Local Broadcast Channel Fee

Cable subscribers saw a small increase to their monthly bill this month (February) in the form of a Local Broadcast Channel Fee. That charge was a direct result from increased fees broadcasters levy for each cable customer with access to their channel. I feel like we owe customers a little more of an explanation on how we got to this point and I'm going to try to do that in three parts...

1. History: This topic goes back three years to our last retransmission agreement. (Quick Aside: a retransmission agreement is a contract Mitchell Telecom makes with local broadcasters to carry their channel. We couldn't carry these channels without an agreement and the agreements are renegotiated every three years.)

Prior to 2008 the signal was free, just like it would have been if the subscriber posted an antenna on their house and pulled the channel over the air. The rationalization for the free coverage was that cable providers expanded the footprint for broadcasters (and subsequently their advertisers) delivery their service (and advertisements) to more eyeballs. I can only assume that meant higher ad rates.

During 2008 our local broadcasters first added a monthly surcharge on cable customers for the ability to carry their channel. Fast forward to today and a new set of agreements brings a new set of these surcharges see dramatic increases in the neighborhood of 325%.

As a cable provider, we have no other recourse if we want the programming. We can’t shop around for another provider as the local broadcaster’s designated market area (DMA) is protected by the Federal Government.

2. Viewership / Business Changing: Historically I have to assume local broadcasters would have been nearly 100% advertiser supported. The local news was sponsored by ABC Hospital and XYZ Bank, other sponsors purchased 30-seconds spots during primetime programming – over the course of a month or year these ads paid the bills and made a nice margin for the owners. At some point, that model changed.

Advertisers weren’t willing to pay for these spots (or at least the rate they were being charged) as they found cheaper alternatives for placement mainly on cable networks and also on the Internet. That squeeze forced local broadcasters to change with the landscape or look for other means of revenue. To me, it appears they put a big bull’s eye on the back of the cable subscriber.

Please don’t read the above as an attack on the quality of programming made available by these broadcasters – it is quite valuable. However, I’m trying to point out that if you look back four years (when the service was free to cable subscribers) not much has changed with the service other than two big additions – expanded HD coverage and a hefty surcharge to cable subscribers.

3. End Result: Based on past customer feedback, we felt our cable product would not be very competitive without this group of local broadcasters. Through the different retransmission agreements, we acquired the rights for channels that represent the second most expensive block of channels we offer. After the 325% increase starting in 2012 the local broadcast block of channels accounts for over 10% of the programming costs within our basic package. The result? Higher cost service and a $1.20 Local Broadcast Fee.

Please understand, this post is completely from a biased perspective – I work for a cable provider and I think our customers are getting a raw deal. That said, my biggest point of frustration is pretty simple in my eyes…if I as a customer wanted to do away with cable service and pick up the signal over-the-air, I have no programming costs associated with the service. BUT, by connecting via a cable provider I’m forced to pay a premium. What?

Got other questions? Email us at info@mitchelltelecom.com.