DirecTV Considering An Operation End Retrans

Based on when this is read, Time Warner Cable and CBS may have settled their fee battle. Or, be in the midst of station blackouts. Or, have agreed to keep kicking the can down the road.

Time Warner Cable (TWC) showed some backbone earlier this week by briefly yanking CBS-owned stations off the air in some large markets, though the stations were quickly restored as the two sides agreed to keep negotiating. Which they have over and over again, reaching deadlines that would bring station darkness and then just extending them. It’s kind of made a mockery of the concept of a deadline.



The two sides are locked in a standoff over how much TWC will pay CBS for rights to carry its stations in New York, Los Angeles, Dallas and other areas. In a similar dispute, TWC does have blackouts ongoing of the NBC station in Milwaukee and network affiliates elsewhere owned by Journal Communications.

The dollars at stake are called retransmission consent payments (retrans for short) and continue to have cable, satellite and telco TV distributors boiling. Part of it is the money flow is still rather new. It's not easy when a massive expense line sort of shows up and then escalates fast.

Here’s an example of just how piqued operators are: DirecTV is at least considering spending up to $3 billion to avert the payments. It’s unlikely and not happening anytime soon. Also, executives speaking about the tactic – which seemed to begin publicly with CFO Patrick Doyle in May -- may just be posturing, but indeed they are speaking about it or at least responding to questions.

What's this $3 billion? It's going home to home and installing either new or old technology. Based on Doyle's previous comments, the likely option would be installing tuners in set-top boxes that can pick up over-the-air signals. But perhaps it would be just popping an antenna on the roof for a customer.

Now, as enormous as the $3 billion process may be, the advantage could be that it is a one-time payment. The back-of-the-envelope math comes from installations in 20 million homes, costing about $150 per job – which could be way more if rolling out new set-top boxes is involved.

DirecTV used to have antenna-like technology installed in its boxes, but halted the process due to costs. Apparently, that was before $3 billion looked to be a possible bargain.

CEO Mike White addressed a possible Operation End Retrans this week on a call to investors. R&D on the possibilities continues at the satellite operator and he said “we don't have any kind of imminent idea on what we would do with antennas in the short run, I would tell you … you've still got to figure to roll a truck and put an antenna up on the roof, it's probably $150. So it's probably not yet as attractive as it needs to be, but it's more attractive as an alternative than it used to be. So we'll see how the costs evolve.”

Doyle added “it's not something we would have even thought about two or three years ago. But as the industry has moved and content costs have risen … we've got almost an obligation to kind of look at whatever type of mitigation strategies we can to slow down this cost.”

DirecTV is monitoring the legal case facing Aereo, a service that streams live broadcast stations to digital platforms. The Big Four networks want to quash it, partly because it skirts retrans fees.

To be sure, DirecTV might get sued with any plans to avoid retrans, but White said it’s options are entirely legal.

Yet, legal and practical are of course different. It's not just the $3 billion that may be impractical. It’s the fact that the Big Four networks’ owners also have cable channels. And, Disney, for example, may very well look for ways to deny DirecTV carriage of ESPN or raise the price significantly, if DirecTV doesn’t pay for ABC stations.

Of course, DirecTV could sue to stop it. But then, there could be an endless stream of back-and-forth lawsuits, which would only add fees on top of the billions.

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