Analysis: Will ITV get its way on UK retransmission fees?

ITV says the wider industry will back its aggressive to push to get the UK’s pay TV platforms to adopt a system similar to the US and pay to carry the territory’s terrestrial broadcasters, but analysts have suggested the fight will not be an easy one, reports Jesse Whittock.

ITV CEO Adam Crozier was bullish in his demands that BSkyB and Virgin Media follow suit from their American counterparts and pay for the privilege of running terrestrial broadcast networks on their platforms.

A week ago, he said ITV – ‘backed’ by the wider industry – would begin aggressively pushing for pay TV platforms to agree to paying controversial retransmission fees for the right to run broadcast channels on their platforms. “There are real benefits to retransmission fees to the UK economy, the TV and production industries and indeed to the UK citizen,” he told investors.

The UK has slowly moved from a system that heavily favoured the pay TV platforms – the BBC was at one point paying Sky £10 million (US$16 million) a year to exist on its rival’s EPG – to one that is tipping in favour of the networks.

Despite Sky slashing the fees it demanded to run channels from the BBC by 40% in 2012, the ill-feeling continued and the UK government weighed in, criticising Sky’s insistence on payment. An end to the system became inevitable, and in February this year, the BBC, ITV and Sky came to an agreement that dropped payment completely.

Similar deals with Channel 4 and Channel 5 have not yet materialised, but this should only be a matter of formality now the precedent has been set.

The pendulum is now swinging even further in the other direction, with the BBC the first to suggest Sky should pay to retransmit its 49 TV and radio channels – akin to the system in the US.

As far back as former director general Mark Thompson’s McTaggart speech nearly four years ago, the UK public broadcaster has been pointing out Sky’s key shareholder, Rupert Murdoch of 21^st Century Fox, has passionately fought to keep the likes of Comcast, Time Warner Cable, DirecTV and Charter Communications paying millions of dollars a year to offer broadcast networks including Fox.

Murdoch’s son James, who is set to deliver a keynote speech at MIPCOM this year, is now in control of Sky after taking on duties in a restructure earlier this year. While previously CEO and chairman of Sky, he seemingly argued against his father’s Stateside logic when the old UK system was in place – something the BBC also pointed out.

And now Crozier has taken aim at Sky, perhaps buoyed on after Sky sold its minority stake in ITV to Liberty Global. He noted that in the US, retransmission fees were worth as much as US$3.3 billion a year for the networks – 15% of overall broadcast revenues – and that this could grow to 25%. The implication was that this could be recreated in the UK.

Among a number of other claims, he suggested these fees could pay for part of the BBC licence fee, which is at a low point in terms of public and governmental support in Britain at the moment.

However, Crozier admitted that change will take time to come. Analysts are even more sceptical.

Sarah Simon and Robert Berg at Berenberg have noted that any progress will require regulatory change – and change is not something UK media regulator Ofcom has been a flag-waver for over the years.

Ofcom would be especially concerned, the analysts wrote in a note last week, if the costs the pay TV companies were forced to pay were lumped on to consumers’ programming packages. (It is very likely Sky’s prices would likely rise if retransmission became the norm.) The Berenberg analysts diplomatically described this as a “thorny issue”.

A further issue, and perhaps one more pertinent to ITV, is that the broadcaster could hardly afford to pull its channels if Sky and Virgin refused to pay up. This is because the loss of advertising reach would be enormous, and until VOD services and other forms of revenue grow further advertising money is all-important to Britain’s commercial channels.

Berenberg also predicted any changes would have to factor in the BBC’s funding mechanism, the royal charter, which isn’t due to be renewed until the end of 2016. This makes 2017 the earliest point change could come, and this does not tie in with Crozier’s “aggressive” push, which he said would begin in September with the publication of a study outlining what a new model might look like.

With all of this in mind, Berenberg came to two conclusions: retransmission fees “are unlikely to be charged at anything like the scale of those in the US market”, and that “the timing could be disappointing for those anticipating upgrades in the near to medium term from this revenue source”.

Never the sexiest of issues but long considered a key battleground for the future of UK broadcasting, the retransmission row is set to heat up as the money gets bigger and the players get bolder.