1. Will Carriage And Retrans Fees Be The Death Of Linear?

Carriage and retrans fees—the money MVPDs pay to cable and broadcast networks respectively—seemed like a great idea back in the 1970s.

There was no internet back then and so cable companies existed solely to bring Americans snow-free television signals. (“Snow” was what people in olden days called the fuzzy picture that resulted from less-than-ideal reception of over the air signals, common in a large country like the US.) Being able to provide viewers with all the most desirable networks—the broadcast networks in particular—was a huge selling point for cable companies and one that they were more than willing to pay retrans and carriage fees for.

Fast forward to 2022, and US cable companies make almost all of their income from selling broadband. Their television service is often a loss leader, a way to obtain and retain customers who prefer to have TV and broadband from the same provider.

Meaning carriage and retrans fees can start to seem superfluous.

Why It Matters

As the number of linear subscribers falls, so does the size of those carriage and retrans fees, eating into the profit margins of broadcast and cable networks.

But the real problem comes as the big broadcast and cable networks think about taking their feeds to streaming. Because streaming providers, whether they are smart TV and connected device OEMs or FAST aggregators, are not paying those carriage and retrans fees. And so there goes all that revenue.

The big players likely won’t feel the pinch all that acutely—they’ve got multiple revenue streams, or at least their parent companies do.

It’s the small and medium cable networks, the ones not affiliated with major media companies who will feel it, as well as local broadcast affiliates, though each for different reasons.

For the small to medium sized cable networks, streaming can feel like an opportunity. Many of them have set up shop there, launching their own apps while simultaneously licensing their programming to the various FASTs, to run on linear channels and as on-demand offerings.

All well and good, except if they move to an all-streaming model, the money they get from advertising will not replace the money they currently get from advertising + carriage fees. That’s partly because there’s less inventory on streaming (smaller ad loads) and partly because the “more” that advertisers are willing to pay for better targeted streaming advertising is not enough to overcome the loss of carriage fees.

So the question then becomes, is there a world where OEMs and FASTs do pay something like a carriage fee to smaller cable networks and local broadcast stations and the answer is probably not.

You see there’s really no reason to. No one is buying a TV set because it carries the app for their favorite small cable network. (If it bothers them that much, they can always buy a Roku stick for $25.) Ditto local broadcast, which, if anything, needs to convince the FASTs and OEMs to carry them.

So not a good situation.

But here’s the kicker: this is a very US problem.

Carriage and retrans fees are not a thing in other countries. 

Take Canada, for instance. 

Their cable networks have had to figure out a way to stay in business for decades without the additional income carriage fees bring.

And so a switch to streaming for them is just a switch to a different delivery method, complicated somewhat by the fact that they now need to sell audience-based and programmatic advertising. Which, while it may cause a bump or two, is not a full out assault on their ability to turn a profit.

What You Need To Do About It

If you are a small or medium sized cable network, you need to rethink your business model to account for a world where you will no longer be able to rely on carriage fees and must instead rely solely on ad revenue and syndication.

That might not be easy and it’s going to cause much internal rending of garments, but in the long run, that is the only way you are going to stay in business. Look to Canadian and European cable networks for ideas—they’ve been going without carriage fee income from Day One.

If you are a local broadcaster and not part of a bigger affiliate group like Tegna or Sinclair, then you really need to start re-evaluating the future and where you fit in. It is unlikely that the government will allow you to be shut down—e.g. the networks whose programming you run will likely need to keep supplying you with that programming even if they move their own feeds to streaming. The question really is, will that matter if most everyone just watches it on streaming?

Your best hope is for there to be a real bipartisan uproar and for Congress/the FCC to decide that you get dibs onl the broadcast network’s streaming feed (and resulting ad revenue) in your market.

That is a great big honking “if” however and I would not count on it. 

So time for Plan B.

If you’re an OEM, remember that the people likely to be asking you for carriage fees someday are not going to be the smaller cable networks, but rather, the big SVOD services, because without them, you actually will be at a disadvantage, so best to start finding ways to head that off now, rather than waiting for it.

2. OpenAP Expands CrossPlatform Programmatic Capabilities 

OpenAP, the consortium launched by several of the major media companies and currently owned by Fox, NBCU, Paramount and Warner Brothers Discovery announced that they (or their OpenID product, to be exact) will be working with supply side vendors Magnite, FreeWheel and Xandr to expand those networks’ programmatic selling abilities across both linear and CTV. Agency giant Group M will be the first to take advantage of the program.

Why It Matters

Hybrid viewing—viewers watching both linear and streaming—is here and it’s not going away any time soon.

That’s why brands need to be able to buy TV on a cross platform (linear + streaming) basis.

Right now, streaming looks a lot like the Holy Roman Empire, circa 1322: a series of hundreds of fiefdoms few of whom play nicely with each other.

As a result, it’s been increasingly difficult to create any sort of standardized ad buying going, which completely freaks out brands that are used to being able to make big uncomplicated ad buys, e.g. Women 18-49 across Every Linear TV Option Ever.

OpenID maintains an identity graph that allows the three SSPs (and anyone else for that matter, SSP or DSP,  who wants to use it) to find audiences across streaming and linear on the services that utilize the platform and reach them via programmatic ad buys.

This is important for four big reasons.

1. Programmatic ad buying the future of TV. Now that a critical mass of people have figured out that “programmatic” is not a euphemism for “race to the bottom”, and as programmatic buying platforms become better adapted for TV with its household (versus individual) viewing patterns, the more widely accepted it will become. While there are many pluses to programmatic, the overriding benefit is that it’s just far more efficient.

2. Advertisers want reach. TV is still a mass reach vehicle. Many advertisers—big advertisers in particular—just want to reach as many people as possible with their ads. They can’t always do that by solely relying on linear these days, as audiences are hybrid, so this gives them an easily measured way to hit those audiences across streaming and linear without fear of overfrequency.

3. The major media companies in Open AP control a lot of inventory. Much of it is sold together too (their own streaming and linear inventory, that is) so this is not a niche project that everyone smiles about but has zero impact. This is real and there’s going to be real money being transacted.

4. The plan provides a path forward. The industry needs to figure out cross platform buying, especially audience-based cross platform buying. There isn’t likely to be a one stop solution that suits everyone, but the more big solutions there are like this one, the better.

One final note: You likely have heard my rant about how the fact that there is no commonly agreed upon nomenclature for TV these days is a serious problem. People constantly find themselves in meetings or negotiations where they realize that the other side has been relying on a completely different definition for a key term.

With this announcement, a number of the reports I’ve seen refer to “linear and digital buys.” Technically correct—streaming is indeed digitally delivered—but the term “digital video” often conjures up YouTube and social video, not CTV.

Just something to be aware of.

What You Need To Do About It

If you are OpenAP, Magnite, FreeWheel and Xandr, take a bow—while this may seem incremental, it’s still a big step forward towards getting the industry to think more broadly about cross platform in all senses of the word—across linear and streaming and across networks.

If you are an ad agency, think about following Group M’s lead on this as it’s something your clients have likely been asking for.

If you have anything to do with the TV industry, remember to clarify terminology in everything from press releases to the start of meetings and negotiations. It will save you much future confusion and heartache.