Increasing fees charged by local television broadcast companies has prompted Mediacom to add a “local broadcast surcharge” to the bills of customers who have local television stations in their programming package, it says.
Mediacom, which provides telephone, Internet and television service in 22 states, sent notices to customers this month announcing the change. Those customers also will see an additional $1.09 to their bills beginning with their next billing cycle.
The change will not impact costs of Internet or phone subscriptions.
Phyllis Peters, Mediacom’s communications director, said that the fees broadcasters charge are the company’s single-biggest expense, climbing to an average of 12 percent per year.
“We’ve worked to find other places to close the gap. We’re realizing more efficiencies in our operational expenses by using new technology, we’re streamlining where we can, but it’s becoming increasingly difficult to absorb the increases that the broadcast television stations demand each year,” Peters said. “The owners are asking for more and more money to carry their programming.”
There are two main contributors to the increase in programming fees, she says — sports broadcasting and local affiliate broadcasting.
“There are two real drivers of the increasing costs,” Peters said, “local television stations and sports media charging more for their programming.”
Traditionally, television stations were able to survive off advertising revenues, but as those have slumped, the business model has shifted to add programming fees.
The Albany Herald contacted the parent companies of the three local broadcast television stations in the Albany market, Raycom Media (WALB), Barrington Media (WFXL) and Gray Television (WCTV and WSWG).
“Our retransmission fees haven’t changed in a while, so it’s hard for me to believe that any rate increase by Mediacom is a reflection on us,” Rebecca Bryan, vice president and chief legal counsel for Raycom Media said.
Bob Prather, the president and chief operating officer of Gray TV, said that distributors like Mediacom pay much more for cable programming than they do for the local broadcast content, adding that if anything, the local fees being charged are likely too low.
“The truth is, the fees to the broadcasters are only a tiny portion of what they’re paying for their cable content,” said Prather, who also is the chief executive officer of Southern Community Newspapers, the parent company of the Albany Herald. “Frankly, I think the fees are too low.”
Warren Spector, the chief financial officer for Barrington Media, was out of the office and unavailable for comment Thursday.
The media landscape has shifted with new technologies, which has led to battles between programmers and content distributors. Earlier this week, News Corp. threatened to pull Fox Network off the public airwaves and form a pay-cable network if the courts didn’t block Aereo Inc., a web startup, from charging a subscription for transmitting Fox’s broadcasts without permission.
“If we can’t have our rights properly protected through those legal and political avenues, we will pursue business solutions. One such business solution would be to take the network and turn it into a subscription service,” said News Corp’s chief operating officer, Chase Carey, speaking at the National Association of Broadcasters show in Las Vegas.
The television industry is closely watching the case to see whether it could disrupt the traditional TV model. The industry sees Aereo and other similar services as a threat to its ability to control subscription fees and generate advertising income, its two main sources of revenue.
Aereo could cut the numbers of people who need or want a more expensive cable video subscription, which would eat into an estimated $3 billion that broadcasters will reap this year from cable and satellite systems in so-called retransmission fees, according to a projection by research firm SNL Kagan.
“It is clear that the broadcast business needs a dual revenue stream from both ad and subscription to be viable,” Carey said.
Peters said that Mediacom is changing the way it passes those broadcasting surcharges along to customers, a move meant to be more fair, she says.
The company used to take the increases in programming costs and spread those over its entire customer base regardless of where its subscribers reside. But because the programming fees often vary based a customer’s geographic location, Peters said, the heads at Mediacom felt it more fair to pass along the fees of the local broadcasters to customers in the area served by those broadcasters.
“There are some places where the surcharge will end up being about $2.93, which is a rather large difference from $1.09 that will impact customers in Albany,” Peters said. “It’s not fair to force those customers who live in areas where the fees are cheaper to pay a higher surcharge.”
So far, there is no check, Peters says, that would keep broadcasters from continually raising their fees each year — a tactic Mediacom wants to curtail through participation in an online petition available through its website.
Reuters News Service contributed to this report.