TV Industry Divided Over Networks’ Threat to Move to Subscriptions After Aereo

"If the networks really did go [to a subscription model], they'd have a problem with their affiliates,” American Cable Association President Matthew Polka said. Stations are dependent on network content to provide value to justify retrans fees from satellite and cable providers, he said. “If you're a local TV station and you can’t show Dancing with the Stars, you're not gonna get money from us for retransmission.” A trade association official said a shift to pay TV could mean that primetime content would only be available on network-owned TV stations, leaving affiliates with lesser-valued content.

Because of the difficulties that would be caused for affiliates by a shift to pay TV, several industry observers said Carey’s message and similar statements by Univision and CBS executives were actually meant for those outside the industry. Carey’s comments were meant for Wall Street, to tell prospective investors in Aereo or its imitators that the content those services depend on might not be available, said the trade association official. Several industry observers said the networks were talking to Congress, trying to get legislators to intervene. Moonves said he “wholeheartedly supported what Chase said,” he told the New York Times, the paper reported. A CBS spokeswoman confirmed the paper’s account and declined to comment further. A Univision executive also reportedly said it was considering a pay-only model for the Spanish-language broadcast network, on which a spokeswoman had no comment.

Several in the industry who work with network affiliates said they believe the shift to a pay model is a real possibility, and that Fox and other networks would find a pay business model that satisfied affiliates, too. If Fox moved to a pay channel, it would be done “in collaboration with both [the Fox network’s] content partners and affiliates,” the network’s owner, News Corp., said the day of Carey’s remarks. One affiliate board member described the move to subscription as a “nuclear option,” but said it’s a real possibility if the networks were to lose the Aereo case outright. “Could they do it? Sure they can,” said Fletcher Heald broadcast attorney Harry Cole, who has written about the Aereo case for the firm’s blog (http://bit.ly/14X1W07). “Fox is the big guys -- it would be a large undertaking, but they could do it."

Not everyone in the TV industry views networks shifting to pay-only as a bad thing. Cable and satellite executives said they view it as a way to pay less retrans fees. “We wouldn’t mind buying network content from a network, just like we buy it from cable channels,” said Polka. He said the current system of stations relying on retrans fees is outdated, and that ACA would welcome changes to the law. “We're going to continue to push for updated rules and regulations so we don’t continue to live in a 1992 world,” said Polka, referring to the year that Congress passed the Cable Act, which created retrans consent.

Whether a network shift to subscription is a real threat or not, virtually all officials we spoke with said it’s only a possibility if the networks lose the Aereo case, which is pending at the 2nd U.S. Circuit Court of Appeals. The 2nd Circuit decided in favor of Aereo on a preliminary injunction against the online service, and the rest of the broadcast networks’ case against Aereo remains. “The case hasn’t been argued on its merits,” said the NAB spokesman. “We're convinced that our argument will prevail.”