Behind the TV channel blackouts: stalling profits

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In the first six and a half months of this year, 22 fee disputes involving the price of broadcast TV signals have caused channel blackouts, according to the American TV Alliance. That’s up from 15 blackouts in all of 2011. There were just four in 2010.

Dish Network Corp. dropped AMC Networks Inc. channels on July 1, two weeks ahead of the premiere of the final season of “Breaking Bad” on Sunday. DirecTV dropped more than a dozen Viacom Inc. channels on July 10. Time Warner Cable Inc. gave up on a Fox Sports channel covering the San Diego Padres in April and on July 9 it let 15 Hearst television stations go dark, complaining of a four-fold fee hike demand.

Distributors say they must hold the line on their biggest expense _programming_ even if they risk having customers defect.

“I don’t think the industry can sustain this kind of behavior,” says DirecTV’s executive vice president of strategy, Derek Chang, who accuses Viacom of trying to raise rates by 30 percent. “Ultimately, it’ll drive costs up to the end user.”

Viacom argues that DirecTV is out of step with higher-paying competitors now that its seven-year-old contract has ended.

Amid the war of words, one thing is clear: the price of TV is going up.

People already have been paying more and more. In April and May, 1,369 Americans who were surveyed by the Leichtman Research Group reported that their monthly TV bill rose an average of 7 percent from a year ago, to $78.63. That’s largely in line with annual single-digit percentage increases historically.

What’s different for distributors lately is that they also have to pay for broadcast TV station signals, which they used to get for free in exchange for carrying upstart new channels. In recent years, broadcasters like CBS have demanded cash from TV distributors for broadcast signals, even though consumers who go through the trouble of setting up an antenna could get them over the air at no charge.

Such “retransmission fees” are expected to double industry-wide from $1.8 billion this year to $3.6 billion in 2017, according to research firm SNL Kagan.

“That’s an expense that really didn’t exist five or 10 years ago,” says Leichtman Research Group’s president Bruce Leichtman. “That’s putting the biggest stress on the system.”

The battle ends up hurting consumers the most.

Russell Hawkins, a 36-year-old food company marketer in Clinton, Mich., says that because of the dispute between Dish and AMC, he’s decided to end his four-year relationship with Dish and has asked his Internet provider, Comcast Corp., to hook up cable TV in a week. He had no problems paying $70 a month, but the prospect of losing AMC was too much.

“They can’t be dropping channels on people,” he says.

Now he’ll save $40 a month by getting Internet and phone service bundled, and Comcast threw in HBO and Showtime for 2 years for free. His friends are contacting him about how to get the same deal. “A lot of others are going to do the same thing.”

David Jacobs, a 48-year-old social media consultant in Damascus, Ore., says he signed up with Dish just six months ago to pay for upwards of 100 channels for around $50 a month. But now, he’s locked into a two-year contract and will have to pay hefty penalties if he cancels. He’ll now have to scramble to find a way to watch the premiere of “Breaking Bad,” his favorite show, which airs on AMC.

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