Broadcasters Draw Leverage in Retrans Talks From Content, Not Government License, CBS CFO Says
The leverage broadcasters enjoy in retransmission consent negotiations with pay-TV distributors comes from the popular content they have, not because of the FCC license that stations operate under, CBS Chief Financial Officer Joseph Iannello said Tuesday. His comments at a Wells Fargo conference came in reaction to assertions by an investor that broadcasters would have no leverage without their licenses. “I don’t need the FCC license to have the negotiation,” Iannello said. It’s no different from when a cable network negotiates with a distributor, he said. But if distributors “want to charge your customer and not pay us, that business model is gone."
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"Let the consumer decide,” Iannello said. “Let’s go a la carte.” In that world, consumers would probably cut their total spending to the cable operator but still pay for access to CBS, he said. “The leverage is the content, it isn’t the FCC license.” Cable operators don’t have to pass on the costs to subscribers, he said. They could reallocate the value they pay to all programming based on audience share, he said. “If you generate the audience, you should get the advertising dollars … but you should also get the affiliate fees,” he said. “I don’t think that’s so controversial to ask for."
New distributors such as Netflix don’t treat broadcast programming any differently from cable programming, Iannello said. “When you sit down and have a conversation with one of these emerging platforms, they never ask you, ‘Are you a broadcast company or a cable company?'” he said. “They just say, ‘How much content do you have?'"
The broadcast network and pay-TV businesses are converging, Iannello said. Pay-TV networks are increasingly investing in more original programming and going after more ad revenue, he said. “We're going the other way. We're going after affiliate fees,” he said. “Five to 10 years from now, there’s really no difference from a broadcast network to a cable network. It’s only, ‘How much content do you have?'"
Beyond retrans payments directly from pay-TV distributors, CBS will see additional revenue from its broadcast affiliates, Iannello said. Talks with affiliates about increasing the fees they pay to the network aren’t nearly as contentious as are talks with the pay-TV distributors, Iannello said. “We want them to be successful, we want them to have a healthy business model, but we think that we should have a fair share."
It’s doubtful a major broadcast network would ever negotiate retrans agreements on behalf of all its affiliated stations, Iannello and another broadcast executive said. That prospect is appealing because it would give the network national leverage over a distributor as opposed to local leverage, but “it shouldn’t have to come to that,” he said. It would be too difficult to get the network and all its affiliates to work together on such a large agreement, Gray TV CFO James Ryan told a separate investor presentation Tuesday. “There are too many competing agendas and interests, not only on the broadcast side, but to some extent on the network side,” he said. “It’s just too big a group to try to herd together."
After the DTV switchover, networks gained more leverage over affiliates than they ever had because they can now threaten to pull their affiliation more easily, Ryan said. “While it’s not an ideal solution, the networks can look you in the eye and if we don’t want to cut a deal, take your affiliation to the guy across the street,” who can carry it on a digital multicast stream, he said. “Until a few years ago that option didn’t exist.” Payments to the networks will continue to rise over time, said Nexstar President Perry Sook. “My job is to make sure the retrans goes faster and always remains bigger.”