Commentary

Will Lower TV Ratings And Cord-Cutting Mean Lower Carriage Fees?

by Wayne Friedman , Staff Writer, August 19, 2015

Plenty of lower ratings abound for cable networks -- as well as for broadcast networks. Leaving aside weaker advertising revenues at the moment, should that also mean lower prices for pay TV providers going forward?

That’s not so easy to figure out.

Brian Wieser, senior research analyst at Pivotal Research Group, believes TV networks will still benefit from decent increases in carriage fees. Much of this analysis comes from historical and current rising data from pay TV providers and U.S. consumer spending data on entertainment and media.

According to Wieser, “expectations over a mid-term time horizon for high single digit growth rates across the industry remain achievable.”

No matter. Other analysts believe declining ratings will be a key negotiation point down the road for TV network-pay TV provider renewals. “On the surface, we don’t know why a pay-TV distributor would pay more for a cable network that is perpetuating the loss of linear viewers by selling content over-the-top,” writes Marci Ryvickers, managing director, equity research media analyst of Wells Fargo Securities, tells MarketWatch.

Part of this argument goes back to when traditional TV broadcast network used their higher ratings as price leverage, arguing that since they brought in more viewers than cable networks, generally speaking, they should get more money.

Now that the entire TV business is under duress for overall lower ratings -- as well as cord-cutting -- pay TV providers might feel that the TV ecosystem should change.

Lower TV ratings initially weren’t linked to cord-cutting and cord-shaving, according to analysts. Mid-size cable networks were pointed to as those making TV viewerships gains.

But we could be in a different environment, one where -- sans new OTT service gains from pay TV subscribers -- there might actually be an eyebrow-raising decline of 1 million subscribers of traditional pay TV packages.

Who can take the risk of actually dropping key networks going forward? Comcast, Dish Network, DirecTV, Charter, or a Time Warner Cable? One day soon, one daring company will make a stand. Will others follow?

5 comments about "Will Lower TV Ratings And Cord-Cutting Mean Lower Carriage Fees?".

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Ed Papazian from Media Dynamics Inc, August 19, 2015 at 4:51 p.m.
The question, from a business standpoint, is not so much about fragmenting ratings but the profit margins of cable system operators, which are huge. If "cord cutting" ever grows to the point where they are losing 20% of their subscribers per year---and it's not even remotely close to that----then it makes sense for someone to put a break on transmission fee hikes or, in some cases, simply opt out and from a major program supplier. But that day hasn't arrived, nor is it in the immediate offing, so Brian is probably right in his comments, as quoted, above.
Reply

Jon Currie from Currie Communications, Inc., August 19, 2015 at 5:06 p.m.

It's an iscestuous business. So this is not happening too quickly, or in some cases ever. Remember, Comcast owns NBC and related nets. So why would they drop their own source of ad revenue? However, if they dropped the other nets, then cries of stifling competition come up. I could go on, but you get the point. It's not as easy at it seems at first glance.

Jon Currie from Currie Communications, Inc., August 19, 2015 at 5:07 p.m.

Typo. Incestuous. Can't figure out how to edit once posted. Sorry.

Patty Ardis from Ardis Media, LLC, August 19, 2015 at 6:52 p.m.

I agree with both Jon and Ed nothing is going to change right now or even in the near future but in the more distant future, well that might be interesting. For now, projections are sustainable but they should be careful lest they wind up like newspapers. I also suspect that most of this hinges on what is going to happen with ESPN. Once that is figured out, the rest will be easy.

Leonard Zachary from T___n__, August 20, 2015 at 12:24 p.m.

Major Broadcaster "Carriage Rights" is not a Free Market business, but a Corporate subsidy paid by consumers and the taxpayers.

The Retransmission Fee model does not make sense in an environment where payTV is UnBundling.

The Retransmission Fee model; does not make sense in an environment where the Major Broadcast Networks are distrubuting their content direct to consumer via OTT App.

In a Free Market consumers should pay for what they Choose and View.