Fox could become cable channel, News Corp. COO Chase Carey says

By Joe Flint

April 8, 2013 12 AM PT

Is Bart Simpson heading to cable?

It could happen, warned Chase Carey, the president of News Corp., which owns Fox Broadcasting, home to such popular shows as “The Simpsons,” “Glee” and “The Following” as well as National Football League games.

Most consumers already pay to get Fox through their pay-TV provider. A cable or satellite company typically pays Fox a fee to carry its signals, and those costs get passed on to their customers. This so-called retransmission consent fee has become a key revenue stream for broadcast networks, which previously made most of their money from selling advertising. According to SNL Kagan, Fox, CBS, NBC, ABC, CW and Univision will take in $1.7 billion in fees related to retransmission consent by 2015.

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But a new start-up company called Aereo has the potential to undermine retransmission consent, and that has broadcasters such as Fox worried.

Aereo, which transmits the over-the-air broadcast signals to consumers via the Internet, has so far withstood legal challenges to its business from Fox, CBS, NBC, ABC and other broadcasters who claim it is engaged in copyright theft.

Last week, the U.S. Court of Appeals for the Second Circuit in New York ruled Aereo’s transmissions and recordings of broadcast programming are not “public performances” of copyrighted material. The court added that the broadcasters “have not demonstrated that they are likely to prevail on the merits on this claim in their copyright infringement action.”

Broadcasters have vowed to continue fighting Aereo in the courts.

Although Aereo, whose backers include media mogul Barry Diller, is a tiny company with few subscribers, broadcasters fear that if it gains traction, retransmission consent could be in jeopardy -- which would severely hamper their bottom line.

“We simply cannot provide the type of quality sports, news and entertainment content that we do from an ad-supported-only business model,” Carey said Monday. “We have no choice but to develop business solutions that ensure we continue to remain in the driver’s seat of our own destiny. One option could be converting the Fox broadcast network to a pay channel, which we would do in collaboration with both our content partners and affiliates.”

An Aereo spokeswoman said, “It’s disappointing to hear that Fox believes that consumers should not be permitted to use an antenna to access free-to-air broadcast television.”

If Fox opted to become a cable channel, it may be able to charge more than it currently gets from pay-TV distributors. Because Fox and other broadcast networks are still free to anyone with an antenna, cable and satellite companies have been reluctant to pay them the same rate that cable-only channels such as TNT or ESPN get.

There is still roughly 10% to 15% of the country that does not subscribe to pay TV. That could mean lower ratings but it may not hurt ad revenue. Sanford C. Bernstein analyst Todd Juenger noted that those without a pay-TV subscription are not “a highly coveted group for many advertisers.”

A move to cable would raise questions about the future of the local TV stations that Fox owns, including KTTV-TV Los Angeles. If Fox were to pull its network programming off the air, the local stations would have to fill 15 hours of prime time a week. Besides its own stations, which reach about 40% of the country, Fox also has affiliates that count on the network for content. Carey said any move to cable would be done in partnership with the network’s affiliates.

Another issue would be whether Fox could contractually move all its content to cable. There could be concerns from lawmakers about even more football and baseball games moving from broadcast TV to cable. An NFL spokesman said, “We are committed to our partnership with Fox.”

Carey is the first broadcaster to go public with the cable-only idea but others are thinking it too.

“It’s not what we want but if we’re forced into it, then we’ll do it,” said the executive of another broadcast network who requested anonymity because of the sensitivity of the subject.

Carey said he expects Fox to prevail in court against Aereo. It also is unclear how much of a consumer appetite there is for Aereo. It charges about $8 a month for the broadcast networks and a virtual digital video recorder.

“I have never fully understood the consumer proposition,” Juenger said recently. “For people who are cost-conscious, why not just buy an antenna and get broadcast for free.... Is it worth $8 per month just to have mobile access and some sort of cloud DVR function?”

ALSO:

Aereo beats broadcasters legal challenge, trial likely

Broadcast networks will rake in retransmission consent fees

Is Aereo a solution in search of a problem?

Follow Joe Flint on Twitter @JBFlint.

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