What is a retransmission fee?
Retransmission fees are the fees that cable and satellite television providers in the United States pay to compensate over-the-air television networks for the rights to re-transmit their broadcast signals to a Pay TV audience.
Retransmission fees have become an increasingly important source of revenue for traditional television networks who have seen declining advertising revenue as a result of audiences shifting their viewing habits to Pay TV, and later to Over-The-Top (OTT) video streaming services like Netflix.
Retransmission fees have been the subject of controversy and debate between traditional broadcasters and Pay TV providers in the United States since the Cable Television Consumer Protection and Competition Act (the “Cable Act”) was passed in 1992.
What is retransmission consent?
Retransmission Consent is a provision of the 1992 Cable Act that requires cable and satellite TV providers, multichannel video programming distributors (MVPDs), and other Pay TV operators to obtain permission from broadcasters before carrying or retransmitting their programming.
The Retransmission Consent provision gives traditional broadcasters the ability to ask for monetary compensation or other forms of consideration from Pay TV providers who wish to retransmit their signal. If a retransmission consent deal cannot be reached with a Pay TV provider, broadcasters have the right to prohibit that provider from retransmitting their signal.
Retransmission fees vs affiliate fees – what’s the difference?
Retransmission fees and affiliate fees both involve MVPDs paying fees to carry content, but they aren’t quite the same thing.
As stated above, retransmission fees are paid by cable companies to over-the-air broadcast networks as compensation for retransmitting their signals and content to a paid audience. In contrast, affiliate fees – also known as carriage fees – are paid by cable companies to content owners and content producers as compensation for carrying their TV channels on the cable provider’s service.
The major recipients of retransmission fees are traditional broadcast networks like ABC and CBS, while cable operators pay affiliate fees to content producers and owners for in-demand channels like MTV, ESPN, NFL Network, TNT, and the Disney Channel. Cable systems operators spend billions on affiliate fees each year to build a channel lineup that entices audiences to subscribe to their services.
How do retransmission fees work?
Retransmission fees are negotiated between broadcast stations and pay tv providers
Retransmission fees are negotiated between traditional over-the-air broadcast TV stations and the satellite and cable companies that provide Pay TV.
Major networks like NBC (owned by NBCUniversal under Comcast), CBS (owned by Paramount Global), ABC (owned by The Walt Disney Company), Fox (owned by the Fox Corporation), The CW (owned primarily by Nexstar Media Group), and PBS (a publicly-funded television network operated by the Corporation for Public Broadcasting) earn millions each year in retransmission fees.
Those retransmission fees are paid in large part by America’s biggest MVPDs, including cable companies like Comcast, telecoms like AT&T, and satellite TV providers like DirecTV and Dish Network.
Retransmission deals involve, cash, consent, and other considerations
Under the Retransmission Consent rules established in the 1992 Cable Act, broadcast networks can either require cable operators to carry their signal at no cost, or they can ask for monetary compensation (retransmission fees) or other considerations from cable TV providers in exchange for consent to retransmit their programming.
As an alternative to cash retransmission fees, broadcast station owners may ask cable networks to distribute secondary channels as part of a retransmission consent agreement.
Traditional broadcasters depend on revenue from retransmission fees
When cable television started to replace traditional over-the-air broadcasting in the 1960s, the Federal Communications Commission (FCC) established must-carry rules, requiring cable TV operators to carry all significantly viewed local broadcast stations.
After must-carry rules were deemed unconstitutional in the late 1980s, the 1992 Cable Act created retransmission consent provisions as an alternative to must-carry.
With the ongoing trend of cord-cutting and the declining viewership of broadcast television, station owners are increasingly dependent on retransmission fees as a source of revenue.
Station owners are also seeking fees from vMVPDs who are transmitting their content via the Internet. Broadcasters are pushing to negotiate directly with the OTT services to earn revenue for their local content.
Cable operators criticize retransmission consent requirements
The cable operators who pay retransmission fees to television stations have criticized the legislative branch of government and the FCC over retransmission consent requirements.
The two main criticisms are that:
- Retransmission fees force cable companies and their subscribers to pay for content which is normally distributed for free over-the-air.
- Retransmission consent laws give television networks too much leverage in fee negotiations with cable companies.
Ultimately, they claim that the hefty fees are unfair and make it harder for MVPDs to compete with streaming services.
Failed retransmission fee negotiations can result in channel blackouts
When a cable provider and a broadcaster can’t agree on retransmission consent fees, the result is often a channel blackout where the broadcaster prevents the cable company from airing its content.
In one recent example, TEGNA instituted a blackout with DIRECTV blocking 64 local stations for several weeks until the two parties negotiated a new deal that will last for the next three years.
Retransmission fee agreements are growing in complexity
As broadcast stations have grown increasingly dependent on retransmission fee revenue, their agreements with MVPDs have grown in complexity.
In the past, it was common for retransmission fees to be calculated using a simple “rate per subscriber” model, where cable companies would pay retransmission fees ranging from $0.10 to a few dollars per subscriber per month. However, today’s rate calculations have grown increasingly complex with factors like signal footprint, carrier penetration, and reverse compensation now frequently included in retransmission consent agreements.
As a result, it has become increasingly time-consuming and costly for television networks and broadcast stations to accurately and efficiently ensure that cable operators and MVPDs are complying with retransmission fee agreements and paying accurately.
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