Verizon pays for CBS retransmission

Les Moonves, chief executive of CBS, has predicted that his media group will earn hundreds of millions of dollars in extra revenue by getting cable, satellite and telecommunications companies to pay for showing its free-to-air television stations.

Payments for so-called “retransmission consent” – for which television stations have often waived fees in exchange for carriage of, for example, cable television channels – is becoming more important as a potential source of revenue amid pressure on advertising revenues and growing content expenses.

This week, Mr Moonves’s plan gained credibility after CBS, the part of Sumner Redstone’s Viacom media group that was split in two and therefore shed its ties to cable stations such as MTV, reached an agreement with Verizon’s new television service that involves a payment by the telecoms group for “retransmission consent”.

According to people familiar with the deal, Verizon will pay about 50 cents per month per subscriber, similar to fees paid for some cable channels.

CBS is leading TV station owners in their efforts to generate extra revenues. Some of the other biggest TV owners, such as News Corp, which owns Fox, and Walt Disney, which owns ABC, are not expected to push payments as they are likely to continue to bundle retransmission with deals for carriage of cable channels.

However, others are pursuing the CBS route, including Hearst Broadcasting, Belo Corp, Clear Channel and Nextar Broadcasting Group.

“TV station owners, led by CBS, are making a concerted effort to receive cash payments for retransmission of its signal versus the historical practice of bundling retrans with cable network carriage fees,” said Michael Nathanson, analyst at Sanford Bernstein.

He said CBS was likely to be successful – as shown by the Verizon deal – but many of the potential benefits would not come for some years. Deals for free transmission with large cable operators such as Comcast do not expire until 2009. However, assuming monthly fees of 20 cents per subscriber for cable and 50 cents for satellite and telecoms, $245m – or about 7 per cent – could be added to earnings before interest depreciation and amortisation in 2010.

In spite of the likely benefits for CBS and others – and much of this will depend on negotiating clout and the willingness of TV stations to withdraw their signals if cable operators refuse to pay up – the issue could be a factor for the relative positions of cable, satellite and telecoms operators as they increasingly compete for the same customer base.

Just as Verizon and other telecoms players such as AT&T are planning to offer multi-channel television to their customers in addition to telephony services and internet access, cable companies are increasingly bund-ling telephone and internet connections with their traditional television offerings.

Craig Moffett, analyst at Sanford Bernstein, said deals such as the one struck between CBS and Verizon could erode margins for the telecoms companies.

“Incumbent cable operators enjoy much greater leverage,” said Mr Moffett.

“The local cable operator typically represents 70 per cent of more of a local broadcast station’s distribution and thus its advertising reach.”

He added: “Over the longer term, a cash-for-carriage precedent could mean higher programming costs for all players, ultimately resulting in higher consumer prices.”