Double-Digit Increases to Retransmission, Content Costs Bad for Consumers

Cox Media Group has pulled from FiOS TV the Fox channel that they own in the Massachusetts market. Verizon is diligently negotiating with Cox for a retransmission deal that will be fair and reasonable for our customers.

It probably seems like two big companies slugging it out while customers are pushed aside, even punished. But believe me, we’re taking a stand for our customers. You don’t have to take my word for it.

This behavior by Cox is apparently standard operating procedure. The American Television Alliance issued a release about this situation on Nov. 26.  In it, ATVA spokesman Brian Frederick is quoted saying:

“In the past two years, Cox has blacked out viewers in at least 11 different markets. Cox is clearly more interested in their own profits than letting TV viewers in New England enjoy some TV time on the couch with friends and family.”

While this is a pattern of behavior from Cox, overall it’s about a much bigger issue that, unfortunately, puts consumers on the front lines.

Content Costs Are Rising Out of Control: Consumers Pay the Price

The average bill for basic cable in the United States rose 6.5 percent in 2012, and the average bill for expanded basic cable increased 5.1 percent, according to a May International Business Times story citing a new study from the Federal Communications Commission.  Rising programming costs account for a large part of those increases. The per-channel cost for cable customers rose 2.1 percent in 2012, or 48 cents per channel, and retransmission fees charged by the major broadcasters are expected to rise an additional 10 to 12 percent per year over the next three years.

The ever-increasing cost of retransmission deals and content is making the pay-TV market more and more difficult for everyone. Eventually, even the content we love becomes unaffordable.

So, how did we get here?

The current content provider/pay-TV business model is based upon a revenue-sharing agreement known as affiliate fees and/or retransmission revenue. Basically, a portion of the TV bill customers pay finds its way back to these content providers on a per-channel basis, and the rates vary based on the network and program involved and the fees required by the content provider.  

That business model is flawed, Verizon’s CEO Lowell McAdam said at a recent Goldman Sachs investor’s conference.

And here’s why:

  • The share of retransmission fees as a portion of total revenue paid to content providers – those fees a carrier like Verizon pays to the owner of a local network affiliated channel - is expected to rise to a 10.5% share in 2014; 11.4% in 2015; 12.1% in 2016; and 12.5% in 2017, according to an April 17 Media Post story based on an SNL Kagan study.
  • At a late April cable industry conference in Los Angeles, Jim O’Neill (@JimONeillMedia) reported that Time Warner Cable Chairman and CEO Rob Marcus said content costs “are problematic to the sustainability of our ecosystem.”  Reinforcing McAdam’s point from the Goldman Sachs conference, Marcus added that the industry needs to “figure out a different business model.”

  • Like the rest of the industry, Time Warner Cable has been facing significant cost pressure, as the cost of programming content has rapidly increased. Since the beginning of 2010, the company has had to contend with a 24-percent rise in content costs per subscriber. Comcast has also seen a 20-percent rise in just two years.

At Verizon, we face similar pressures. That brings us to where we are today with Cox Media Group and its outrageous retransmission demands.

It’s unfortunate that Cox has decided to deny our FiOS customers its FOX programming because we won’t cave in to those unreasonable demands. Cox has a history of digging in its heels when it was in our position and had been asked to commit to a similar deal. Consider this from a release they issued in Dec., 2012 regarding their negotiations with Raycom:

  • Raycom has pulled their programming from Cox’s lineup for Cox customers in Virginia, Florida, Ohio, Louisiana and Arizona. Cox’s agreement with Raycom Media expired at 11:59 p.m., December 31, 2012. Raycom is withholding their programming because Cox won’t give them a price increase that’s 250% higher than what Cox already pays them for programming that is available for free over the air.  Exorbitant increases - like the one that Raycom is demanding – increase cable bills every year.

No one wants to see this with Cox and FiOS.

We sincerely hope that cooler, more reasonable heads at Cox will prevail, and that we can soon have the Cox-owned FOX stations back on FiOS in the Massachusetts and Providence market, at a cost to us that won’t ultimately negatively affect our customers’ home budgets.