11 November 2010

Man Who Blacked Out World Series Blames Politicians


News Corp.’s Chase Carey, the man who oversaw Fox’s talks with Cablevision Systems Corp. during a two- week blackout, has advice for government officials who want to keep more TV channels from going dark: Stop meddling.

News Corp. last month cut off World Series games and shows including “Glee” to Cablevision’s 3 million customers after the two sides couldn’t agree on how much Cablevision should pay Fox. One problem, Carey said, was that the government wasn’t clear about whether it would intervene, leading Cablevision to think it might get better terms if it held out until the U.S. weighed in.

“This process would have been resolved more easily, more quickly,” said Carey, chief operating officer and second-in- command to Rupert Murdoch. “I would actually contend we wouldn’t have gone off the air at all.”

Clashes between media and cable companies are on the rise as broadcasters such as Fox and Walt Disney Co.’s ABC ask to be paid for programming that used to be free. The number of TV blackouts this year is the most in at least a decade, triggering consumer wrath and lawmaker scrutiny.

Carey, 56, spoke during an interview at News Corp.’s New York headquarters, in a wood-paneled, windowless room barely large enough for an oversized conference table. He said he was eager to clear up what he thinks are misperceptions about the longest blackout for such a large customer group in at least a decade.

“This wasn’t a good experience,” Carey said. “Everybody here found this really painful.”

Kerry’s New Bill

News Corp., controlled by Chairman and CEO Murdoch, fell 5 cents to $14.28 on the Nasdaq Stock Market at 4 p.m. New York time. Cablevision rose 1 cent to $29.33 in New York Stock Exchange composite trading. News Corp. has gained 4.3 percent this year, while Cablevision added 38 percent.

Cablevision, based in Bethpage, New York, declined to make anyone available for comment. A spokesman referred to a conference call last week, when Chief Operating Officer Tom Rutledge said the U.S. Federal Communications Commission should prevent broadcasters from cutting off programming to obtain negotiating leverage.

Senator John Kerry says he plans to introduce a bill when Congress reconvenes next week to keep companies from pulling signals before regulators check for good-faith negotiations. The Massachusetts Democrat is chairman of the communications, Internet and technology subcommittee of the Senate Commerce Committee, which plans to hold a hearing on the issue.

“They’re very high-profile battles because it can turn into the politicians’ constituents losing their TV service,” David Joyce, an analyst with Miller, Tabak & Co. in New York, said in an interview.

‘Not a Nonprofit’

Carey has said Fox needs fees from cable companies, in addition to advertising revenue, to afford marquee events including professional football and baseball games. He’s made subscriber fees a top priority since becoming COO last year, as he strives to return the broadcast network to profitability instead of losing a “few hundred million dollars” each year.

“We’re not running a nonprofit,” Carey said.

Fox and Cablevision reached an agreement Oct. 30 without direct government intervention. Though terms weren’t disclosed, Cablevision called it an “unfair price.” Michael Nathanson, an analyst at Nomura Securities International Inc. in New York, estimates Cablevision will pay Fox about $1 per subscriber a month after a few years.

Carey said he visited politicians in Washington to explain that Fox needs a dual-revenue stream, and to argue that giving Cablevision hope of government intervention encouraged the cable operator to drag out the process.

‘Unfortunate Stalemate’

“As long as they feel they have in places a somewhat receptive audience, it incents them to not resolve this as a business matter but to politicize it,” he said.

At least 50 elected officials sided with Cablevision during the dispute and called for arbitration, the company says. Distributors say they resist paying broadcasters the new fees because they have to pass the costs on to consumers.

“Just because deals are getting signed doesn’t mean that’s going to be the end of the story,” analyst Joyce said.

FCC Chairman Julius Genachowski said in an Oct. 29 letter to Kerry the agency doesn’t have the authority to prevent service disruptions. Congress should revisit current law and examine whether mandatory mediation and binding arbitration could prevent impasses like the “unfortunate stalemate” between Fox and Cablevision, Genachowski wrote.

Kerry’s bill isn’t likely to pass during the post-election session, Andrew D. Lipman, a Washington-based partner with the law firm Bingham McCutchen LLP, said in an interview.

Republican Reluctance

Newly elected Republicans “are going to be less willing to insert government into disputes between cable providers and broadcasters,” Lipman said.

Carey used to be on the other side of the negotiating table. Before returning to News Corp. in mid-2009, he was chief executive of DirecTV, the largest U.S. satellite-television provider. He said broadcasters were “delinquent” in the 2000s for not addressing their faltering business models and not seeking payments from pay-TV operators.

Now that Fox has deals locked up with its four largest distributors, the network is on the path to profitability, Carey said.

Carey said he understands that politicians want to reassure their constituents and show they’re taking action. The problem is that such actions are often counterproductive, he said.

“You’re going to bastardize every negotiation because you’re going to have this specter of arbitration,” he said.

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