It finally happened. A major television broadcaster cut off a major television cable system because of a dispute over programming fees.
The broadcaster in this case is ABC, and the cable system is Cablevision, but the details scarcely matter. The same dispute could just as easily involve 50 other companies in the television business before the year is over.
The dispute doesn’t really make sense in the first place. There ordinarily shouldn’t be any money changing hands between television broadcasters and the companies that distribute television content on cable and satellite systems.
Broadcasters get paid more than enough money by advertisers to produce all the programming they produce. Around 30 percent of air time is taken up with these commercial messages. Cable companies also get paid by advertisers for the two to four minutes an hour that the cable systems get to run their own commercials on cable channels. This is roughly enough advertising money to cover the cable operator’s costs in obtaining and delivering the signal for the channel.
So who should pay money to whom? In an ideal world, neither company should be paying anything to the other.
Yet for several years, broadcasters have been squeezing cable operators to try to get more money in so-called programming fees. Money that supposedly goes to produce the programming on the broadcast channels. Never mind that the programming has already been more than paid for by the advertising that comes along with it. Never mind that all these fees are ultimately paid for by the television subscribers.
Television has already lost millions of viewers because of the high cost of television subscriptions, and it will lose millions more if this trend continues. Households that are willing to pay $200 a month for cable this year may decide to cancel next year when the price goes up to $250 a month. Of course, as viewership declines, advertising revenue will decline, and broadcasters will be back asking for still more money, leading to more canceled subscriptions, in a death spiral that can’t possibly come out well for the television industry.
The only possible solution that will hold the television industry together is a phase-out of programming fees for commercial stations and channels, with a strict cap on fees paid to non-commercial broadcasters.
Broadcasters won’t like it, but at this point, they have only two options: phase out the fees, or phase out the audience. I believe that phasing out programming fees is the less drastic alternative.