Marketplace of Ideas Blog

To those who are not pleased with WLUK-TV (channel 11) not being on Time Warner Cable in WLUK’s owner’s retransmission dispute with Time Warner Cable seems like a Chicago Bears–Minnesota Vikings game to a Packers fan — the fan wonders if it’s possible for both teams to lose.

It’s now one week since the retransmission agreement between Time Warner and LIN TV, WLUK’s owner, expired, and, as promised, WLUK is not on Time Warner. Neither side is talking about how close they are to an agreement; one assumes that negotiations are taking place, because Time Warner will lose customers the longer the dispute goes on, and WLUK will lose ratings and advertisers, particularly for their highly Packer games (even this season). (Most of this column’s points won’t change when LIN and Time Warner reach their agreement, as you’ll read momentarily.)

The whole situation is bizarre to watch. LIN reached agreements with the other two of the big three cable providers, Charter Communications and Comcast, plus the two satellite providers, DirecTV and Dish Network, and the new guy on the cable block, AT&T U-Verse. Time Warner is the lone cable holdout.

It is the height of irony for Time Warner to be passing out old-style TV antennas when, after all, the original reason one purchased cable TV was to improve reception of over-the-air channels. (These antennas are attached to some TVs that will be obsolete Feb. 17, when the digital TV conversion takes place.) WLUK, meanwhile, is telling viewers to go to Time Warner’s competition, the satellite providers or AT&T, which is an odd way to conduct negotiations given that, when an agreement between LIN and Time Warner is eventually reached, one would think LIN would want Time Warner to grow in customer base.

There is one particular assertion of Time Warner that is at least disingenuous. Time Warner is asserting that LIN is trying to charge for something LIN gets for free. This is, as any business person knows, a ridiculous assertion when one thinks about it. While the Federal Communications Commission, which oversees broadcasting licensing in the U.S., does not charge radio or TV stations to procure or hold radio or TV licenses (or cable channels, since there are no licenses for cable channels), operating a TV station is certainly not free, with all the expenses of any business (employee compensation, supplies, taxes, etc.), along with particularly large electricity bills and the associated costs of producing local programming, including news. Some network affiliates also have to pay their networks to carry programs, and Fox, WLUK’s network, started what is called “reverse compensation.” (The arrangement used to be reversed; networks paid stations to carry their programming.)

WLUK counters that Time Warner refuses to pay fair market value. “Fair market value” is, of course, whatever both sides agree it is. WLUK claims that Time Warner benefits by getting WLUK’s signal, which is true, but Time Warner benefits because Time Warner subscribers get WLUK’s signal from Time Warner, and, as Time Warner would argue, a better quality signal than the over-the-air signal from the aforementioned antennas.

This dispute is similar to the ongoing disagreement between the nation’s three biggest cable companies, Time Warner, Charter Communications and Comcast, and the National Football League over the cable providers’ refusal to meet the NFL’s requirements to carry the NFL Network. The NFL wants its channel carried on basic cable-channel tiers, thus getting (the NFL believes) more viewers, while the big cable providers want to be able to put them on a sports tier of channels, and of course charge consumers more to get the NFL Network. (This is also similar to the resolved disagreement between those big three and the Big Ten Network, which was finally resolved this year.)

Consumers have not been given a choice by Time Warner, Charter or Comcast as to whether they want to get (that is, pay for) the NFL Network or not. In fact, the only choice consumers who really want the NFL Network have at the moment is to dump Time Warner, Charter or Comcast for their competition. That has pluses and minuses for the viewer. For one thing, satellite providers only offer one set of local channels, whereas some Time Warner and Charter customers can get Green Bay’s and Milwaukee’s channels. Viewers of the Weather Channel get local forecasts on cable, but a national feed on satellite during the “Local on the 8s” breaks. And local cable providers carry the local Public, Educational and Government channels such as channels 2 and 10 in Oshkosh, channels 14 and 20 in Plymouth, and, yes, The Ripon Channel, all opportunities to see where your local tax dollars are being spent. That’s not intended as an endorsement of cable over its competition; that’s a statement of fact, since there are always tradeoffs when choosing one product or service over another.

Of course, charging consumers more will happen anyway if LIN is successful in getting Time Warner to pay up to 30 cents per Time Warner subscriber, since that cost of doing business will be passed on to consumers at the first available opportunity. One of the reasons cable TV bills have been increasing is that the most popular cable channels charge cable and satellite providers a per-subscriber fee for retransmission — from 16 cents per month for the Cartoon Network to $3.26 per month for ESPN, according to the Milwaukee Journal Sentinel — something LIN is now trying to do with Time Warner. Zollar is probably correct that other stations will try to emulate what LIN is doing with cable providers in LIN’s home markets.

Everyone involved is trying to make more money, of course. (As we all know, the fiduciary responsibility of any company’s management is to make profits for their owners.) When I was a freshman sitting in the University of Wisconsin’s Introduction to Mass Communication class, my professor (the then-dean of the School of Journalism, fellow University of Wisconsin Marching Band alumnus and one-time Zamboni driver) told us all that TV station licenses were “licenses to print money.” That was true in the pre- and early-cable days. That’s not so much the case anymore. (In fact, that wasn’t necessarily the case then; you may recall that WXGZ-TV (now WACY-TV, channel 32) went bankrupt and off the air between 1992 and 1994.)

The reason why retransmission agreements have become a point of controversy now is that broadcast stations, or at least LIN at the moment, are trying to create alternative revenue streams because of increased competition for advertising revenue due to three factors. The old trifecta of newspapers, radio and over-the-air TV, plus billboards in larger markets, has been joined by less-than-daily-circulation print (including your favorite business magazine), more radio stations than used to exist, hundreds of cable channels, coupon mailers, online advertising media, and other advertising media. The days where Northeast Wisconsin TV watchers had just channels 2, 5, 11 and 38 to watch are gone forever, which means that every broadcast outlet and cable channel is fighting for viewers.

Add up increased competition for an audience with more media options than ever before, and you see that broadcasters find it increasingly difficult to get advertisers based on ratings. (That's one reason Fox in particular has spent big bucks to get the broadcast rights for such mass-audience events as the NFL, Major League Baseball’s postseason, and college football’s Bowl Championship Series, and someone has to pay that bill.) Add to that the reality of the cost of doing business increasing (as it does for everyone), and that makes the LIN vs. Time Warner battle easier to understand, though not enjoy.