Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Broadcasting & Cable
Broadcasting & Cable
Business
Alan Wolk

So You're Happy Carriage and Retrans Fees Are Slowly Fading Away? You Sure About That, Champ? (Wolk)

A closeup of U.S. money

Much ink has been spilled lately about the unfortunate economics of the new streaming ecosystem. As with most things TV-related, it seems just about everyone has an opinion.

(Image credit: Alan Wolk)

What almost all of these stories seem to leave out, however, is the most important factor in why streaming is ultimately such a bad business, especially for traditional media companies: the absence of carriage and retrans fees.

Carriage fees are what MVPDs pay to “carry” cable networks (hence the name) and have been around since the start of cable TV or thereabouts, as the more popular cable networks had the upper hand and MVPDs needed them to attract subscribers. 

Retrans (retransmission) fees came about with the passage of the Cable Act of 1992. That law, whose full name is the Cable Television Consumer Protection and Competition Act, was passed because, with cable TV having become broadly popular in the U.S., some MVPDs were forcing local broadcast stations to pay them in order to be part of their service.

This, Congress said, was unfair, as it could prevent viewers from having access to the full spectrum of opinions. The law went further still and required cable operators to carry all of the locally available commercial broadcast stations … and pay those stations retrans fees for the privilege. 

In many ways, the law was the cable operators own doing: They’d gotten greedy, and the combination of near-monopoly status in most areas plus poor customer service and high prices meant there was enough popular support to essentially stick it to Big Cable.

A sizable bipartisan majority (74-25 in the Senate, 308-114 in the House) was able to override Bush The Elder’s veto of the bill.

But here’s the thing: Cable and retrans fees pump about $10 billion -$15 billion (with a “b”) into the coffers of TV networks every year,

The big media companies have a whole system in place, too, to ensure they extract the maximum amount of money from the MVPDs. It’s called “bundling,” and what they do is tell the MVPDs that if they want their most popular offerings (their flagship broadcast network, for example) then they need to take all their other assorted cable networks, too.

The result, for consumers, has been expensive, inflated pay TV bundles — you didn’t really think the MVPDs were going to pay those carriage and retrans fees themselves, did you? Of course not — they pass those costs on to the consumer in the form of ever-higher cable bills.

More than that, though, the existence of carriage and retrans fees means the traditional TV ecosystem has received an infusion of billions of dollars each year for the past 30 years.

If that sounds a lot like a lottery winning, you’re not wrong.

While the C-suite may have kept more than its fair share of those billions, they were dispensed elsewhere, into high salaries for writers, actors, showrunners and producers, lavish production budgets for hit series, generous back-end payments, etc., right on down to high-end craft services spreads.

Only with streaming, all that goes away.

There are no carriage and retrans fees in streaming because who would you get to pay them? There’s no one who needs to carry the streaming services. At least not more than the streaming services need someone to carry them. (The wonders of competition.)

Worse still, as cord cutting numbers grow, carriage and retrans numbers shrink. So it’s not as if the networks can put the genie back into the bottle.

The Road Ahead

The good news is that even without those billions, streaming can still be a lucrative business. It will just never be as lucrative as linear TV has been for the past 30 years.

That’s something the big media companies are just now waking up to.

To their credit, Warner Bros. Discovery seems to have figured this out before anyone else. It is widely suspected that is why they pulled the plug on CNN Plus.

Cable news commands high carriage fees because MVPDs feel that cable news plays a significant role in keeping people subscribing to cable. Thus, it’s worth it to the MVPDs to keep paying for CNN.

The new WBD management looked at all the money they’d be getting from those carriage fees over the next 5 to ten years versus the subscription and ad revenue they’d be getting from CNN Plus and realized the former was a much bigger number. That's a particularly relevant observation when your company is drowning in debt.

The rest of the industry? They seem to have followed Netflix off a cliff without ever taking into consideration that Netflix had no carriage and retrans fees to give up.

Which brings us to where we are now. Writers and actors frustrated (and rightfully so) that the pie has suddenly gotten smaller and not everyone is giving up an equal share. Disney making noises about selling off most of its key linear assets. And there are dozens of schadenfreude-filled articles about the death of TV.

That’s the bad news.

The good news is that streaming can, and most likely will be profitable. The television industry in every other country seems to be doing okay without carriage and retrans fees. Granted, the Brits, Danes and Israelis don’t shoot 25-episode seasons, but there’s a lot to be said for 8 to 10 episode campaigns, and the aforementioned countries seem to turn out a lot of good programming that way.

So yes, streaming can be profitable. It just won’t be as wildly profitable as it was in the carriage and retrans era.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.