1. Ironic twists and competitive shifts are informing
the latest cycle of negotiations between
broadcast stations and multichannel distributors.
W
HEN WE TOAST THE COMING
year at the end of December, the
broadcast and cable industries will have
completed their first cycle of retrans-
mission consent contracts, which began in 2008. The
dramatic standoffs that sometimes took place between
station groups and multichannel providers, and the
hundreds of millions of dollars they collectively spent
lobbying to achieve better leverage in those negotia-
tions, are like an episode from last season’s Survivor – a
lot more gripping at the time. Everyone’s now fixated
on the second round of negotiations, which are a work
in progress.
Yet in order to understand the new dynamics at play,
it’s insightful to look back on the influences and pre-
dictions that existed in 2008 and compare them with
TheEvolutioBy RAOUL DE SOTA
MANAGEMENT
Reprinted from the November/December 2011 issue of The Financial Manager magazine

2. what came to pass. And, looking forward, it’s now pos-
sible to predict what will happen at the end of the sec-
ond cycle, three years from now.
Flashback to 2008
At the time of the first round of negotiations three
years ago, the Federal Communications Commission
chairman Kevin Martin was busy challenging the
cable industry with his ideas about à la carte channel
options and outlining an approach to ease costs on the
expanded basic tier of cable service.
Over at the National Cable & Telecommunications
Association, president Kyle McSlarrow was telling con-
gressional committees that the retransmission consent
process was one big disaster waiting to happen.
McSlarrow asserted that broadcasters were acting in
bad faith. He pointed to published reports that TV
station groups were seeking higher rates during the
2008/2009 negotiation period and threatening to
remove their signals if the discussions did not go their
way. McSlarrow insisted that private equity firms were
waiting in the wings to swoop in and harvest the cash
bonanza from higher retrans fees.
Cord cutting – the abandonment of subscription
television by consumers – was a fear for many of the
distribution platforms in 2008 as the recession took
hold. It seemed to be an unrealized worry, as over 2
million subscribers signed up for multiplatform video
services during the year.The winners in this regard were
onofRetrans

3. MANAGEMENT
DirecTV, Verizon FiOS and AT&T. The losers were
generally the cable operators and Dish Network.
But while many cable companies lost subscribers,
most of them still had substantially good financial out-
comes due to the addition of broadband customers.
Meanwhile, the National Association of Broad-
caster’s president David Rehr was arguing in front of
some of these same congressional committees that the
retransmission consent regime was working just as it
was intended to. Disagreements that resulted in station
groups removing their station signals (or the other way
around) were infrequent. Regardless, they did seem to
capture the headlines.
The importance of growing the dual revenue stream
business model that retrans fees afforded stations was
becoming increasingly crucial.The year 2008 was wit-
ness to historic drops in well-known broadcast group
stock prices. TV station advertising was entering a
severe crisis period. While 2008 was somewhat sal-
vaged by the political spending, that sector would dry
up during the next year. As the U.S. was catapulted
into recession, the industry braced for what turned
out to be double-digit drops in advertising revenues
in 2009.
Univision announced well before the Oct. 1, 2008
deadline that it was seeking retransmission consent
fees in place of must-carry status. Les Moonves, presi-
dent and CEO of CBS, restated his aggressive outlook
on retransmission-consent revenue for the company’s
owned-and-operated stations. On the other side of the
fence, ABC announced a program intended to pro-
vide ABC free of fees to certain size operators. And
The Walt Disney Co.’s president and CEO, Robert
Iger, stated that he was less than enthusiastic about his
own ABC owned-and-operated stations. Meanwhile,
contracts did get negotiated; threats were exchanged
and some disruption of service did occur. All in all,
the negotiation process was not as dire as many had
predicted.
The Present Scenario
If we compare the issues that were prevalent in 2008
with what’s of concern today, it’s apparent that the
rhetoric between the competing lobbying arms of
the respective parties seems to be maintaining the
same level of tension, but the actors and scenery have
changed somewhat.
The à la carte concept died at the FCC when chair-
man Martin departed for the Aspen Institute. The
pressure of substantiating the value of any one cable
network or any one broadcaster on the merits of
unique viewership left with him as well.
However, à la carte is still alive elsewhere. The pri-
vate sector has now taken up the banner, and cable
companies are now championing the idea as a way of
combating high fees by certain cable networks. The
implications of this debate on broadcastTV stations is
most likely positive, because no matter how you slice it,
local television affiliates are still commanding the larg-
est total-day viewership on any distribution platform.
That’s not to say that a station’s perceived value still
isn’t a major point of discussion. A former chairman of a
major cable network once told me that the importance of
local programming, such as news and sports, was inverse-
ly proportional to its distance from the target audience.
This is incredibly relevant to any distributor that is try-
ing to sell itself on the merits of its local content, or to a
broadcaster trying to sell its unique qualities to local con-
sumers. Without local content, the multichannel plat-
The Satellite Extension and Localism Act of 2010
(STELA) has given birth to the first truly national
footprint, in terms of a national carrier of television
stations. As a result of STELA, Dish Network is the
only operator in the U.S. offering local television sta-
tions to “eligible subscribers” in all 210 DMAs.
Who is an eligible subscriber? In a nutshell, the
FCChasstatedthatasubscribermayreceivedistant
signals from satellite carriers if:
• The market in which the distant-signal station is
located is deemed to be significantly viewed. The
FCC posts a list of significantly viewed communi-
ties at www.fcc.gov/mb.
• The subscriber is considered to be unserved – in
other words, if an over-the-air signal cannot be
received by the subscriber, and the satellite
company does not offer local-into-local service.
The term local into local is related to the “carry
one, carry all” requirement, whereby if a satel-
lite operator chooses to carry a local station in a
given DMA it then must carry any qualified local
station in the same DMA. Given the STELA stipu-
lations for Dish, only DirecTV subscribers might
be considered to be unserved.
• The subscriber uses the satellite service in an RV
or truck as a fixed attachment.
• The subscriber has been a C-band subscriber and
began service before Oct. 31, 1999.
•ThesubscriberlivesinMississippi,NewHampshireor
Vermont. Those states have special conditions that
allowfordeliveryofout-of-markettelevisionsignals.
If you are a station owner and have elected for
retransmission consent, then you should be able
to negotiate with Dish Network in good faith for a
carriage agreement. If you’re a local station owner
in a small market, you have the opportunity to enter
in to a win-win scenario with Dish Network since it
would be in the satellite company’s interest to claim
the non-cable “local provider” moniker.
STELA’S
STELLAR POINTS
FOR STATIONS
Over 2 million
subscribers
signed up for
multiplatform
video services
in 2008. The
winners in
this regard
were DirecTV,
Verizon FiOS
and AT&T.

4. form becomes a commodity. In today’s environment of
multi-screen options and disruptive technologies, it’s very
important not to be commoditized.
The FCC continues to play a pivotal role in depriv-
ing station executives a good night’s rest. There is an
ongoing full-court press to change the negotiation pro-
cess. What is most often argued is that what is being
asked for in terms of fees by station owners is not tied
to current economic reality. What’s more, if the broad-
casters don’t get what they want, they resort to actions
that are not in the public good, such as dropping access
to stations.
FCC’s current chairman, Julius Genachowski,
appears to be acting cautiously on this issue.The FCC
comment period regarding potential changes to the
retransmission consent negotiation framework has
passed, and a ruling could be in place soon. Odds are
that the status quo will remain in place.
The fact remains that there is a fairness doctrine that
is contained within the 1992 Cable Act allowing broad-
casters to negotiate for fees. And, to date, no broadcaster
has been found to have acted in bad faith.
One substantial event has occurred since the last
cycle of negotiations. The acquisition of NBC/Uni-
versal by Comcast Corp. has layers of complexity relat-
ed to it. For example, we now have the largest cable
company in the country proclaiming with glee how
positive retransmission consent revenue is going to be
for its organization.
More ironically, McSlarrow – the former NCTA
president and now the president of NBC/Universal
– has become a big retransmission consent advocate.
This also puts Michael Powell – who is a past FCC
chairman and the current NCTA president – in a
somewhat strained position; how can he fight retrans-
mission consent as an uneconomic regime for cable
when his largest cable member is stating otherwise?
This ironic rearranging of the deck chairs has given
station groups a unique and potentially strong leverage
position as they attempt to shape the debate in their
favor in Washington, D.C.
All of the above being said, the public handwring-
ing that occurred during the last negotiation cycle still
continues. That’s largely because the economic valua-
tion of a station’s signal distributed via satellite, telco
and cable is continuing to evolve and is not close to
reaching any mature stasis.
The handwringing is all about math. When a station
goesfromgettinglittletonothingforitscarriagetosome-
thing more, the percentage increases are always large.
Figuring Out the Future
According to MediaCensus MediaBiz figures, the
top five cable operators in the U.S. lost over 4 mil-
lion subscribers from the second quarter of 2008 to
the second quarter of 2011. During the same time
period, the two satellite providers added over 2.5 mil-
lion subscribers, and AT&T and Verizon teamed up to
add over 5 million video subscribers. Bottom line, it is
clear that basic subscriber growth over the past three years
suggests market share shifts rather than precipitous “cord
cutting” trends to date. And I don’t foresee large decreases
in multichannel subscribers as a whole.
Successful multichannel distribution companies will
start to talk and act more like large broadband compa-
nies. Glenn Britt, CEO of Time Warner Cable, gave
credence to that at the Sanford C. Bernstein investor
conference. According to press reports, he explained:
“We’ve become less of a TV company than we were
previously. We should have more broadband in homes
that choose to buy satellite for video.”
Local broadcast TV stations are still the most
watched video product on a market-by-market basis,
and that’s likely to continue. But the video distribution
industry will see seismic shifts in the ease of delivery of
television product over the next three years.
The FCC auction of broadcast spectrum is problem-
atic. The underlying issue with this auction process is
that it has been characterized as a sale of unused spec-
trum. Station groups will have to weigh carefully the
advantage of putting more spectrum to work (i.e. get-
ting distribution and monetizing that spectrum) versus
enjoying some short-term financial windfall from an
auction. The Satellite Television Extension and Local-
ism Act of 2010 (STELA) has proven to open some
opportunities for Dish Network. (See sidebar, page 28.)
But while STELA requires Dish to offer local stations
in all U.S. markets, and thus gives stations some lever-
age, it is not a dramatic game-changer for the overall
retransmission consent negotiating process.
The next three years will see more market shifting of
basic-tier subscribers and ever greater availability of vid-
eo programming on over-the-top devices. Anticipating
the future is tough, but do your company a favor and
avoid negotiating yourself into limitations on the deliv-
ery of your television station signals and embrace the
multi-screen opportunities for widest distribution.
Raoul De Sota is senior vice president of strategic
development at Cable Audit Associates, which provides
auditing, assurance and revenue systems management
services. He can be contacted at (720) 407-7546 or
rdesota@cableaudit.com.
Successful
multichannel
distribution
companies
will start to
talk and act
more like large
broadband
companies.
The economic valuation of
a station’s signal distributed
via satellite, telco and cable is
continuing to evolve and is
not close to reaching any
mature stasis.