Cable's Content Compensation Battle and the Future of TV

It's a new day, a new decade, and content creators are demanding to be paid more by cable broadcasters. Back in the day, when cable companies were introducing new channels, they gave them away for very little, looking to build up a fan base to grow ad revenues. Now cable channels know their viewers are worth far more than just ad revenue, and they're going after that recurring compensation. Cablevision and Scripps Networks Interactive are stuck in a standoff over the value of Food Network and HGTV, and customers are paying the price.

Scripps Networks Interactive pulled its Food Network and HGTV from 3.1 Cablevision subscribers on New Years day as it negotiates a new contract. Scripps says that Cablevision pays it much less than the cable broadcaster spends on much *less* popular networks. Today the President of the Food Network came on CNBC, saying that the channel is amongst the top ten cable channels, but its payment is 76th out of the top 80 cable networks.

Cablevision argues that Scripps is demanding a 200 percent fee increase that would hike customer costs, saying Scripps acted in an "Irresponsible" way when pulling the channels. Sharply-worded statements have flown back and forth, Cablevision saying "if Scripps really cared about their viewers Scripps could have put their programming back while we negotiate a new agreement."

Times have changed since Cablevision and Scripps last negotiated. Scripps was willing to take deep discounts on cable distribution fees to secure distribution, growing viewers and ad dollars. But times have also changed for cable broadcasters. A weak real estate market has hurt subscriber growth - new homeowners were a classic way to add new cable subscribers. And of course cable companies like Cablevision face competition from satellite TV. And then there are the telecom companies entering the space, like Verizon's FIOS, which is making inroads in Cablevision's territory.

The Cablevision Scripps stand-off continues even as Time Warner Cable and News Corp resolved their conflict over compensation for Fox Broadcast Network. News Corp had demanded $1 per subscriber, per month, while Time Warner Cable had said it was willing to pay 30 cents per subscriber per month. They wouldn't reveal the terms of the deal they struck at the very last minute-- just an hour before the "Sugar Bowl" game started playing on Fox - but News Corp's Chase Carey called it a "fair agreement, one that recognizes the value of our programming," while Time Warner Cable CEO Glenn Britt called it "reasonable."

Analysts say Time Warner Cable is likely paying about 50 or 60 cents per Fox subscriber, per month, which would add up to more than $200 million a year. That's not a needle-mover, but it's no small potatoes, and it could mean a lot if this sets a standard for other deals moving forward. It seems safe to say that this higher compensation will set a precedent both for Fox's deals with other Pay-TV distributors as well as other media conglomerates' deals. Disney/ABC's deal with Time Warner Cable comes up at the end of this year and we can expect the media giant to drive a hard bargain.

Now there are a few wild cards. How will growing distribution of TV content free over the Internet affect the amount that cable distributors are willing to pay for content? And will cable subscribers, frustrated by high costs of cable subscriptions "pull the plug" for the dozens of channels they can get for free over the Internet or straight to their TVs with Bunny Ear Antennas?

Questions? Comments?