• by David Goetzl  @dgoetzl, October 6, 2006

In the battle between station groups and cable operators over carrying local channels, CBS Corp. could jump-start a domino effect, said an executive at a top 25 station group.

Bob Prather, president-COO of Gray Television, said his company expects to receive cash for carriage for stations brokering new deals with cable operators starting in 2008. However, landing those dollars is likely to be predicated on whether CBS Corp., the largest station operator, gets paid to broadcast the local channels it owns. A timeline for that is unclear, but it would establish a precedent and give smaller station groups leverage, Prather said.

"It's going to take CBS and some of the big guys to push this to get paid," Prather said at an investor conference this week. "If they really push hard, especially CBS, everybody will get paid--once they break the doors down."

Prather said he doesn't foresee leading cable operators such as Comcast, Time Warner and Cox agreeing to pay any mid- or small-tier station groups, including Gray--unless pressed by a big player like CBS. CBS has pledged to demand cash for carriage from MSOs, opening up a flush new revenue stream.

"I don't see (MSOs) paying anybody until they really get a gun to their head, and we don't have a big enough gun," Prather said. "CBS has a howitzer."

A Time Warner Cable rep said the MSO has not paid to carry any local channels since 1991. "We feel we are offering the carriage that has value," the rep said. "Otherwise, the channels wouldn't get into certain parts of the market."

Gray operates 36 stations--including 17 CBS, 10 NBC and 8 ABC--in markets such as Knoxville, Tenn. and Omaha, Neb., as well as smaller ones. According to Broadcasting & Cable, it's the 24th-largest station group. CBS Corp., with 21 major-market CBS stations, is No. 1.

Under what is referred to as retransmission consent, local stations can demand that cable and satellite operators pay to offer their signals. But many station groups that are part of a larger media company with cable channels, such as Fox and NBC, instead offer the local stations for free in exchange for more favorable deals for their cable networks.

Now, however, station groups with no cable outlets are increasingly pushing to be compensated for carriage, arguing that an MSO will bleed customers without the broadcast network stations.

In Gray's case, it could hold leverage in negotiations with Comcast over WNDU, the NBC affiliate it owns in South Bend, Ind. If Comcast refuses to pay to offer the station and Gray holds firm, Notre Dame football games could potentially be unavailable in the school's hometown.

MSOs have at least one major card to play: Dropping station groups' channels could cripple their ad revenue, not to mention the networks they're affiliated with--and the networks could then apply pressure for them to make a deal.

A Cox representative wrote in an email: "With favorable channel positioning and a crystal-clear, reliable signal, we deliver (broadcasters') programming to consumers, helping them to realize greater advertising revenue than they would otherwise. That said, we negotiate for a fair exchange of value to secure retransmission consent."

Comcast did not immediately provide comment.

CBS has been the most visible proponent about getting retransmission fees. Broken off from Viacom, the company no longer will negotiate in conjunction with MTV Networks. It says it wants to receive payment for the stations it owns.

In March, CBS and telco-TV operator Verizon reached a retransmission consent agreement.