- The Washington Times - Wednesday, December 30, 2009

NEW YORK | For more than 60 years, TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer.

The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks’ programming. Cable TV and the Web have fractured the audience for free TV and siphoned its ad dollars. The recession has squeezed advertising further, forcing broadcasters to accelerate their push for new revenue to pay for programming.

That shift will play out in living rooms across the country. The changes could mean higher cable- or satellite-TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast-TV channels in their lineups.

The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels - a move that could spell the end of free TV as Americans have known it since the 1940s.

“Good programing is expensive,” Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. “It can no longer be supported solely by advertising revenues.”

Fox is pursuing its strategy in public, warning that its broadcasts - including college football bowl games - could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should “roll over” or “get tough” in negotiations.

The future of free TV also could be altered as the biggest pay-TV provider, Comcast Corp., prepares to take control of NBC. Comcast has not signaled plans to end NBC’s free broadcasts. But Jeff Zucker, who runs NBC and its sister cable channels such as CNBC and Bravo, told investors this month that “the cable model is just superior to the broadcast model.”

Having two revenue streams - advertising and fees from pay-TV providers - has insulated cable channels from the recession. In contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection this year.

So rather than wait for the Internet to become a bigger source of income, the networks and local stations are mimicking what cable channels do: They’re charging pay-TV companies a monthly fee per subscriber to carry their programming.

Over time - such contracts generally run about three years - more networks began demanding payments for the stations they own. And affiliates already receiving the fees have bargained for more money.

Analysts estimate that CBS managed to get as much as 50 cents per subscriber in its most recent talks with pay-TV providers that carry CBS-owned stations. CBS Corp. Chief Executive Officer Leslie Moonves said such fees should add “hundreds of millions of dollars to revenues annually.”

That could be just the beginning. CBS and Fox are also asking for a portion of the fees that their affiliates get, arguing that the networks’ shows are what give local stations the leverage to ask for fees.

Over time, the networks might be able to get even more money by abandoning the affiliate structure and undoing a key element of free TV.

Here’s why: Pay-TV providers are paying the networks only for the stations the networks own. That amounts to a little less than a third of the TV audience, which means local affiliates recoup two-thirds of the fees. If a network operated purely as a cable channel and cut the affiliates out, the network could get the fees for the entire pay-TV audience.

If forced to go independent, affiliates would have to air their own programming, including local news and syndicated shows.

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