Maybe Murdoch is onto something …


In October last year, when Rupert Murdoch started the ball rolling on introducing paywalls to selected Newscorp websites, he also made mention of the want to charge US cable operators for retransmission of his US Free to Air Television properties. However, at the time, this was largely overshadowed by Murdoch’s, and other Newscorp executives, comments regarding Google and the curse of the aggregators.

Murdoch’s argument was simple. “Going forward” he said at the companies AGM, “we will be seeking retransmission dollars from our distributors. Asking cable companies and other distribution partners to pay a small portion of the profits they make by reselling broadcast channels, the most-watched channels on their systems, will help to ensure the health of the over-the-air industry in America. We realise this is going to be a tough challenge, but we’re determined to take a leadership position in creating an economic template for the future.”

Over the last month the retransmission debate has heated up in the US. Murdoch and Newscorp COO Chase Carey requested from Time Warner, owner and operator of one of the US’s largest cable TV distributors, a larger fee for retransmission of the Fox broadcast signal. Time Warner pays retransmission fees to networks in order to air their content to their cable subscribers, however they rarely paid fees to free to air stations to transmit their content. The exception is CBS, who negotiated a similar deal a few years back

It was reported that Newscorp was looking for around $1 per month per household for Time Warner to re-broadcast the Fox Free To Air content. Murdoch’s argument is that companies like Time Warner are benefiting financially from transmitting free to air content from Fox, NBC, ABC etc. At the same time, he claims that Newscorp needs to charge Time Warner and other cable operators these fees – fees they believe are fair and in line with retransmission fees for pay only stations such as ESPN and MTV – in order for the free to air business to remain viable.

Time Warner felt the request was excessive and so began a stand off. Effectively Fox were asking for around $144 million USD per year from Time Warner.

Both parties set up websites to lobby consumers. Fox launched the http://www.keepfoxon.com website and Time Warner countered with http://www.rollovergettough.com – with both parties also running TVCs to push their own agendas. Fox threatened to pull their signal from all 13 million Time Warner households – which was a considerable threat considering Fox in January had some heavyweight programming including the new season of American Idol and numerous live broadcasts of the NFL playoffs (excluding the Super Bowl which CBS is airing), arguably the highest rating sports events in the US each year, as well as College Football spectacles such as the Sugar Bowl and the Orange Bowl.

Towards the end of December no resolution had been made and it was looking increasingly likely that Fox would cut their signal to Time Warner. Effectively this would be a lose/lose scenario. Time Warner would lose Fox programming, and Fox would lose access to 13m households. On top of this, consumer fallout would be significant seeing in this debate it’s the consumer who’s really getting screwed.

This week Fox and Time Warner announced they had reached a deal, which covered both the Fox free to air signal as well as Fox’s cable only stations such as Fox Sports. Analysts have speculated the deal was most likely in the vicinity of 40-50 cents per household per month for the Fox FTA signal. Not quite what Newscorp were after, but still worth approximately $70 odd million per year to the group, with the retransmission fee likely to increase year on year. A few days later, Time Warner increased cable fees to their consumer base.

Many have argued that given Fox and CBS have pursued the path of seeking fees from cable operators such as Time Warner and Comcast to retransmit their FTA signals, just how long will it be until the other US TV giants such as NBC and ABC follow suit? How long until the networks start pursuing the idea of two revenue streams (ie advertising and retransmission) just like their cousins in pay TV do? Business Week cited analysts figures that if all the US FTA stations pursued retransmission fees it could ultimately lead to an additional $5 billion in revenue for them – with that in mind one could assume with some safety that NBC and Disney/ABC will be looking closely at the retransmission revenue stream in 2010.

One could argue that Murdoch’s current stoush with Google is based on a similar foundation of retransmission and that his actions are being driven by a need to “ensure the health” of his, and others, digital assets.

It could easily be argued that Google effectively ‘retransmits’ the assets of content owners by indexing their content on the search engine and on aggregators such as Google News and YouTube. It could be argued that indexing the content of Newscorp and other similar companies contributes to the profits of Google as effectively Google users use the search engine to find content owned and produced by companies other than Google.

It’s not such a radical thought that Newscorp might be considering asking, or has already asked, Google for ‘retransmission costs’ … ie, costs to index their content. As I touched on last year, this in isolation this wouldn’t really create much of a stir – but if the key 10 content creators got together as a group it could become more of an issue as it would begin to erode the very foundation Google search is built on – access to the very best content at your fingertips.

The mindset has always been that within digital quantity rules … you want a lot of users above all else. What this has done has led to a culture of selling as much as possible, regardless of yield. Now it seems that quality is much more important – less users, but better users. Effectively – selling less at higher prices. With this in mind, volume isn’t the be all and end all and as a result content owners and creators could possibly re-examine their reliance on search engine traffic. At the same time it allows digital content owners and creators to add a revenue stream previously unavailable – retransmission.

The end goal for many of the digital content creators will be a three pronged revenue stream – advertising, retransmission and paid content.

The idea of transmission fees for content creators from search engines has generally been dismissed by many as fantasy, but the more you think about it the more it could become a very interesting area of discussion – especially considering Google made 21.8b USD in revenue in 2008, with $6.6b of this profit pre write-downs (Google is on track to generate around $7.5b in profit for 2009 calender year) but the likes of Newscorp and Disney/ABC are still struggling to make any money on their digital investments.

Trust Murdoch to ensure the media world is still an interesting and unpredictable one in 2010.

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