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Are Current TV's Slots on Cable Distribution Worth $500 Million?

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Friday, 04 January 2013 08:13

For some reason no one appears to be asking this obvious question in the context of Al Jazeera's purchase of the Current TV station. According to the news reports, Al Jazeera does not intend to keep much, if any, of Current TV's programming. That means it is willing to pay $500 million simply to be carried by the large cable providers. That implies that these providers have extraordinary market power. This should be raising lots of questions at the Federal Communications Commission.

Comments (15)Add Comment
Yes, Cable Access is Too Cheap
written by Robert Salzberg, January 04, 2013 7:26
Activists for years have been saying that the rights to our airways are being sold way too cheaply by the U.S. government.

If this deal doesn't prove their point, what will?

We should be getting billions more in tax revenue from the telecommunications industry. The idea that they are providing a public service to compensate for the low rents they're paying is absurd in almost every case. (PBS being an exception along with other public access channels.)
BWAHAHAHAHAHA
written by Lex, January 04, 2013 7:36
Silly economist, thinking that the job of a regulatory agency is to, well, regulate!

Seriously, the FCC, driven by corporate whores of both parties in Congress and the White House, has been, from the consumer standpoint, a nest of vipers for most of the last 20 years. The giveaway of almost literally invaluable publicly owned spectrum to broadcasters in the '90s was just the most outrageous example.

Consequently, as much of an Apple fanboy as I am NOT, I'm going to give Apple TV a good look, and if its service (both technically and in terms of programming offerings and options, such as a la carte) is better than Time Warner Cable's, we'll switch. Time Warner, Comcast et al. have been getting away with murder, or at least grand theft, for a very long time. I dearly hope their business model is at least as vulnerable to technological disruption as was that of newspapers; the benefit to the public would be even higher.
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written by JDM, January 04, 2013 8:25
Activists for years have been saying that the rights to our airways are being sold way too cheaply by the U.S. government.

And the rights to minerals etc. on public lands, rights to profit-sharing from drugs developed with public money, etc. If we had a profit-sharing or royalty agreement made part of every one of these "deals" (most of which now are either near or total giveaways) we'd very likely have little problem paying for anything in the federal budget.
The Price of a Megaphone
written by Ron Alley, January 04, 2013 8:26
Al Jazeera is backed by interest groups that would like to have access to a megaphone in the US town square. Al Jazeera has a message but cannot reach its intended audience in America unless it is willing to purchase acccess. Current TV saw an opportunity to command a higher price for its cable slots by selling to Al Jazeera. This sale is not a typical arm's-length transaction. The buyer is under a significant pressure to pay an above-market price to gain access.
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written by Last Mover, January 04, 2013 9:07
FCC = FAVORS to COWARDS of COMPETITION
The purpose of regulatory agencies
written by Jennifer, January 04, 2013 9:27
What is desired . . . is something having a good sound, but quite harmless, which will impress the popular mind with the idea that a great deal is being done, when is reality, very little is intended to be done."
From Charles Adams, president of the Minnesota and Northwestern Railroad company in reference to the ICC (the interstate commerce commission) the first regulatory agency. As described in "Defying Corporations, Defining Democracy" the ICC was quite explicitly designed and managed by the railroads in order to decrease and manage competition--instead of fighting it out amongst themselves they got the government to do it--just another example of the "nanny state". This became the model for all other regulatory agencies of which the FCC is as good example as any.
Let us ask [ICC] Comissioners to enforce the law when its violation by others hurts us."
Charles Perkins of the Chicago, Burlington & Quincy Railroad. 100+ years later I believe that is still the mindset at work.
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written by Chris Engel, January 04, 2013 9:27
I read that Spitzer isn't expected to stay on with new management.

I hope he hosts some kind of public affairs show that people can view online...some of us aren't cable subscribers or in the US.

There really should be more of a dedicated channel simulcast online and cable and whatever else, that's dedicated to real debate rather than the 24-hour news nonsense. Quality programming, quality discussion of contemporary issues...like c-span and pbs, but better.
My favorite story
written by Makarov, January 04, 2013 10:29
from working in the cable industry is this one:

When Discovery's Animal Planet launched (roughly in 1996), they wanted to be seen in as many homes as possible. They offered what we call "door money". They payed $5 per subscriber for 5 years of carriage in what was referred to then as the "advanced basic" tier of channels.

Cable execs were stunned. Nobody had payed so much to so many. In retrospect, it worked. Animal Planet got themselves spectrum on just about every cable system that had more than 400 MHz (about 50-60 channels). In many cases, another channel was removed in order to add Animal Planet.

I've never heard of another similarly lucrative placement deal for door money since. It does not surprise me that Current sold for $500M. The hardest part of launching a cable network in the US is negotiating carriage and obtaining placement on the popular tier (sometimes referred to today as "digital basic" or "advanced basic").

It's not often done with door money to cable/sat operators anymore. When Ophra Winfrey launched her network, OWN, it replaced the existing (and little watched) Discovery Health channel. It already had carriage in the "digital" tier on most cable/sat systems. Flick a switch, and at midnight on a certain day Discovery Health became OWN.

A big success that happened differently was the Big Ten Network. BTN has excellent market penetration, in that coveted "digital basic" or "advanced basic" tier in at least half of US homes. BTN was roughly half owned by Fox Sports, which used its ownership of regional sports channels across the country (Fox Sports South, ROOT, etc) as leverage to get BTN placed in the coveted viewing tier. Cable operators would have preferred placing it in a premium sports tier, but potentially threatened with loss of popular regional sports programming, ultimately relented after the new network struck a large deal with Comcast. Just a year after its launch, BTN was available on every major cable operator in all states with a Big Ten school and numerous others. BTN earns roughly $1/month for every home where the channel is broadcast, whether or not it's ever watched.

Ever wonder why you have 4 or more ESPN channels as part of "expanded basic" or "digital basic" viewing? Because ESPN tells cable/sat operators to either take them all or nothing. These are the most expensive contributors to your cable bill every month. Over $5 of your monthly cable/sat bill goes to ESPN. Every few years when carriage contracts are renewed, the cost to the operator goes up and they "pass through" that cost to you, the consumer.

I'm not a fan of previously proposed "al a carte" pricing rules for cable and satellite, which would ostensibly allow consumers to pick and choose individual channels. The reason is simple. Without bundled carriage agreements, the vast majority of cable channels would die, never to return.

That said, I do think Congress and the FCC should work to make sure the present system doesn't allow popular cable network owners (Discovery, Viacom, Disney/ABC/ESPN among them) to simply force increases onto cable/sat operators that are passed through to consumers. Limiting increases using the oft mentioned Chained-CPI calculation of inflation would be a good start. That limit needs to be placed on both parties, the monopolistic content owners and the monopolistic video system owners, or consumers will continue to see the price of cable/sat subscriptions (made even more necessary due to the transition from analog to digital broadcast of terrestrial stations) rise at multiples of inflation. Even cable/sat execs know that there are limits to what people are willing and can afford to pay. 2010 saw the beginning of a downturn in the number of homes with cable/sat subscriptions, and it had little to do with tech-savvy "cord cutters". It had more to do with the deep recession and people simply being unable to afford $75-$90/month to pay for the most popular viewing tiers.
Time-Warner screwing subscribers again
written by matt carmody, January 04, 2013 10:58
TWC has announced it is dropping Current TV and will not carry al-Jazeera, although they have no trouble promoting everything FOX.
That's really not a problem as far as access goes because it's the home page on my laptop. That being said, I'm looking into getting DirectTV because of this action, I pay $160 a month for cable and internet, why shouldn't I be offered an alternative to the lunatic rantings of FOX ideologues?
USA Pays Four Times that of France for Triple Play Package
written by Last Mover, January 04, 2013 1:30
From David Cay Johnston,

"On average, for instance, a triple-play package that bundles Internet, telephone and television sells for $160 a month with taxes. In France the equivalent costs just $38. For that low price the French also get long distance to 70 foreign countries, not merely one; worldwide television, not just domestic; and an Internet that’s 20 times faster uploading data and 10 times faster downloading it."
personal anecdotal on cable tv
written by watermelonpunch, January 04, 2013 4:04
Who has cable tv anymore anyway??
I don't know for whom cable tv is worth it anymore. We switched internet providers & got a month free trial of cable tv, and we didn't think it was worth it all. Maybe if you're a big sports fan wanting to watch live sports?
Cable tv doesn't seem worth the price AT ALL.
This month trial we had of cable tv aside... Neither me nor my spouse have had cable tv in nearly 15 yrs (which includes before we met). I never thought we were missing much, but now we know we weren't.
We're much better off just using our PS3 & streaming device with a Netflix streaming subscription (and you can always do HULU I guess), and we can do over the air for that matter (good where we live)...
Much more affordable & flexible for our preferences.

And yeah, the whole thing of cable "packages" is total B.S. Customers, I think, on the whole, would much prefer to pick & choose the channels they want, instead of having to sign up for 150 channels just to get the 2 they actually want to watch.
Seems to me that the current system is NOT set up to provide a free market where the best channels thrive. It's set up so that companies make money even off crappy channels?
I understand this might benefit the more esoteric channels, but I don't think that makes it worth it.
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written by Nick Batzdorf, January 04, 2013 8:58
Makarov wrote:

"I'm not a fan of previously proposed "al a carte" pricing rules for cable and satellite, which would ostensibly allow consumers to pick and choose individual channels. The reason is simple. Without bundled carriage agreements, the vast majority of cable channels would die, never to return."

Good point - and excellent post about a complicated issue that's not black and white. It's a microcosm of our economy at large.

I always get frustrated at having to pay such a huge amount of money to watch .000001 of the programming that's on - and most of which is a national disgrace - yet if it weren't that way, an unacceptable amount of baby would get thrown out with the bathwater.

Tough issue.
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written by watermelonpunch, January 04, 2013 11:54
I always get frustrated at having to pay such a huge amount of money to watch .000001 of the programming that's on - and most of which is a national disgrace - yet if it weren't that way, an unacceptable amount of baby would get thrown out with the bathwater.

Tough issue.


Well here's a question...
Does the History Channel & Discovery Channel have to air stuff like Ancient Aliens, Nostradamus stuff, UFO Hunters, Pawn Stars, Amish Mafia, etc... constantly on their commercial cable broadcast in order that they can afford for me to be able to watch slightly more "serious" (and perhaps less popular) shows like Universe, Mythbusters, How the Earth was Made, & Planet Earth on Netflix?

Is that what's really going on?

Because if so, that doesn't sound like a viable long term business model for tv channels & cable companies.

At some point people are going to figure out they're paying $150 a month for a bunch of stuff they don't watch, so I can watch what I want, when I want, only what I want, and without commercials, on Netflix for less than $15 a month, just a couple months later than it was available to them less conveniently.

I'm not sure that sounds good to me. That I would have to pay over $100 per month, fuss with a DVR recording scheduling & crap, just to see something a few months sooner than the person paying less than $10 a month who's watching what they want, only what they want, without having to schedule recording or fast forward through commercials.

Live sports would seem to me to be the only commercial viable television nowadays... because real die hard sports fans won't put their DVR on delay just to cut through the commercials - though I imagine some would.
Honestly knowing that most people use the DVR or tivo or whatever, I don't know why companies bother buying commercial time on tv shows other than live sports.

Is there something I'm missing here?
Mr
written by Dean1000, January 06, 2013 10:27
Why is the FCC trying to accommodate Rupert Murdoch and Al Jazeera. There is already too much plutocrat TV.
Murdoch should be required to divest. I've watched Al Jazeera news online and on link TV. Its good. But if Al Jazeera gets a cable channel it will soon reflect the views of its owner and its advertisers, or become just another bread and Circus TV channel making a bundle on tax deductible advertising and monthly fees.
Current TV should be sold to the employees and/or the program hosts for a rock-bottom price with a long payout. The license fees are so high only a big corporation or the wealthy can afford a cable cancel . I no longer watch current TV but I would give them a couple of bucks if the employees want to ask the public for one-time donations.

What we really need from the FCC and Congress is a nonprofit news channel owned by the journalists who work there. No commercials. Just national and international news 24 hrs every day. It would need a larger fee than C-SPAN since it would be maintaining journalists all over the planet.
The big problem with journalists is they don't share my biases. They have their own. We aren't going to get better journalists than we have now. Some of them should be in a nonprofit environment where they won't be fired for reporting something the CEO, or the politicians he finances, doesn't like. We need an independent news entity that will not spout lethal propaganda like ‘WMD's in Iraq’ or the moonshine about a fiscal cliff. There were high school kids who knew the WMD story was a crock. The kids got it on those internet tubes from the weapons inspectors who knew it was a crock. The inspecters didn't get much TV time either.
The First Amendment didn't fail, the politicians who created the Federal communications act did. Not to mention a congress who allowed a gang of neocons to stampede them into war. Checks and balances don't ya know.

One more thing. Every federal election district should have its own radio and TV station, on the air for local, state and federal elections. It is ridiculous for candidates to pay fees to a government created entity with a government granted monopoly on a frequency or channel. Fewer politicians would wear for sale signs if they could get no cost communication with the voters. Of course the communication could be two-way. Voters might have something to say to the candidates. Every objection to the costs of First Amendment TV stations can be answered to the satisfaction of the great majority of people who believe in democratic and representative government.
And no, it isn't socialism. The distinguishing characteristic of contemporary socialism is state ownership of the means of production, distribution, and exchange. I'm talking about the means of political communication. You know, free speech.
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written by liberal, January 07, 2013 7:26
JDM wrote,
And the rights to minerals etc. on public lands, rights to profit-sharing from drugs developed with public money, etc.


Uh, you left out the biggest rent-generating asset of all: land in the usual sense. Land rent from privately owned land is probably 10--20% of GDP.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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