Top 10 Worst Programming Disputes of All Time

Fierce Cable, a scrappy industry website, has an interesting feature: Top 10 Worst Programming Disputes of All Time. Its a sure-fire discussion topic for any veteran of the cable programming negotiations, although, alas, the conversation probably needs to take place in a bar because few will be willing to discuss their work on the record. That's certainly the case in this article. Still worth a read.

Google Fiber's New Path to Market

One of the not-so-secret issues about Google Fiber is that it takes a long time to run fiber and connect households. Google Fiber has been signing up customers in Kansas City since the fall, more recently, they announced plans to build systems and offer service in Olathe, Kansas (in suburban Kansas City) and Austin, Texas. However, Google Fiber's announcement today offers a new path to market: buy an existing network and offer service on it (in this case, in Provo, Utah). This is a development that bears watching. I imagine every other fiber-to-the-premises providers, particularly ones that are municipally-owned, have a new possible exit strategy in their plans.

Additional: More info on the Google Fiber-Provo deal from Jeff Baumgartner in Multichannel News

It's Complicated: How Broadcast Networks Could Move to Cable

In the wake of Aereo's victory in the court of appeals in the broadcasters' lawsuit against it, News Corp CEO Chase Carey this week threatened to move its Fox broadcast network to cable if Aereo is allowed to continue to offer its service without retransmission consent agreements with the stations. Haim Saban of Univision and Les Moonves of CBS followed Carey with similar statements, "circling the wagons" in the words of The New York Times.

Aereo does not need such agreements because it is not providing a single, community antenna which rebroadcasts the stations to many subscribers, as cable does, but is rather renting antennas to individual subscribers and sending the feed to each subscriber from his or her antenna. To date, the courts have found that Aereo is not providing a "public performance" of a broadcast station, which requires the station's consent, but rather a private performance, the same as one would get in one's home with an antenna on the roof.

The threat to Fox (and all the other broadcasters) is that the multichannel TV distributors are generally paying cash fees for the stations' consent to retransmit the signals. The threat to the broadcasters is less the success of  Aereo, which likely has a modest number of subscribers, but more the possibility that the big distributors (e.g., Comcast, Time Warner Cable, DirecTV) will set up similar systems for providing local station signals. (Actually doing so might be pretty complicated for the distributors given their existing agreements for the broadcast stations, agreements for the same companies' cable services, set-top box capabilities, and their lack of an "antenna farm" of sufficient size to provide antennas for all of their customers, particularly in their larger systems).

What is undeniable is that without retransmission consent fees, the stations would be far less profitable. This revenue stream, which was a long time in coming, is now baked into every broadcasters' financial projections and expected to grow.

Carey is envisioning a system where this move is done in cooperation with the local Fox affiliates.

How would that happen?

1. The local Fox affiliate would have the exclusive right to distribute Fox programming to all multichannel systems to which it currently distributes its signal.
2. Fox and the stations create a second feed of the local station which would likely include all of the local news programs from the station, but little of the high-cost, high-value programs (e.g., NFL games, American Idol). The second feed would be distributed over-the-air.
3. The first feed, which has the mix of programs currently on the station, would be distributed only via multichannel distributors who had retransmission consent agreements with the station.
4. The advertising time in both feeds would be sold by the network and the stations, as is done currently.

For the stations and the network, this approach would preserve the leverage of negotiating with the multichannel providers over the highest value Fox broadcast programming and, presumably, preserve the stream of retransmission consent fees (although, now that this programming is not available over-the-air, it would more properly be called affiliate license fees, just like it is with a cable network like CNN or ESPN). The advertising sales businesses (national and local) would suffer a bit -- about 85% of households have multichannel subscriptions, so only those households would get the Fox NFL games and that means there would be fewer potential viewers for the ads in those games. My guess is that retransmission consent/affiliate license fee revenue retained would be larger than the lost advertising revenue, so, in the minds of the network and stations, they are better off taking this hit on advertising revenue than losing the second revenue stream.

The obvious loser is this scenario is the household that relies on free over-the-air television. They would still receive an over-the-air service, but it would be a lot less attractive than it is currently.

However, it is hard to imagine that this change in broadcasting could occur in this way without the issue becoming a political one. The broadcast stations receive free spectrum from the government ("the public airwaves") to supply the free service that they have been supplying for decades. To, in effect, change the deal, all at once, by taking the high profile programs away from the public seems likely to generate concern, as both an owner of Fox affiliates and the president of the National Association of Broadcasters noted, in a way. 

Fox Gone Cable, the former tagline for FX -- eerily prescient?

Carey's suggestion that Fox will "go cable" may be more a threat to play with Congress -- require Aereo to negotiate with us (if we can't stop Aereo via the courts), or we'll take away free TV -- than a viable strategy. After all, Congress could alternately decide to simply eliminate retransmission consent and make all broadcast stations subject to must carry, the way this issue is handled in several other countries.

It is interesting that nowhere does Carey suggest that the Fox stations would give up their broadcast licenses with this move to cable. If they were to do so, it is not hard to imagine there would be a long line of other companies interested obtaining them.

The viable strategy that is available to News Corp (and the other major broadcasters) is to simply shift individual programs over time to the cable networks that they already own. This would continue the trend of the past two decades, particularly in sports, where many of the high profile events have moved from broadcast to cable, with Disney's shift of Monday Night Football from ABC to ESPN in 2006 is just one of many examples.

Other takes: New York magazine's Vulture, TechCrunch

Verizon FiOS Likely Not Changing the Cable Deal Structure

There has been a buzz throughout the cable dealmaking industry based on the article in the Wall Street Journal about Verizon FiOS's chief programming negotiator, Terry Denson and his attempt to put in place a new cable deal structure for cable programming services.

Verizon, whose FiOS TV is the nation's sixth-biggest pay-TV provider, with 4.7 million subscribers, has begun talks with several "midtier and smaller" media companies about paying for their channels based on audience size, according to Terry Denson, the phone company's chief programming negotiator. He declined to identify any of the media companies. 

Under existing arrangements, distributors like cable and satellite operators pay a monthly, per-subscriber fee to carry channels based on the number of homes in which they agree to make the channels available, regardless of how many people watch those channels. 

"We are paying for a customer who never goes to the channel," Mr. Denson said.

There are more than a few challenges for Terry if he's serious about this pursuit.

• It is hard to change the industry standard deal structure when you represent only 5% of the market.
• It is difficult, perhaps impossible, for any established programmer to go along with this unless the programmer plans to use this structure across the board. Most favored nation's provisions are typical for the "midtier and smaller" channels.
• The programmer's already have a revenue stream that varies with viewership -- their advertising. Having both revenue streams dependent on viewership would make their business model more volatile which is not more attractive to a network's investors.
• The affiliate fee structure was designed for and by cable operators. MSOs would only pay when they signed up customers and in proportion to the ones that they signed up. They got content without having to pay minimum guarantees. Such a deal structure was flexible to account for systems being bought and sold.
• It is not clear that this deal structure really fits Verizon very well. Verizon doesn't charge customers any less when they watch fewer channels. If a channel is getting higher than expected viewership, it would create a cost problem for the distributor without any offsetting revenue doesn't seem like a move in the right direction.  

I have always found Terry Denson a bright guy and I applaud anyone taking a fresh look at the standard practices of their industry. However, to my eye this is a deal structure that a distributor could only get in a situation where the distributor could dictate terms to the network. I think any network's investors would be very concerned about going in a direction that has no comparables. The only programmers who would accept that are programmers who are in a very weak, perhaps desperate bargaining position. In my experience, those aren't the deals that are difficult for a distributor to get done. A distributor can easily mitigate the risk of a channel that never gets viewed by doing a short-term deal or by writing in some sort of performance standard (e.g., if viewership is below a threshold, the distributor gets a lower fee or a right to terminate).

One wonders if the FiOS business plan itself needs some work. Frontier acquired several FiOS systems from Verizon and has effectively scaled down the FiOS TV systems they acquired by raising installation and subscription costs and not marketing the service. That suggests that the FiOS TV businesses was not generating a whole lot of margin for Frontier.

Other takes: Fierce Cable (Steve Donohue), CNET (Don Reisinger)

Fox Sports 1 and 2 - The Strategy of Abandoning Your Niche

According to a report last week on Bloomberg, the long rumored conversion of Fox's Speed Channel to a general sports service/direct competitor to ESPN called Fox Sports 1 is taking a step closer to reality with meetings planned with advertisers to begin in early March. The other key info in the article is that the thinly-viewed Fox extreme sports channel Fuel will become another general sports service to be called Fox Sports 2 (much like ESPN2). The channels are planned to be on the air in August 2013 and "expand their offerings" in 2014. Bloomberg quotes SNL Kagan as saying that Speed currently costs distributors an average of 22 cents per subscriber per month and Fuel costs an average of 15 cents, but that Fox is asking 90 cents to $1 for Fox Sports 1.

This is the logo for an Australian service called Fox Sports 1. The US service may very well have a different logo.

These changes represent a continuation of the trend of networks establishing themselves in a distinctive niche to gain distribution, then broadening that niche over time to be more competitive with and more similar to other larger appeal channels already on the dial.

• Outdoor Life Network becomes a general sports service as NBC Sports Network.
• College Sports TV becomes a general sports service as CBS Sports Network.
• American Movie Classics (now just AMC) branches out into producing original dramas, moving away from classic movies.
• Court TV dramatically reduced its legal coverage and becomes reality-oriented Tru TV.
• Bravo dramatically reduced its arts coverage and become a more reality-oriented channel.
• History expands beyond historical programming to add reality shows.

Essentially these programmers decided it was better to share or compete in a bigger niche than to own their current, smaller one.

For the programmers (and the distributors), these new services, rather than having protected niches that allow them to acquire and produce quality programming inexpensively and promote it efficiently, are now bidding against a large number of other channels for many of the same programs and having to promote widely to reach a wide audience. In a word, cable programmers have, in effect, become broadcasters.

The impact of this is that instead of getting services tailored to underserved niche audience (that communicates the variety of programming on the cable dial), the dial now has more me-too services. Attractive, well-programmed services, but me-too services nonetheless and the cost of these new services to distributors is substantially higher than the cost of their nich-ier predecessors.

In fairness, when multichannel penetration is 85%+, there simply isn't much upside left to attract new cable subscribers. However, on the surface the move to "broadcasting" actually seems like a poor strategy for programmers. It is generally more desirable to grow from a protected niche than to leave that niche. By this I don't mean that the business should stay small in its niche, only that it should endeavor to expand and strengthen what Warren Buffet calls the "economic moat" that protects the business.

There is certainly nothing wrong with a service retooling itself to become more popular. SyFy has continues to serve its science fiction niche with far more original and expensive programming than it ever had as the Sci-Fi Channel.

Below the surface, the logic of the programmers' moves looks clearer. The programmer's fear is that the niche turns into a dead end. Once Pro-Am Sports System lost its rights to the Detroit Red Wings hockey to Fox, the writing was on the wall and its owners closed the service.  AMC faced the issue of a dwindling supply of classic movies when Turner Classic Movies entered the marketplace -- it had to do something different. Similarly, when Fox Soccer Channel lost key fútbol rights, there wasn't much it could do to maintain a service of similar quality in that genre. A general sports service can substitute other sports programming; the Golf Channel can't start running baseball or lacrosse or poker.

is poker a sport?

So, this change likely makes a ton of sense for Fox, but is probably not a change that the distributors were requesting. The distributors don't need another bidder driving up the price for top-tier sports rights and presenting them with the bill. The fact that it is happening does underscore the reality of the current programmer-distributor marketplace, namely that the programmers have far more leverage now than they did in the past -- a function first and foremost of the greater competition among distributors (cable, DBS, telco, "traditional" overbuilders, Google Fiber, Aereo). Motor sports fans will lose a dedicated destination for their sport. The big motor sports events will find their audiences, but the smaller events likely will suffer from lack of a consistent home. Fox competing with ESPN does not help the distributor negotiate with ESPN because taking ESPN off is not a credible threat. 

While distributors always complain about the cost of cable channels, the strategy of investing heavily in programming, especially when the channel's distribution has been built, has long been a far more successful strategy for channel operators than putting on less attractive programming with modest spending. If it were in the business interest of the distributors to to support the latter strategy, they would have done so.

For a sports programmer, the move from a single sport niche to a general sports service seems to be moving opposite the trend of the last fifteen years which saw the launches of services dedicated to sports niches: Golf, outdoor sports (Outdoor Life, Outdoor, Sportsman), motor sports (Speed), Tennis, Fox Soccer, Gol TV, MLB, NFL, NHL and NBA. Obviously, the league-owned services do have the strategic advantage of controlling the supply of relevant rights.

The large programmers already an "economic moat" from their scale in providing a critical mass of programming, it need not be a channel-by-channel thing. It is not a feasible decision for a major distributor to simply do without CBS or Fox or Disney/ABC/ESPN or NBC Universal. Covering all the broad channel niches (news, sports, kids, women, etc.) can help on the cost side, too, by allowing the programmer to utilize just about any programming that is either (a) lying around in a library or (b)  is bundled by a program seller into a package with something the programmer really wants (e.g., Weinstein's films were bundled with Project Runway for sale to Lifetime) and that is a plus. So the niche strategy that works well for an independent channel, like Speed's predecessor Speedvision, might have outlived its usefulness in a major programmer.

Updates (5 March 2013): Fox COO Chase Carey on the Fox Sports 1 investment (deadline.com); coverage of the official announcement (New York Times); official logo unveiled -- more bug-shaped, I guess the yellow trim was a no-go; I assume the football-like shape is no accident

Related: New Names for Cable Networks

CBS Hates on the Hopper Some More, Claims Fraud

According to a story this week in the Hollywood Reporter, CBS has taken legal action to terminate and/or receive damages under its retransmission consent deal with Dish Network on the grounds that Dish fraudulently concealed its as-yet-unreleased Hopper DVR functionality.

The papers quote a December 16, 2011 email from CBS executive vp  Martin Franks to Dish executive David Shull that allegedly made it clear that CBS was not "looking to have this arrangement include new businesses that DISH may choose to enter into in the future, whether they be Netflix-like businesses, new mobile services, or other new platforms."

The grant of rights is an increasingly complicated topic in retransmission consent agreements between broadcasters and distributors. The standard for the grant of broadcast rights is codified in the FCC must carry regulations. Cable operators carry the linear channel of programming as supplied by the broadcaster on a full time continuous basis without editing or other interruption.

CBS - the greatest logo in television

Cable networks, in contrast, often grant broader rights to use their content. For example the programmer might allow the channel to be encoded to be delivered within the subscriber's home to computers, tablets and phones. Alternately, the programmer might allow certain programs to be made available on a video-on-demand basis. Either the live channel or selected programs might be made available to subscribers outside of their homes (e.g., TV Everywhere).

Further, a distributor might wish to have the right to distribute content online unrelated to its delivery of the linear channel to cable video subscribers. For example, the operator might look for the right to operate their own iTunes-like store with video downloads of select programs (for free or for a fee). To the extent that anyone actually launches a virtual MSO (delivering a cable-like package of services over-the-top, without necessarily owning the connection into the subscriber's home -- Sony, Microsoft, Intel, Apple and Dish Network are among those rumored to be interested in such an offering and Dish already delivers some international channels on such basis as does religious broadcaster Sky Angel), it is clear from Martin Franks's quote above that CBS was not planning on granting such rights to Dish.

But is the Hopper a new platform that requires a broader grant of rights from a programmer? It is hard to see how that is the case.

Hopper is the big box, its hard-drive-less second-set companion is the smaller box (Joey)

For those unfamiliar with Dish's Hopper, Hopper is a souped-up DVR that can, with a single request from a user record all the Big 4 Network prime time programs and with a second request, skip all of the advertisements in such programs when they are played back. The DVR technology itself is not significantly different from other DVRs. Hopper has more tuners than usual (4 vs. 2) and more storage space than usual (2TB versus hundreds of MB in older cable DVRs).

I think it is unlikely that CBS has restrictions in its retransmission consent agreements addressing the number of tuners nor the storage capacity of the DVRs deployed by its affiliates.

The other deviations from the common DVR are the programming innovations which really constitute a few things. (Programming, used here, meaning the user selecting which content to record.)

The Hopper includes a new extended variation on the "season pass" programming option. Rather than recording every airing of a particular show -- which networks love, note this "set your DVR" campaign for Fox's new series The Following -- it will record ALL the Big 4 broadcast prime time shows. Instead of record all episodes of this show, record all shows between 8 and 11PM (7 and 11PM on Sunday) on ABC, CBS, Fox and NBC. An ordinary DVR could do the same thing, but would require MUCH more work on the part of the user (each program would have to be selected individually and any changes to the schedule would necessitate another individual selection - e.g., when Sunday Night Football ends and something else slides into that time slot on NBC). Anything that encourages more viewing (like recording) would seem to be a good thing for a programmer. Given that the broadcast programming is now more conveniently available than cable programming (which is not so easily recorded), it seems that, if anything, Dish is helping the broadcasters by offering this functionality.

It appears that one of CBS's arguments is that the Hopper is some sort of de facto VOD system (an argument Fox makes in their lawsuit). However, it seems that Fox's argument could equally be applied to any DVR and the fact that DVRs existed at the time that Fox entered into a VOD agreement with Dish would suggest that both sides understood VOD and DVR to be two different things.

Then there is the Hopper's automatic-commercial-skipping "AutoHop" functionality. This feature is the real rub for the broadcasters. With AutoHop engaged during playback of a program, the program jumps from the end of one program segment to the start of the next, "hopping" over the commercials. (How effective it is at skipping network advertisements, local advertisements, promotional spots, etc. I do not know, as I don't have the device -- please comment if you do.) What's interesting about AutoHop is that is does not have to do with making copies and copyright is the basis for the programmer's control of its rights.

It is widely believed that most people who use DVRs do not watch the commercials when they watch their recorded programs. This is a behavior has been extensively researched by Nielsen. If there continues to be substantial commercial viewing going on in recorded programs it is unclear if viewers are forgetting that they can skip the commercials (because watching the recording feels like watching a live program and watch television to veg out) or if they are enticed by the commercial content (an ad for a soon-to-be-released movie may not be something to skip if you are interested in the movie). 

Perhaps the current data are not sufficiently pessimistic about the viewing of commercials in DVR playback. It could be that DVR users are not yet fully attuned to living with the device and will fast-forward through more commercials as they become more habituated to it. 

One thing is abundantly clear, no one likes the idea of "having" to watch commercials, so a single button which shuts them off is a pretty attractive proposition for viewers. For those who see the DVR as a throwdown, a creative challenge to advertisers, the Hopper makes that a no-win game. It is not hard to be sympathetic with the programmers in that respect, the game is changing on them, through no fault of their own.

Of course, that is the nature of life. We must adapt to change, 

Right now, television programming is supported by a mix of advertising and user payments. To the extent that Hopper-like DVRs make the advertising business less attractive and...big assumption...the big brand advertisers have someplace to go and stop spending as much on Big 4 broadcaster advertising inventory, then either broadcasting becomes less profitable or the user payment proportion will have to go up. 

As I look at this issue, it is not hard to be struck by the history of the sale of broadcast television advertising. There is recent history that a change that should have devalued broadcast network advertising -- the rising viewing of cable networks and the concurrent drop in the audience delivery for broadcasters -- did not seem to destroy the broadcast advertising business. In fact, the broadcasters, despite far smaller audiences than they had 20 years ago, charge far more for their audiences now. They are still are a superior reach vehicle.

If the court does not find for the broadcasters in their disputes with Dish, there is still recourse available to them. After all, the broadcasters negotiate with Dish for the carriage of their programming. To the extent that CBS believes that the Hopper is having a negative impact on its advertising business, CBS is free to propose a renewal of the retransmission consent agreement (whenever it expires -- and there probably won't be too many Hoppers deployed before that date arrives) in which rate structure that reflects the Hopper's impact. For example, Dish might pay CBS $2 per subscriber per month for all subscribers who receive a given CBS station but get a $1 discount for subscribers who do not have an AutoHop DVR. The gradations could get much finer than this. Customers with no DVR (or perhaps a new one that automatically deletes programs after the end of the C3 window) might get the lowest rate, customers with small-capacity, single tuner DVRs a slightly higher rate, etc. Broadcasters negotiate exactly these sort of things when they negotiate VOD rights (availability windows, disabling fast forward functionality). To the extent that the broadcasters want to negotiate DVR functionality with the distributors, they can always make such requests. However, to the extent that they do so, and distributor DVR functionality is curtailed or priced at a premium, it will create an opportunity for third party DVRs (e.g., TiVo, Windows Media Center) which are do not have to negotiate such rights with programmers.

Much of what is different about the Hopper is what is also inevitable -- with more tuners and more storage space, and more sophisticated and simple programming options -- the nature of the DVR will change from something whose use is limited to a handful of programs stored for a modest amount of time to something that could store large numbers of programs effectively for as long as the subscriber might want to keep them. Unless the Betamax precedent is thrown out, it seems that the broadcasters are going to have to find a way to negotiate this new environment.

Sony Betamax, circa 1984

Updated (28 Jan 13): Per The Verge, CBS has taken the unusual step of not allowing its CNET subsidiary, which reports on consumer technology, from reporting on the Hopper or Aereo, because the parent company is suing both firms. Somewhere, Frank Stanton is rolling over in his grave.

Earlier: post about the Hopper's introduction (13 Jan 12)

Updated (12 Feb 13): Dish has rolled out a new Hopper commercial, about the death of commercials.

I don't understand why they use "Boston Guys", when Dish is far more popular in the West and actually less penetrated in Boston than most places.

Will Fox Soccer Become FX2? A Brief Run Through Network Rebranding

According to an article in today's LA Times, Fox is considering rebranding its Fox Soccer Channel to be an entertainment service similar to its FX. In fact, it might be called FX2.

This change would be on the heels of the long-rumored conversion of Speed Channel to a more direct competitor to ESPN with the name Fox Sports 1.

I have not researched this issue that fully, but it seems that the conversion of the format of cable programming channels has accelerated in the last decade. (I've got a running list of significant name changes going here).

Channels changing formats is a symptom of the greater leverage programmers have vis a vis distributors. When cable was a monopoly business (which ended in part when DBS entered the market in the early nineties and accelerated when DBS got the right to provide local broadcast signals in 1999)  there were few in-genre competitors to the top cable services. Distributors (and subscribers) got services like BET, American Movie Classics, HGTV, Food and History instead of another sports or news or general entertainment network. The most important concept that distributors wanted in a new channel was to expand the variety of their offerings. Since basic cable prices were going up, saying that you were offering a channel providing something new and different was a good story and especially valued was a channel that could bring in new subscribers. That's why we got Speed and Golf and Outdoor Life and Tennis instead of another general multi-sports service just like ESPN.

It didn't have to be this way. ABC, CBS and NBC were (and still are) virtual clones of each other offering the same kind of programs (sports, news, kids, entertainment) at the same times (weekends, after dinner, Saturday mornings and prime time). Cable programming could have developed upon those lines -- with more USAs and TBSs, but the niche channel approach was much better for the system (meaning the multiple system operators, the distributors who called the shots).

Channels with original programming in their own niches could control their costs -- CNN created its own programs, ESPN wasn't bidding against anyone else for the rights to secondary sports events, Discovery wasn't bidding against a lot of others for documentaries, the off-network "movies of the week" ended up on Lifetime. Channels with their own niche also had an easy time promoting their programming -- each channel offered a dependable destination for a certain kind of programming -- the program guide was not as necessary for cable services as it was for broadcasters. For the distribution system as a whole, the worst thing would be to have lots of channels that were bidding against each other for the same kinds of programming with the winner presenting a bill to the distributor for the cost of the high bid. In other words, exactly the situation they face now with top sports rights.

Update (28 Jan 13): Per Deadline, the conversion of Fox Soccer will be part of a plan to split FX's programming across two channels with drama on the flagship FX network and comedies on the new channel to be dubbed FXX. This echoes the split of Turner's entertainment networks into comedies (TBS) and dramas (TNT).