Commentary

Cable's New 2009 Formula: Ratings Equal Subscriber Fee And Advertising Fairness

by Wayne Friedman , Staff Writer, January 2, 2009

Just in time for the New Year -- and a new big fat recession -- came another big fat war between media giants.

As of Dec. 31, Viacom said it would remove all its channels from Time Warner Cable because the second biggest U.S. cable operator wouldn't pay a 25 cent-per-subscriber monthly increase, which totaled some $36 million a year.

Despite what you think of this -- and where this particular snafu ends up (actually, it was resolved at the last minute, with final terms not disclosed) -- Viacom makes a strong case: Viacom says it controls about 20% of the viewing on cable operators such as Time Warner, but Time Warner only pays what Viacom says amounts to 2% of what it charges its customers on a monthly basis.

With cable operators moving into addressable advertising areas, such as with its Canoe Venture efforts, they will end up on the wrong end of this argument. If cable operators want advertisers to pay for specific viewing performance, why shouldn't they do the same with their program providers?

Going against Viacom? According to a Time Warner spokesman, Viacom won't let Time Warner share in its advertising take, limiting the time the cable operator can sell on its popular shows.

Viacom can't have it both ways, either.

For years, cable operators have made deals with programmers on anything but viewership performances. This may have had to do with the clout -- or not -- of a TV producer, for political reasons, or for diversity.

Special cases aside, there is a different business environment these days, given a weak economy and cable operators lessening reliance on monthly cable subscriber fees.

If Viacom is serious, it should pin its cable deals on a quarter-by-quarter basis. Ratings go up, and cable operators pay more; ratings go down, they pay less.

Why? Because the same equation works for TV advertisers and because future advertising sales -- national or local cable spots -- will be even more dependent on how well you perform. With the coming of addressable advertising, cable operators should think more about -- and be more responsible to -- TV advertisers.

Starting in 2009, that's all this TV economy will care about.

2 comments about "Cable's New 2009 Formula: Ratings Equal Subscriber Fee And Advertising Fairness ".

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John Murawski, January 2, 2009 at 3:54 p.m.
Why stop at Viacom? Here's a scenario for you. A major cable MSO gets all of the cable programmers in a room at one time and starts the meeting with, "OK, all of you, I'll going to rip up all of our contracts and we will all start fresh. Starting now I am going to divvy up my programming expense dollar among all of you based on your share of total ratings." ...and you think Time-Warner vs. Viacom got ugly. You are spot on in that all of the legacy deals that are in place get in the way of these kinds of dicsussions happening. After all, who doesn't want a guaranteed license fee structure? It sure helps smooth out valuation.
Mix into the madness that broadcasters are enamored with the idea of a dual revenue stream too and have been increasingly agressive in their asks of cable operators. MSOs are now in a situation where they are compensating broadcasters for retransmission consent beacuse the broadcasters want license fees just like the cable networks, even though they don't provide cable operators with any local avail time. At the same time cable networks want higher-than-CPI increases on renewals based on ratings gains that are coming at the expense of broadcasters and are telling the cable ops that if they don't like the deal they would be more than happy to shut their networks down on the cable plant and tell their viewers to switch to DirecTV and Dish. Meanwhile, both the cable networks and the broadcasters are putting their marquee programming (Lost, Daily Show, etc.) online for free. At the same time, public pressure and competition make it difficult for cable operatos to pass along all of the increased programming costs to their customers like they could in the "old days". Who can blame the cable guys for wanting to dig in their heels?
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Douglas Ferguson from College of Charleston, January 4, 2009 at 10:17 a.m.

I guess the difference is that advertisers have multiple venues for advertising, so prices are competitive, but program suppliers are unique. If you make Nickelodeon or MTV, they you're a single-source monopoly and you can charge whatever you want, including more than what the market will bear (especially when there's a dual market: audiences and advertisers).

My complaint is that operators simply don't care about their customers. I've been complaining for over a year to Comcast about the slipshod audio levels on Comedy Central in their Charleston market, where the local cut-in spots blast you out of the room (as opposed to being merely noticeably louder). They refuse to correct the problem, because I guess they figure they are my only source for that channel bundled cheaply with broadband.

Given the recent disputes between Comcast and the FCC, my prayer is that someone at the FCC will read this and go after Comcast's willful disregard for customer service.