Thousands of cable customers in the Midwest and South remained without networks such as Fox and ABC yesterday in a dispute that could determine how much consumers pay for local television on cable systems nationwide.
Hunt-Valley based Sinclair Broadcast Group pulled 22 local stations it owns from cable systems in several states this weekend after negotiations failed with a New York cable provider on a price to air the local content. Mediacom Communications Corp., which owns the cable systems in markets such as Des Moines, Iowa, complained that Sinclair's fee was too high and paying it would force other cable providers to follow suit.
The dispute left some of the 700,000 cable subscribers in 13 states without the NFL playoffs this weekend and the championship college football game last night. Popular shows such as the Simpsons and Desperate Housewives also were lost on some cable systems.
The dispute is rattling the cable and television industry, which has for years fought over the costs of airing local programming.
Broadcasters such as Sinclair insist they should be paid for providing content that cable systems charge consumers a premium to receive. Traditionally, cable companies have paid little or nothing to air the local affiliates of ABC, NBC and Fox, arguing they should not have to pay for channels that are available for free over the airwaves.
Industry analysts said Sinclair's decision to pull the stations is one of the biggest tests yet for the industry and could set the tone in future negotiations involving local station costs nationwide. Sinclair also is in contract talks with cable providers such as Time Warner Cable and Comcast Corp., which said Baltimore viewers could lose local Fox stations in March under a similar dispute.
Sinclair is "taking an extraordinary stand, and they're trying to lead or drag the rest of the broadcast industry into taking the stand," said Steve Effros, a Washington-based cable industry analyst and consultant. "They're certainly raising the stakes, and they're certainly raising people's awareness that free television is not considered free by the people who have the licenses."
Over the weekend, Mediacom officials provided thousands of free antenna kits in Des Moines and Cedar Rapids, Iowa, where there are 250,000 subscribers. Demand was so high that the company ran out of the rabbit-ear antennas, which help televisions pick up the networks from the free airwaves.
And to appease college football fans, Mediacom said yesterday that it planned to provide public places for customers to watch the BCS Bowl championship game between Ohio State and the University of Florida. Screens were set up in places such as the U.S. Cellular Coliseum in downtown Bloomington, Ind.
Mediacom executives say Sinclair is using the cable company as a pawn in a game to set industrywide prices. Mediacom's estimates of such fees proposed by Sinclair could raise cable rates by $6 billion annually.
Sinclair is "using Mediacom to set the stage for the entire cable business and for their negotiations with Time Warner and other cable operators," Mediacom Chairman and Chief Executive Officer Rocco B. Commisso said in a conference call yesterday.
Sinclair, one of the largest independent owners of television stations nationwide, has been at the forefront of the push to have cable operators pay to retransmit local stations and networks. Barry Faber, vice president and general counsel of Sinclair, did not return telephone calls yesterday.
Yesterday Mediacom appealed last week's decision by the Federal Communications Commission's media bureau to reject the company's complaint that Sinclair did not negotiate in good faith. The panel, however, "strongly encouraged" the two parties to enter binding arbitration, an option that Mediacom said Sinclair is rejecting.
During the past several years, cable companies and broadcasters have fought over payments. While threats to pull the programming from cable systems are common, it's rare for companies to stop transmitting content. Most companies agree to extend contracts while negotiations continue.
But some broadcasters have pulled programming when disputes could not be reached. For instance, Northwest Broadcasting Corp. in December pulled Fox stations on Time Warner Cable in three states when the two couldn't reach an agreement, according to Broadcasting & Cable, a trade publication.
This weekend's stalemate between Mediacom and Sinclair moved the issue to a larger scale.
"The retransmission consent issue, in general, has became a means of leveraging over-the-air broadcasters' market power to obtain concessions from the cable industry," said Andrew Jay Schwartzman, president and chief executive of the Media Access Project.
Mediacom's Commisso said Sinclair is asking for rates that are 100 percent to 500 percent higher than it is getting from other cable providers. But Sinclair, which has said little about its dispute with Mediacom in recent days, has said it is asking for less than what Disney, TNT and ESPN get from cable companies. Those companies pay between 79 cents and $2.91 per subscriber, Faber has said.
Broadcasters such as Sinclair argue that competition during the past several years has pushed other television providers to pay for local content and it's time for cable systems to follow suit. For example, satellite companies, such as DirectTV and Dish Network, pay local station owners to retransmit their signals.
A similar issue could reach the homes of Comcast subscribers in the Baltimore area as early as March when Comcast's rights to retransmit Sinclair's signals expires Feb. 5. The contract affects 30 stations - including Baltimore's Fox-WBFF and CW-WNUV - and 3 million customers nationwide in 23 markets such as Richmond, Va., Pittsburgh and Tampa.
Because of a federal law that prohibits broadcasters from pulling programming during a television sweeps period, such as February, most Comcast customers in Baltimore could continue to watch popular TV shows including American Idol, 24 and Gilmore Girls, even if an agreement is not reached. But Comcast executives, who maintain their customers should not have to pay for network affiliates, said the programming could be lost after that and have started to notify customers.
"We have negotiated hundreds of similar agreements with broadcasters across the country, which have never resulted in any interruption of service for an analog broadcast station," Comcast Executive Vice President David Cohen said in a statement. "We are continuing to work with Sinclair and hope to reach a new agreement without any impact on our customers."
Sinclair is also negotiating an agreement with Time Warner that would affect about 40 stations in markets across the country. Late last year, Time Warner's rights to carry Sinclair stations were extended through Friday as the sides continue to negotiate, according to a spokesman.
Beginning Saturday, Mediacom customers were denied access to Sinclair-owned stations in various markets, including Des Moines, Ames and Cedar Rapids, Iowa; Bloomington; Lexington, Ky.; Madison, Wis.; Nashville, Tenn., and Minneapolis. About 500,000 of those subscribers are served by mostly Fox and ABC as well as a few CBS and NBC affiliates. The rest of the subscribers are served by CW and MyNetworkTV.
Sinclair has said it could lose some advertising and viewers. But executives said they expected the impact to be minimal, arguing that viewers who wanted to see their programming would find ways to do that.
But analysts say national and local advertisers would be reluctant to pay for already-scheduled commercials that will not run in those markets.
At Des Moines-based McCormick Co., one of the largest advertising firms in Iowa, television advertising buyers were aware of the continuing dispute between Sinclair and Mediacom and are recommending alternative media buys. In Des Moines, Mediacom carries Sinclair's Fox affiliate, KDSM Channel 17.
"We'll have to buy as if Fox will not be on the cable system and as changes happen, we'll adjust again," said Margi Ainsworth, a media supervisor in charge of some television advertising for clients in Des Moines.
Fox spokesman Scott Grogan said the network was aware of the dispute but he would not comment further.
Depending on Sinclair's stance with cable providers, it could either draw support from other broadcasters or "they're on their own crusade," said John G. Johnson, a partner in the media practice of Paul, Hastings, Janofsky & Walker LLP in Washington.