Cable TV battles broadcasters - does satellite win?

By Yinka Adegoke and Paul Thomasch - Analysis

NEW YORK (Reuters) - U.S. satellite television providers hope to benefit from a battle between cable rivals and television networks over programming costs, but analysts think their hopes may be misplaced.

While high-stakes negotiations over retransmitting terrestrial TV channels could end up raising the costs of cable operators, cable has in the past found ways to sidestep cash payments for retransmission, industry watchers say.

Furthermore, the current stance by broadcasters suggests they may also eventually seek higher payments from the two satellite companies, DirecTV Group Inc. DTV.N and EchoStar Communications Corp. (DISH.O).

"The demands from the broadcasters are getting higher and higher and the satellite companies don't have the same sort of negotiating leverage," said Craig Moffett, an analyst at Sanford Bernstein.

Costs for "cable will go from zero to a small number, but the satellite retransmission rate is going to go from a moderately large number to a much larger number."

Cable companies have had the advantage over satellite when it comes to programming costs because satellite providers have to pay broadcasters for rights to retransmit free-to-air terrestrial TV channels, such as ABC, CBS, NBC and Fox.

Cable companies argue that, since homes can receive these channels for free with their 'rabbit ear' antennae, why should cable pay to carry them? But broadcasters such as CBS Corp. (CBS.N) and others have started to demand money as a way to generate revenue beyond advertising.

Satellite companies are hoping to be the beneficiaries of the dispute. Cash payments to broadcasters would raise the cost structure for cable companies -- the argument goes -- and suddenly level the playing field.

"I think that, while we've had lots of disputes with broadcasters over the years, it is certainly one thing the broadcasters and EchoStar are on the same page for," EchoStar Chief Executive Charlie Ergen recently told investors. "Today they're getting a free ride," he added, referring to cable companies.

DirecTV has a similar view.

"The cable companies have had an unfair advantage for many years," said Jon Gieselman, DirecTV's senior vice president of public relations and advertising.

Others are less certain the dispute will play out to the advantage of the satellite industry, since cable has managed to avoid such retransmission payments in the past.

For instance, cable companies pay fees to Walt Disney Co. (DIS.N) to broadcast ESPN in exchange for free transmission of its ABC network.

"The cable industry may have options aside from paying cash to preserve its margins and instead offer services like cable channels, carriage and video-on-demand services, which may preserve those contracts and the margins," said Aryeh Bourkoff, an analyst with UBS.

CBS is viewed as one test case for what happens with retransmission payments. Now that it has been separated from Viacom Inc. (VIA.N), CBS has been clear that it wants to be paid by cable operators to carry the network as contracts come up for renewal.