For those not familiar with the cable industry, every cable company must pay a retransmission consent fee to each of these major networks to compensate them for carrying their programming. This is a relatively new phenomenon in the industry and following is a brief history:
- In 1972 the FCC said that cable systems must carry stations that are within 60 miles of their service area.
- In 1992 the FCC ruled that station owners could negotiate compensation for carriage of their signals.
- Not much was done with this until the early 2000s when small payments for network content were negotiated in a few major metropolitan markets.
- But within a decade every cable system was paying for local content and the networks increased rates aggressively with each new two-year contract. Most network stations today charge between $2 and $4 per customer to cable companies for carrying their content.
And now the networks want to keep increasing the payments for local content to $6 per customer per month. That means that soon $24 out of every cable TV bill in the country will be sent back to the four primary networks. With roughly 100 million cable subscribers that is nearly $29 billion per year and $288 per household.
This situation is made worse by the fact that cable companies have little recourse but to carry this content. Customers would drop cable if they refused to carry the local stations. But cable companys’ hands are also tied because in order to carry advanced programming such as expanded basic or digital tiers they are required to carry the basic tiers – that tier that must be given to every customer. The other problem faced by cable companies is that there is little real negotiation on the retransmission rates – it’s generally a take-it-or-leave price demanded by the network affiliates.
The FCC could return some fairness to the process and also give a break to consumers with one simple change in the rules. The FCC could let customers opt out of buying the basic channels from the cable company. Anybody who lives in a metro area can already get all of these networks for free with a pair of rabbit ears. If customers had the option of opting out of these channels from cable, then they could cut their cable bill significantly while still being able to watch the channels for free from rabbit ears. It’s relatively easy to install rabbit ears to work alongside your cable system.
Of course, the cable companies have to ask for this kind of change and so far none of them have gone this far. And this is because, as much as they hate passing on the big fees from programmers, the big cable companies are also complicit in the process. When their programming costs go up $3 in a year they will raise rates $4, and so their profits keep climbing every year along with the programmers.
But we are finally starting to see cracks in the system. Most cord cutters are doing so to save money and I am positive that if people had the ability to opt out of paying for the local networks from the cable company that many of them would. Today if such programming costs $4 per network, then a customer could instantly cut their bill $16 per month or $192 per year.
So perhaps what we need is for individuals to start asking the FCC to allow them to opt out of paying for local channels that they could otherwise get with a cheap pair of rabbit ears. The cable companies might eventually come around to wanting this if cord cutting grows to be too significant, but right now they have no interest in looking out for the benefit of their customers.
I know many smaller cable operators who would love to have this option. They feel the local networks are holding them hostage by demanding bigger payment for local content every year. If a cable company was willing to work with their own customers to bypass the local stations this might bring some balance back to this process and turn it into the negotiation that the FCC originally envisioned in 1992. I know smaller companies who would gladly provide every customers with rabbit ears and help them integrate them into their TVs if that was allowed. But today a cable company could find themselves in hot water if they actively helped customers bypass the local networks.
The runaway greed of the networks and station owners is ruining the cable market. Cable rates continue to skyrocket much faster than the cost of inflation. Households really love their TV, but more and more households are finding cable to be unaffordable.
I hope the FCC wakes up to this and perhaps this blog can be the first tiny step towards planting this idea in people’s heads. Nobody really wants to pay $24 per month just to get ABC, CBS, NBC, and FOX. So let’s start asking the FCC to let us opt out of those payments.