TV blackouts in the U.S. have reached the highest level in a decade and may climb as pay-TV operators fight higher fees sought by content providers.
Disputes over fees have caused five blackouts this year, the most since 2000. They have affected about 19 million pay-TV subscribers, leaving some viewers without access to the Oscars and New York Knicks games. Dish Network Corp., Cablevision Systems Corp. and AT&T Inc. all lost programming while haggling over costs.
Feuds will escalate as pay-TV companies resist the increased fees they typically try to pass on to subscribers in the form of higher cable bills, said Rich Greenfield, an analyst at BTIG LLC in New York.
“There is increasing pressure for distributors to push back on rate hikes in a tough economy where the consumer is struggling,” Greenfield said in an interview. “As programming costs continue to rise, these battles are becoming bigger and higher profile.”
Content expenses, which total about half of pay-TV companies’ operating costs, have increased about 10 percent in the past year, putting pressure on profit margins. Cable bills climbed about 8 percent on average for the year ended in June, according to researcher SNL Kagan.
Cablevision and Dish are currently negotiating with News Corp. over fees for Fox, the home of shows such as “Glee” and “American Idol.” Cablevision’s contract with News Corp. ends on Oct. 15, and Dish’s expires on Nov. 1. If agreements can’t be made by then, Fox could go dark on both carriers.
“It would be terrible business practice to allow any distributor to secure a signal without a valid contract,” Fox said in a statement. “If a provider were to decide to pass on a reasonable offer — one that was consistent with our other distribution agreements — then legally they could not re-sell our signal to their subscribers.”
High unemployment and stagnating wages are threatening the consumer’s willingness to pay steeper prices for television services, especially when there’s cheaper alternatives such as Web video and movie-rental provider Netflix Inc., said Chris Marangi, an analyst at Gabelli & Co. in Rye, New York.
“Cable and satellite operators are losing their pricing power,” Marangi said in an interview. “To the extent that there are cheaper alternatives and the economy remains weak, it gets harder and harder to pass along these price increases.”
Content providers, including Burbank, California-based Walt Disney Co., are further aggravating pay-TV companies by offering shows for free on competitive platforms such as Hulu.com, while making distributors pay premium prices for the same programming.
“The idea that the programmers, who are charging more for their programming, are then taking that programming and making it free on the Internet — that really pushes the envelope,” Jim Dolan, chief executive officer of Bethpage, New York-based Cablevision, said at an investor conference Sept. 16.
This month, News Corp.’s Fox cut its broadcast signal of 19 local sports channels, FX and National Geographic, to Dish subscribers because of a dispute over rate increases. Disney’s WABC-TV pulled its signal to Cablevision customers in March, leaving 3 million homes in the New York without access to the first 13 minutes of the Academy Awards telecast.
“In tough economic times we need to take a tougher stance against programmers to be able to provide the best prices out there for our customers,” Dave Shull, senior vice president of programming for Englewood, Colorado-based Dish, said in an interview. “The DNA of our company is low prices — we can’t let these costs continue to escalate.”
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