Cable-cutters may find themselves with one or two fewer live television options in the near future. NewsCorp COO Chase Carey told broadcasters at the National Association of Broadcasters convention in Las Vegas that Fox is considering a cable-only network. CBS is on board with the idea as well.
These over-the-air broadcasters’ threats stem from a small company – Aereo – that captures over-the-air signals and transmits them to users’ computers, tablets, and smartphones. They’re trying to capture the attention of lawmakers in Washington, and the odds of either company following through on these threats are slim at best.
Aren’t they giving this stuff away free anyway?
Not exactly. For households without a cable connection, yes, they receive Fox, CBS, and all the other over-the-air networks free of charge. The 100 million households with cable, however, end up subsidizing the networks through retransmission fees.
These fees are becoming increasingly important to broadcasters. In 2010, retransmission fees made up between 52% and 76% of TV broadcasters’ cash flows. SNL Kagan estimates station owners took in $2.36 billion from cable subscribers last year. It expects that number to rise to $6 billion by 2018. CBS expects to generate $1 billion in retransmission fees by 2016.
Aereo, however, doesn’t pay these retransmission fees despite providing a sort of pay TV model. As more people use computers and tablets to watch their favorite shows, services like Aereo that deprive networks of revenue pose a threat to broadcasters.
Stop me if you’ve heard this one
Back in the late '90s, in the post-Seinfeld age, former NBC CEO Bob Wright proposed a similar idea. While his complaints had less to do with lost revenue, and more with the FCC, it turns out NBC is still a broadcast network.
When Comcast , a cable company, announced plans to buy a controlling stake of NBC in 2009, the idea once again floated around the blogosphere. In fact, Fitch predicted at least one of the major four broadcast networks would make the switch to cable by 2011, pinning NBC as the favorite.
Fitch’s report also points to the biggest reason NBC never made the change – local stations. While Comcast probably doesn’t care too much about the local affiliates NBC stations, it does care about the local stations the company owns. NBC owns local stations in high population areas such as New York, LA, and Chicago. Altogether, NBC local stations reach over 60 million viewers.
The thing that makes these local stations valuable is exactly what a transition to cable would take away – primetime programming and sports. Broadcast stations generate revenue through ads, and ad rates are determined largely by TV ratings. The programming that generates the highest ratings are sports and primetime shows. Comparatively, syndicated reruns and local news programs draw significantly fewer viewers.
If the lowest rated broadcast network can’t make the transition, it’s even more unlikely for CBS or Fox.
The biggest thing holding back Fox and CBS is the NFL. Each has a contract to air Sunday afternoon games, and those games are increasingly valuable to the company and its local affiliates. As a result, the NFL is commanding more money for its product. This is one reason for the rising retransmission fees.
A move to cable would lock out the 15% of television households without a cable subscription from viewing NFL games. While a lot of those households are cable-cutters, many more are simply unable to afford cable. The NFL would likely have some problems with a situation where its games are only available to people who can afford to pay for them.
Furthermore, a move to cable would create a great opportunity for other cable networks like ESPN to make a serious bid for NFL and other sports programming. While ESPN currently has Monday Night rights, it can’t compete with the reach of Fox, CBS, or NBC. A move to cable would put them on a level playing field. Alternatively, the NFL might look to networks that remain over-the-air in order to reach as wide an audience as possible.
Losing the NFL is the worst thing that could happen for Fox or CBS. Ratings for NFL games are rising as primetime programming falls. Derek Thompson at the Atlantic points out the gap between NFL games and primetime programming has increased from 52% to 154% over the last decade. The trend points to how CBS and Fox are increasingly dependent on sports to draw in viewers and ad revenue.