US broadcast tensions highlight problems much closer to home

A huge spat is taking place in the US between CBS and Time Warner, with millions of customers losing out – and despite the differences between the US and UK broadcast industries, the row highlights some serious concerns much closer to home says Raymond Snoddy.

An entertaining row has been raging in the US over the apparently arcane issue of carriage, or retransmission fees – how much cable networks pay for the right to carry network television channels.

The row has got so bitter that cable giant Time Warner has actually removed some CBS channels from its systems. As a result, more than 3 million cable subscribers from New York and Dallas to Los Angeles have lost access to Showtime and CBS itself on CBS-owned local stations.

Cue furious rows and anger from viewers who have lost channels because of the intra-industry stalemate. CBS has even taken to advertising on television to appeal to viewers to call Time Warner to complain.

The details of the bitter negotiations between the two sides are confidential, although it seems that CBS is seeking to double the money it gets from Time Warner from $1 a month to $2 to reflect rising programme costs and falling advertising revenues.

The numbers seem relatively small to provoke a nuclear response such as turning the channels dark. However, other issues that reveal a lot about the nature of the broadcasting industry in the US are lurking just below the surface.

The Los Angeles Times has reported that Time Warner has also been seeking conditions that would place limits on the ability of CBS to sell its content to over the top (OTT) operators such as Netflix. Cable operators are worried that cheap and cheerful packages of content delivered via broadband will cost them subscribers.

As part of the battle against the OTT operators Time Warner wants the right to offer the CBS channels on iPads and mobile phones outside the home.

Naturally CBS wants to be paid more for that.

The spat clearly reveals some of the financial tensions in the highly competitive American communications business but has it anything to do with the very different world of UK broadcasting?

Perhaps it does. The attentive will have noticed one important thing. The US row is not about whether CBS should be paid for its expensive content – even though anyone can get the main CBS channel free-to-air by simply sticking up an aerial.

The issue is entirely about how much the platform operator should pay the broadcaster for the use of its valuable content, given that most people now actually receive such channels on cable or satellite.
There is absolutely no challenge to the principle that Time Warner should pay and any suggestion that CBS would have to buy its way into cable access would be greeted with incredulity.

So how come the BBC and the other public service broadcasters have to pay Sky for the privilege?

Although the amounts have halved in recent years the BBC still pays Sky £5 million a year and together the public broadcasters pay Sky £10 million a year.

The BBC argues that these charges are an anachronism and amount to money flowing in the wrong direction. They date from the early days of satellite when Sky was a tiny company in danger of collapse and very much in need of help.

Sky will understandably try to hang on to everything it has at the moment and point to the billions invested in its network.

The satellite broadcaster is sitting on a weak case – not least because of the US experience.

If satellite needed subsidy in the early days then the company that recently announced £1.26 billion in pre-tax profits for the year to June hardly needs subsidy now – when the sum involved is a £10 million anomaly.

If any broadcaster needs subsidy in difficult times it is the BBC, although it would better if the Corporation could stamp out the sort of managerial incompetence that led to the loss of £100 million on its grand digital designs.

The fact that the cost of the carriage fees have halved in the past two years suggests that even BSkyB realises it is on difficult ground here.

There is a small row in the making in that the BBC director-general Tony Hall is looking for any sums, however modest, to alleviate the impact of the cost-cutting programme launched by his predecessor Mark Thompson.

There has even been a bit of sabre-rattling by the BBC with threats being made that the Corporation will consider charging Sky for its content unless the fees are dropped.

That particular threat is unrealistic in that it is difficult in principle to argue that the BBC should be paid again – ultimately by licence payers – for programmes that have already funded through the licence fee.

It is equally difficult to imagine the screens of satellite viewers going dark on American lines.
But public service broadcasters actually handing over money to Sky is a different matter and ITV as a commercial broadcaster could make a good case for payment.

The BBC has obviously been lobbying on the issue and has the Government on its side.

At the beginning of the year broadcasting minister Ed Vaizey called on Sky to drop the charges and create a “level playing field” because after all the public broadcasters do not have to pay to be carried by Virgin Media.

Vaizey even went further and suggested that legislation could follow if Sky didn’t “voluntarily” create that even playing field within the next 12 to 18 months. Eight of those months are already up and the clock is ticking.

Sky is always the toughest of negotiators – although equally it always sticks to agreements once they have been made. On this occasion it could create a lot of goodwill in the industry by simply agreeing to drop the charges rather than kicking and screaming to hold on to a sum that is relatively trivial in the greater scheme of things.

Such a move would also have the advantage of pre-empting an inevitable political defeat on the issue.
The ideal platform to be magnanimous would be next month’s Royal Television convention in Cambridge in front of the great and good of the television industry and Culture secretary Maria Miller.

After all BSkyB believes passionately in the free market and deregulation – just like CBS.