The current public blast between Fox and Cablevision (more full-page ads in today’s Times) signals that the gears set in motion by the idea of “retransmission consent” that was launched in the early 1990s are continuing to grind. There are many losers – independent programming, facilities sharing, consumers irritated that they’re losing access to programming – and just a few winners. And the winners are all related.
In fact, they’re sisters. These are sister oligopolies. There are just a few media conglomerates in the US: Disney, News Corp., Time Warner, and Viacom. These five companies own the broadcast networks, 90% of the top 50 cable networks, produce three-quarters of all prime time programming, and control 70% of the prime time TV share.
At the same time, consolidation has been sweeping through the cable industry. Back in the 1960s, there were 1500 cable systems in this country and about a million subscribers. By 1972, the top ten cable systems accounted for about 40% of the market, and by 1996 the top five operators controlled about 66% of the market and the top 20 controlled 85%. Now, in most major metropolitan areas in the US, there’s a dominant cable distributor – these companies have divided up the country and don’t compete with one another.
Cable is winning the pipe-to-the-home battle in this country. DSL, as Craig Moffett reported yesterday, is “trending towards irrelevancy.” More than 90% of new subscribers to broadband during the second quarter of 2010 signed up for cable rather than telephone services.
So: few media conglomerates, few major cable companies, and cable is gaining strength. It’s a great model for making money, the cable industry: you squeeze content down that pipe, and you can charge for both subscription fees and advertising. Two revenue streams. Consumers sign up, they get attached, they can’t live without sports and other addictive content, and everyone coins money.
It’s in the interest of all of these sister oligopolies to keep the system running smoothly. They all do well if monthly bundles remain expensive items. The media conglomerates need the tens of billions of dollars they get from the cable industry players, and the cable industry helps out by ensuring that there is almost no non-media-conglomerate programming made available. Really, just about zero programming not owned in part by one of those five media companies comes across the cable distribution platform.
The cable side believes, strongly, that they’re providing almost all the value in this relationship. If they could, they’d pay nothing for broadcast programming – they’d carry it, but they wouldn’t pay cash for it. But the broadcasters have an anvil on their side. They can withhold programming if they don’t feel they’re getting paid enough – that’s “retrans.” (The cable channels fight for money too, but we just don’t see it.)
Cablevision is a relatively small regional cable distributor. So a large nationwide broadcast programmer may wield more power to demand more money from Cablevision than it might be able to from Comcast. That’s what we’re seeing in this week’s battle. Some people say that Cablevision is “taking one for the team” by calling for government intervention.
Comcast wants to make sure that it has crushing leverage in dealing with the media conglomerates, so it’s buying NBCU. It will have the upper hand in almost every battle, and will be able to beat back ESPN’s high prices.
But the larger, systemic problem is that the entire system serves everyone except competition and lower prices.
- Only very large conglomerates get distribution on cable. Independents don’t stand a chance.
- When broadcasters ask for cash for retransmission consent, they’re trying to act just like cable channels so that they can get those dual subscriber/advertising streams from distributors. Retrans is just a different flavor of the oligopolistic structure of this market.
- Because of the bundling and cross-deals involved, no dispute is ever about a single channel. It’s an extremely complicated world, with no transparency, so no one can tell what’s unfair and what’s a “market price”
- Following the Comcast/NBCU deal, Comcast will be thoroughly on both sides of all transactions and able to set a “market price” itself, thus making it even more difficult for anyone to enter and compete.
- When the Fox/Cablevision sister spat is over, the providers will pass on any higher fees to subscribers.
- Those subscription fees keep going up, slowly, every six months or so, because there is no competitive pressure.
The takeaway from the Fox/Cablevision dispute is that it’s revealing a small fissure in an otherwise smooth system. If distributors are big enough, they can make deals with the media conglomerates that make both sides moderately happy – and squeeze consumers. Cablevision happens to be slightly smaller, so they don’t have the raw power to box in Fox. But they’ll resolve their dispute and consumers will continue to lose.
The solution? Open up the books. Tell the distribution platforms to stop making MFN deals that keep programmers from placing their content online. Allow consumers to buy subscriptions to individual channels. Have distributors choose their role – either a distributor or a content provider – to avoid vertical integration that punishes competition and consumers.
These sisters have too good a deal.
Important stuff. Here and in your Columbia speech you’re calling attention to the problem of controlled TV distribution which is clearly raising prices. Thanks.
Susan: You posit that after a new retransmission consent agreement, providers will pass on the incremental costs of such a new agreement in the form of higher subscription rates to subscribers. But is that assumption contrary to economic logic? I would think it would be rational for a cable company to always charge a rate that generates the maximum revenue based on a demand curve where at a certain point in increasing rates, the number of subscriptions declines to more than offset the revenue benefit of the rate increase. This decision (and the curve it reflects) should, I would think, be independent of new cost inputs such as increased programming costs.
Of course, in the long run, in classical economics, new cost inputs will lead to reduced entry into the market, thus reduced supply, and thus increasing prices as the supply/demand curve change. But in the cable TV market, where market entry is rare regardless of new cost inputs, isn’t such a new cost input (such as an increased retransmission consent cost) logically going to come mostly out of the monopoly/duopoly cable provider’s monopoly/duopoly profits (essentially a transfer from the pipe provider to the content provider)? Certainly the cable company will blame its next rate increase on such new cost inputs, but is that more public relations than rational price economics?