channel on an MVPD system now may seek multiple channels,
which, depending on how the FCC ultimately implements the must-carry and
retransmission consent rules in a multicast digital environment, could result in a
larger portion of an MVPD’s system being set aside exclusively for broadcast
program networks. Whether these technological changes strengthen the negotiating
positions of programmers or distributors may well depend almost entirely on how the
FCC, or Congress, adopts the must-carry and retransmission consent rules for this
new environment. In the short run, however, to obtain carriage of multiple signals
in their retransmission consent negotiations with MVPDs, broadcasters may have to
compromise on other objectives, such as higher cash payments.

Cable System Revenue is Growing From High Speed Internet
Access and Telephone Services
Most cable operators have upgraded their systems over the past decade and now
are able to offer a wide array of services over their broadband networks, including
high speed data, telephone, and digital video services, as well as traditional analog
video services. As shown in Table 10, the revenue base of the cable system
operators is diversifying, with fastest growth occurring in high speed data, telephone,
and digital tier video services. Most subscribers who select these newer services
purchase them as part of a bundled package with basic cable service. This trend is
helping cable operators in their negotiations with programmers in two ways. First,
subscribers who purchase service bundles are less likely to switch to a competing
MVPD if their current provider were to lose carriage of a particular program network,
even a popular network. This is particularly the case if the competing MVPD cannot
offer the full array of services that the cable company does; for example, satellite
companies often cannot offer high speed data and telephone services at a price or
uplink speed that is competitive with cable companies. Second, if a cable company

49

Linda Moss and Mike Farrell, “Dueling for Dollars,” Multichannel Newswire, March 5,
2007, available at [http://www.multichannel.com/index.asp?layout=articlePrint&articleid=
CA6421302], viewed on June 27, 2007.

CRS-30
is enjoying rapid revenue growth from non-video services, it may be more willing to
hold the line in its negotiations with programmers because it is easier to absorb a
potential loss of video revenues stemming from an impasse and loss of program
carriage when other revenues are growing. On the other hand, the additional
revenues generated by these “triple play” offerings may allow a cable operator to pay
more for programming.

Table 10. Cable Company Revenues, by Service,
1996-2005, in Millions of Dollars
Year

Basic
Service

Premium
Channels

Digital
Tier

High
Speed
Data

Telephone
Service

Net Local
Advertising

Miscellaneous

1996

18,249

4,359

0

—

—

1,413

1,894

1997

20,213

4,616

3

—

8

1,636

2,164

1998

21,574

4,858

98

103

26

1,898

2,333

1999

22,732

5,025

443

386

78

2,267

2,850

2000

24,142

5,259

588

751

275

2,447

2,968

2001

26,324

5,756

1,763

1,870

713

2,431

3,049

2002

27,690

5,963

2,693

4,525

1,265

2,800

3,359

2003

29,000

5,891

3,396

6,772

1,499

2,851

4,237

2004

30,080

6,225

3,966

8,965

1,623

3,236

5,091

2005
31,075
6,389
4,563
11,245
2,158
3,381
6,514
th
Source: Kagan Research, Broadband Cable Financial Databook, 26 Edition, 2006, at p. 8.
Miscellaneous revenues include commercial revenue, pay-per-view, advanced analog, home shopping,
equipment charges, home networking, pay installation, NVOD, VOD/SVOD, interactive, games,
DVRs, and high definition services.

There has been an interesting market response to the growth in cable system
revenues from non-video services. As these new revenue sources have increased the
average revenue generated per subscribing household (known in the industry as
average revenue per unit, or ARPU), the value of existing cable systems has grown
and this has been reflected in the price per subscriber at which cable systems have
been sold. This, in turn, has affected at least one programmer-distributor negotiation.
On July 1, 2006, Suddenlink Communications completed the purchase from Charter
Communications of cable systems in West Virginia with 240,000 subscribers,
200,000 of whom live in the Charleston, WV service area of a Sinclair Broadcast
Group-owned television station (WCHS, an ABC affiliate) and another television
station (WVAH, a Fox affiliate) for which Sinclair has a local marketing agreement.
The retransmission consent agreement between Charter and Sinclair had expired
prior to the Suddenlink purchase,50 so Suddenlink entered retransmission consent

50

See Mike Farrell, “Suddenlink, Sinclair in Retrans Clash,” Multichannel News, July 5,
2006, available at [http://www.multichannel.com/index.asp?layout=articlePrint
(continued...)

CRS-31
negotiations with Sinclair before the purchase was completed. Sinclair had sought
$4 million in cash payments over three years. But when Sinclair learned that the
purchase price was $800 million, it raised its demand to more than $42 million.
Sinclair’s vice president and general counsel reportedly stated that, “If they’re paying
$3,200 per sub[scriber], why shouldn’t a piece of that be coming to us?”51 This
raises an interesting issue. To the extent the high cable system valuation is a function
of the programming provided by Sinclair, Sinclair would seem to have a strong claim
for larger cash payments. But to the extent the valuation is not related to Sinclair’s
programming, if Sinclair were nonetheless able to command larger cash payments
that might suggest that the current retransmission consent process may be allowing
programmers to siphon off funds that might, from a public policy perspective, be
better left to cable operators to expand their broadband infrastructure capabilities.

Specific Examples
of Programmer-Distributor Conflicts
As early as 2005, broadcasters announced their intentions to receive cash
payments from MVPDs for retransmission of their broadcast signals that are
comparable to the payments MVPDs make for cable program networks.52 It
generally has not been the mega-programmer broadcast networks (that also own cable
networks) that have been most aggressive in the pursuit of cash payments; rather it
has been the larger non-network station groups (such as Sinclair, Nexstar, and Belo)
and the lone broadcast network that no longer has cable network interests (CBS was
spun off from Viacom in 2005, with the latter retaining such cable networks as
MTV). In the past two years, despite the confidentiality under which contracts are
negotiated, parties have frequently reported to the trade press the difficulties they
were having in their on-going negotiations. This section does not attempt to provide
an exhaustive recitation of recent programmer-distributor conflicts. Rather, it
presents five exemplary cases in an attempt to reflect how the market currently is
operating and explore the factors (including federal rules) that tend to influence
negotiations.

Nexstar: The First Broadcaster to Aggressively Seek
Cash Payments for Retransmission Consent
In January 2005, Nexstar Broadcasting Group, which owns and operates 27
stations in medium sized markets, and provides management, sales, and other
services to an additional 15 stations owned by Mission Broadcasting, sought a
monthly 30 cents per subscriber cash payment fee from Cox Communications and
50

(...continued)
&articleID=CA6349903], viewed on June 27, 2007.
51
52

Mike Farrell, “Suddenlink in Retrans Row,” Multichannel News, July 10, 2006, at p. 8.

See, for example, Linda Moss, “MSOs See Rough Road to Retransmission Deals,”
Multichannel News, July 25, 2005, at p. 1, and Tania Pancyk-Collins, “Viacom Plans
Carriage Fees for CBS Programming,” Communications Daily, September 16, 2005, at p.
7.

CRS-32
Cable One (the fourth and tenth largest cable operators, respectively), for the right
to retransmit the signals of each of the Nexstar/Mission broadcast stations in the Cox
and Cable One franchise areas. Cox filed a complaint with the FCC on January 19,
2005, alleging that Nexstar and Mission refused to budge from their cash demands
and therefore had not negotiated in good faith.53 Cox alleged that Nexstar was
demanding that Cox pay $8.9 million for the next three years “for the privilege of
retransmitting the signals of 5 television stations that are free over-the-air in these
communities.” Cox sought an expedited Commission order setting relief and
sanctions and requiring that the parties resume negotiations.54 Nexstar responded that
Cox was refusing to consider making any cash payments.55
When it filed the petition, Cox had already been required to discontinue carrying
KLST, the CBS affiliate in San Angelo, TX, and KRBC, the NBC affiliate in
Abilene, TX, on Cox cable systems with 72,500 customers, and if there were no
agreement by the end of January 2005, Cox systems with 45,230 customers would
be forced to stop carrying KSNF, the NBC affiliate in Joplin, MO, KODE, the ABC
affiliate in Joplin, and KTAL, the NBC affiliate in Shreveport, LA-Texarkana, TX.
When it had to discontinue carriage of the broadcast stations, Cox provided the HBO
Family networks in their place.
Nexstar had grown rapidly through acquisitions earlier in the decade, but lost
more than $140 million between 2001 and 2005 and was trying to pay down $600
million in debt, which was greater than its revenues over those four years.56
Nexstar’s chief operating officer, Duane Lammers, reportedly stated that his company
faced costs associated with the digital transition and if cable companies take his
stations’ signals and resell them to viewers, “it’s only fair we get a piece.”57
On February 2, 2005, Cox prevented the loss of carriage of the two Joplin, MO
broadcast stations for which the retransmission agreement had expired by using a
“management reorganization” that combined the Missouri systems with Kansas
systems and folded them into a retransmission agreement for its Kansas cable
systems.58 But Cox did lose carriage of Nexstar’s KTAL station in ShreveportTexarkana on February 1, 2005. Moreover, Bossier City, LA City Attorney James

53

After the fact, the Nexstar position was described in Broadcasting & Cable as “a take-itor-leave-it demand: Pay 30¢ monthly per subscriber, or we’ll yank our signals.” See John
M. Higgins, “Cable, Broadcast Battles End,” Broadcasting & Cable, February 6, 2006,
available at http://www.broadcastingcable.com/index.asp?layout=articlePrint&article
ID=CA6304947], viewed on June 27, 2007.
54

Anne Veigle, “Cox Asks FCC to Order Nexstar to Retransmission Negotiating Table,”
Communications Daily, January 21, 2005, at pp. 4-5.
55

“Mass Media Notes,” Communications Daily, February 2, 2005, at p. 9.

56

“Texas broadcaster pulls stations off cable,” BroadcastEngineering, January 23, 2005,
available at [http://broadcastengineering.com/news/texas-cable-broadcaster-20050123/],
viewed on June 27, 2007.
57
58

Id.

Anne Veigle, “Cox Maneuver Puts TV Stations Back on Cable,” Communications Daily,
February 3, 2005, at pp. 4-5.

CRS-33
Hall sent Cox a letter threatening legal action unless KTAL were restored to cable
carriage, claiming that not providing KTAL “is a violation of the franchise agreement
between the City of Bossier City and Cox Communications.”59
The dispute in Joplin also involved Cable One, which lost carriage of the two
Nexstar broadcast stations on January 1, 2005. The dispute benefitted satellite
operators, who reported a big upsurge in service orders; Express Cellular & Satellite
in Joplin reported an increase from approximately four installations a day to 20.60
Both Cable One and Cox responded to the lost carriage of the Nexstar broadcast
stations by holding special events at which they gave away old fashioned “rabbit-ear”
television antennas that would allow their subscribers to receive the Nexstar signals
free over-the-air. Cox said it handed out 800 antennas in Abilene, TX, and 2,800 in
San Angelo, TX. Cox also said that it had lost 1,000 subscribers (out of a total of
105,000 subscribers) during the period the Nexstar stations — all affiliates of major
broadcast networks — were removed from its cable systems.61
According to the trade press, with the loss of cable carriage, Nexstar stations’
ratings plunged and their advertising revenues fell accordingly.62 Nexstar
acknowledged losing several million dollars in revenues. With all three parties
harmed by the impasse, after 10 months, on October 20, 2005, Cox, Nexstar and
Mission signed a retransmission consent agreement for analog and digital carriage
rights, covering 12 Nexstar and 9 Mission station serving Abilene-Sweetwater, San
Angelo, Lubbock, Amarillo, Odessa-Midland, and Beaumont-Port Arthur, TX,
Shreveport, LA, Fort Smith, Little Rock, and Monroe-El Dorado, AK, Springfield
and Joplin, MO, and Pittsburg, K63S. The agreement allowed Cox to again carry
KLST/CBS in San Angelo; KTAL/NBC in Bossier City and Minden, LA, and in
Magnolia, AK and Mt. Pleasant, TX; and KRBC/NBC (a Mission station) in Abilene,
Sweetwater, and Snyder, TX. These stations had been removed from the Cox lineup
in January 2005.
The FCC did not act upon the Cox complaint during the 10 months that the
negotiating impasse resulted in the Nexstar stations not being carried on the Cox
systems. When the new retransmission consent agreement was reached, the FCC
dismissed the complaint as moot.
The terms of the retransmission consent agreement between Cox and Nexstar
were not disclosed, but industry executives say Cox and Cable One did not pay the
straight license fees Nexstar was demanding; rather they agreed to buy a certain
59

Id.

60

Id.

61

“Cox Tries a Rabbit Punch,” Broadcasting & Cable, February 21, 2005, at p. 8.

62

John M. Higgins, “Cable, Broadcast Battles End,” Broadcasting & Cable, February 6,
2006, available at [http://www.broadcastingcable.com/index.asp?layout=articlePrint&article
ID=CA6304947], viewed on June 28, 2007.

63

“Cox Communications, Nexstar Broadcasting and Mission Broadcasting Reach
Retransmission Consent Agreement,” Business Wire, October 20, 2005.

CRS-34
amount of advertising on the Nexstar broadcast stations.64 But smaller cable
operators appear to have capitulated to Nexstar’s willingness to go dark. At the end
of 2005, Nexstar reached a number of retransmission consent agreements with these
smaller cable operators that Nexstar said included cash payments. DBS operators
already had agreed to make cash payments because they needed the local broadcast
signals to be able to compete with cable. In February 2006, Nexstar CEO Perry Sook
said the company expected to collect around $12 million per year from its recent
round of negotiations with cable and DBS operators.65 It was estimated that 15 to
20% of those revenues came from satellite companies and about 30% of those
revenues were in the form of payments for advertising.
Nexstar reported a huge increase in retransmission consent revenues from cable
and satellite companies in 2006. CEO Sook reportedly said these revenues were
$13.7 million in 2006, nearly five times the $2.8 million the broadcaster recorded in
2005.66 Of that 2006 revenue, $8.7 million was cash compensation and $5 million
was from advertising agreements. The revenues came from agreements struck with
150 cable operators, DISH Network, DirecTV, and all the overbuilders in its
territories. Sook said the company expects these revenues to increase in 2007 from
agreements with telephone companies, the expansion of the satellite local-into-local
service, and escalator clauses in existing agreements with cable operators. He said
many existing Nexstar retransmission consent agreements expire in 2008 and 2009,
which will provide an opportunity to further increase retransmission consent
revenues then.
Nexstar appears to have succeeded in its strategy of suffering short-term
advertising revenue losses in order to create the precedent of obtaining cash payments
from MVPDs for carriage of its broadcast signals. It is possible that this strategy
could work because there was little overlap between the mid-sized cities it served and
the generally larger cities served by the two most formidable cable companies —
Comcast and Time Warner.

64

John M. Higgins, “Cable, Broadcast Battles End,” Broadcasting & Cable, February 6,
2006, available at [http://www.broadcastingcable.com/index.asp?layout=articlePrint&article
ID=CA6304947], viewed on June 28, 2007.
65

John M. Higgins, “Cable, Broadcast Battles End,” Broadcasting & Cable, February 6,
2006, available at [http://www.broadcastingcable.com/index.asp?layout=articlePrint&article
ID=CA6304947], viewed on June 28, 2007.

66

Mike Farrell, “Nexstar: Retrans Revenues Up,” Multichannel News, March 1, 2007,
available at [http://multichannel.com/index.asp?layout=articlePrint&articleID=CA6420695],
viewed on April 20, 2007.

CRS-35

CBS: The Only Major Broadcast Network to Aggressively
Seek Cash Payments for Retransmission Consent
In 2005, when it still owned the CBS and UPN networks but had already
announced plans to spin off its broadcast assets, Viacom publicly announced its
intention to obtain the same retransmission fees from cable operators for carriage of
its broadcast networks as it received for carriage of its USA cable network; this
would have made it the first broadcast network owner to receive cash payments.67
Industry observers indicated that CBS might be able to do this because in its
retransmission consent negotiations, post-spin off, when it no longer had cable
program networks, it would not have to consider the impact of pushing for cash
payments for its broadcast network on its ability to obtain carriage and cash for its
cable networks. (During the period, it was public knowledge that MTV, which is
owned by Viacom, wanted to introduce several new MTV-branded cable networks.)
Industry observers also indicated that if CBS were to succeed, this might set a
precedent that would help non-network station groups, such as Gannett, Tribune, and
Belo, in their retransmission consent negotiations, but would have less impact on the
negotiations involving the other major broadcast networks, which still have cable
networks.
A number of larger cable operators — Charter, Cox, Insight, and Time Warner
— publicly responded that they would not pay cash for broadcast carriage, though
some did not rule out the possibility of non-cash payments.68 (The largest cable
operator, Comcast, had signed a long-term carriage contract with Viacom at the end
of 2003, and thus would not have been affected by the Viacom proposal.) The cable
operators argued that the broadcast networks continue to lose audience share and
therefore could not demand cash payments, and also that broadcasters were given
spectrum for free and that cable companies should not have to pay for broadcast
signals that customers can get off the air for free. CBS argued that its broadcast
network audience share continued to far exceed that of any cable network and
MVPDs should pay for any programming that they provide their subscribers.
In early March 2006, CBS president Leslie Moonves predicted that CBS would
eventually get “hundreds of millions of dollars” from retransmission consent
agreements covering the 60 million households reached by the CBS and CW stations
owned and operated by CB69S. Later that month, CBS successfully negotiated its first
retransmission consent agreement involving cash payments — with Verizon, the new
telephone company entrant into the MVPD industry, for carriage of CBS’s ownedand-operated stations. Although the terms were not announced, industry sources said
they were “similar to Hearst-Argyle’s recent breakthrough agreement with DBS

67

See, for example, “Mass Media Notes,” Communications Daily, June 7, 2005, at p. 9, and
Tania Panczyk-Collins, “Viacom Plans Carriage Fees for CBS Programming,”
Communications Daily, September 16, 2005, at p. 7.
68

Jonathan Make, “Cable Won’t Pay Cash for Carriage, Despite Viacom Demands,”
Communications Daily, September 19, 2005, at pp. 3-4.
69

John Eggerton, “Moonves Sees Nine-Figure Retrans Pot,” Broadcasting & Cable, March
6, 2006, at p. 27.

CRS-36
service Echostar” under which Echostar (DISH Network) paid 50 cents per month
for each of its subscribers in the station group’s markets.70
In February 2007, CBS announced that it had successfully negotiated
retransmission consent agreements with cash payment provisions with nine small
cable operators, covering a total of one million cable television subscribers who can
watch CBS owned-and-operated stations.71 But CBS provided no public
confirmation of the exact amount of cash being paid by the cable companies, or even
of the identities of the cable companies, citing confidentiality provisions in the
agreements. Industry observers had differences of opinion on the terms of the
agreements; some thought CBS was receiving 50 cents per subscriber per month ($6
million per year), or even more, while others thought some of the compensation was
in the form of barter advertising time. Wall Street analysts estimated that cash
payments of 50 cents per subscriber per month could generate between $155 million
and $240 million in annual revenues for CBS. A Bank of America report, however,
stated that “the market value for broadcast retransmission rights won’t really be
determined until CBS’s agreements with the largest cable operators come up for
renewal starting in ‘09-‘10.”72

DISH Network/Lifetime/Hearst-Argyle: An Example of the
Complexity of Programmer-Distributor Negotiations
DISH Network has attempted to differentiate itself from other MVPDs in part
by being the low-price provider, offering packages at lower prices than its
competitors, though sometimes not offering on its more basic tiers certain high-cost
networks that are provided on its competitors more basic tiers.73 (In contrast,
DirecTV has differentiated itself in part by having the most sports programming,
including some sports programming for which it is the exclusive provider.) Given

70

John M. Higgins, “Money Talks: CBS Braces for Cable Showdown,” Broadcasting &
Cable, March 27, 2006, at p. 10. See the discussion of the DISH Network/Lifetime/HearstArgyle negotiations in the next section of this report.
71

Linda Moss, “CBS Eyes New Deals,” Multichannel News, February 26, 2007, at p. 3.

72

See Linda Moss, “CBS Eyes New Deals,” Multichannel News

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3ARL34078. Public record. Not legal advice.