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Fox vs. Time Warner

December 29, 2009 | Author: Ibex Marketing

I’m an unabashed fan of the Philadelphia Eagles NFL football team. Once again, the final game of the season is against the Dallas Cowboys, and the outcome will have a major impact on the playoffs leading to the SuperBowl. And the way things are headed, Time Warner cable subscribers may not get to see the game.

No, the impending blackout is not the result of any NFL rule or FCC decision. A conflict between Fox Broadcasting (owned by News Corp.) and Time Warner could result in the Fox Channel’s content being pulled from the cable system. (Full disclosure: I currently write a weekly column for FOX News Online’s Science and Technology section, so I have a freelance relationship with a different part of News Corp.) There are many different views of how this spat came about and what it means, but here’s the short version: ad revenues are down for the Fox television broadcast network, and cable companies collect subscription fees for content that includes that programming. Some of the content is among the most popular, including American Idol, 24, The Simpsons, and Fox Sports (including NFL game coverage). Fox argues that it should receive a share of the revenues produced by this popular content and is asking for $1 per subscriber per month. Time Warner says that this content is provided by Fox broadcast stations for free over the air, so why should cable companies have to pay for it? The truth is that cable companies do pay some broadcast networks a “retransmission fee”, but it’s a lot less than $1. Analysts seem to think that the two companies will play chicken right up to the January 1st deadline, and then compromise for something around $.50 to $.60 per subscriber per month.

All this had broader implications, and at the root of the problem lies the question of who will pay to produce and distribute video content. Consumers are already angry with cable companies for the steady increase in subscription fees. And consumers don’t want to watch the commercials that pay for the free broadcast television, so they get TiVo and other DVR devices so that they can skip them. Cable companies have a complex network of physical infrastructure that needs expensive maintenance and upgrades, and they need to defend against competition from phone companies and satellite television services. For the network, it’s expensive to put these shows together, and with falling ad revenue (who wants to pay for ads that get skipped?) it becomes more difficult to make money on that investment. But the bottom line is that the money has to come from somewhere.

The two sides will resolve this fight, because the alternative will hasten the advent of changes that neither side really wants: more people taking advantage of free local broadcasts, or the “a la carte” pricing that consumers want for cable service so that they only have to pay for the stations that they watch. But this won’t be the last fight between broadcast network and subscription television service, and eventually we will see more fee-based options as the industry struggles to figure out who will pay. And it’s a dangerous question to ask; some large newspapers have discovered that the answer is “nobody.”