Cablevision Blackout Shows News Corp., Broadcasters Gain Edge in Fee Spats

News Corp.’s decision to keep Fox programs off Cablevision System Corp. shows media companies may be gaining the upper hand in extracting fees from cable and satellite companies for content that used to be free.

News Corp.’s Fox, Walt Disney Co.’s ABC and CBS Corp. are all seeking payment for their over-the-air broadcast signals as existing contracts with pay-TV providers expire. News Corp. has said it considers the Fox broadcast network just as valuable as the most expensive cable programming because of its sports shows and prime-time hits like “American Idol.”

Fox’s departure from Cablevision has caused the longest- lasting blackout of a major broadcast network for a million or more people in at least a decade, affecting 3 million customers in New York and Philadelphia. In March, ABC went dark on Cablevision for almost a day in a similar negotiation.

“By acting as an industry, the broadcasters are not only more able to get the fees they want, but after getting through one of the worst ad recessions of the decade, realized that they need those fees,” said Tom Eagan, an analyst at Collins Stewart LLC in New York.

Cablevision and News Corp. ended talks today without an agreement and plan to resume negotiations again tomorrow, according to an e-mail from Fox spokesman Brian Peterson.

Broadcasters have said they deserve to be compensated for supplying TV’s most-watched shows, including “NCIS,” “Sunday Night Football” and “Desperate Housewives.” In the past, the networks traded those rights to gain distribution for new cable channels like News Corp.’s FX or higher fees for existing cable networks.

Cablevision Alternatives

Media companies have leverage in the negotiations because there are more pay-TV alternatives, said Eagan. For example, if Fox programming goes dark on Cablevision, customers can switch to competitors like Verizon Communications Inc.’s FiOS-TV service.

News Corp. has set up a website to help Cablevision subscribers find alternative ways to get Fox programming. The site, keepfoxon.com, allows people to search for providers by Zip code.

Pay-TV providers often bear the brunt of criticism for an outage, said David Joyce, an analyst at Miller, Tabak & Co. in New York.

“They’re the ones that the customers have the phone numbers to, they’re the ones the consumers get the bills from,” said Joyce.

Cablevision customer Brian Kelly said he has little sympathy for the company and plans to install DirecTV this week to avoid missing Fox shows.

“Cablevision turns into a bunch of whining crybabies when they don’t get what they want,” said Kelly of Warwick, New York. “Content providers have no obligation to help Cablevision.”

Cablevision’s Offensive

The cable company is making its own effort to sway public opinion. Subscribers who tune in to Fox broadcast stations see a three-minute video from Cablevision that explains the company’s stance. Cablevision, for instance, says Fox is asking for $150 million a year in fees, more than it pays for ABC, CBS, NBC and the Spanish-language Univision combined.

“We believe News Corp. has acted in bad faith claiming in public to be willing to compromise, while privately continuing to make the same take-it-or-leave-it demands,” the announcement said. News Corp. said the $150 million figure isn’t accurate and that it’s seeking “fair compensation.”

Posturing for Dish

Programmers do have money at stake if their channels go dark. Networks are typically responsible for giving advertisers “make good” commercial time when they don’t deliver on audience guarantees because of a blackout. They also lose out on events-based advertising that sells at much higher rates. For example, if programming isn’t restored to Cablevision before the World Series, News Corp. risks losing considerable local ad sales, Joyce said.

News Corp. may be using its current battle with Cablevision to set an example for Dish Network Corp., whose contract for Fox expires on Nov. 1, said Matthew Harrigan, an analyst at Wunderlich Securities LLC.

“News Corp. is adamant about getting paid for its intellectual content,” said Harrigan. “From their vantage point there can’t be any more free lunch, the business model just doesn’t support that.”

Chase Carey, the president and chief operating officer at New York-based News Corp., has set obtaining fees from pay-TV providers for Fox broadcast as one of his top priorities, regardless of how contentious the negotiations may get.

‘Never a Fair Fight’

“Your costs are your problem, not mine,” said Carey at an investor conference on Sept. 22. “You can make the decision it’s not worth that and you’re better off not having it. I don’t think it’s any more complicated than that.”

News Corp. is said to be trying to seek $1 a subscriber per month from Cablevision and Dish, the same fee it was looking to extract from Time Warner Cable Inc. late last year, said analyst Harrigan.

On average, in the next three to five years, Fox may get 70 cents per subscriber per month from pay-TV providers, which would generate about $390 million in annual sales, estimates Craig Moffett, an analyst at Sanford C. Bernstein.

CBS, owner of the most-watched TV network, is aiming for $250 million a year in so-called retransmission fees, Chief Executive Officer Leslie Moonves has said. This year it has inked a deal with Comcast Corp., the largest pay-TV provider, for an undisclosed sum.

Charging for over-the-air content “pits a government- mandated monopoly broadcaster against a distributor for whom there is readily available substitutes,” wrote Moffett in an e- mail. “It was never a fair fight.”

To contact the reporter on this story: Kelly Riddell in Washington at kriddell1@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net.

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