Article: Television Blackouts in U.S. Reach Decade-High Over Fee Fights

By Kelly Riddell
Bloomberg
Oct 11, 2010

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.

‘American Idol’

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.”

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