By The TV Answer Man team
TV Answer Man, can you explain something? Why does a cable company like Spectrum have to pay Disney to carry ESPN? Shouldn’t Disney pay Spectrum to carry ESPN in their lineup? That gives them more viewers which they can use to sell advertising, right? What am I missing here? — Todd, Santa Monica, California.
Todd, since the Disney blackout on Spectrum TV began last Thursday night, we’ve received a handful of reader e-mails asking similar questions. Why does Spectrum, which is owned by Charter, have to pay Disney for its channels? Shouldn’t it be the other way, the readers ask? Disney clearly benefits from having ESPN available to the 15 million Spectrum TV subscribers by increasing the channel’s ratings and advertising. But here are the four reasons why Spectrum has to pay, and not Disney.
1. Contractual Agreements
The primary reason cable TV operators are obligated to pay ESPN for carrying its channels is the existence of legally binding contractual agreements between ESPN and cable providers. These agreements are known as carriage or distribution agreements. They outline the terms and conditions under which cable operators can broadcast ESPN’s content to their subscribers. Typically, these contracts cover a wide range of issues, including channel placement, distribution rights, fees, and the duration of the agreement.
2. Copyright and Licensing
A significant aspect of these contracts revolves around the licensing of ESPN’s content. ESPN holds the exclusive rights to broadcast many popular sporting events and leagues, such as the NFL, NBA, MLB, and college sports. These exclusive rights are protected by copyright laws, which prevent cable operators from broadcasting ESPN’s content without proper licensing. Cable TV operators essentially pay for the privilege of accessing and distributing ESPN’s copyrighted content to their subscribers. Failure to do so would constitute a violation of copyright law, which could result in legal action against the cable operator.
3. Retransmission Consent
The Cable Television Consumer Protection and Competition Act of 1992 established the concept of retransmission consent. This law stipulates that cable operators must obtain permission from broadcasters (including cable networks like ESPN) to carry their channels and content. ESPN, as a prominent cable network, has the right to negotiate the terms and fees associated with the retransmission of its content. Retransmission consent negotiations often involve complex and protracted discussions between ESPN and cable operators. These negotiations can lead to disputes over fees and terms, which occasionally result in channel blackouts if no agreement is reached.
4. Market Power and Fair Business Practices
ESPN’s significant market power also plays a role in the legal reasons for cable operators paying to carry its channels. ESPN’s extensive sports programming portfolio and broad viewership make it a highly sought-after network for cable packages. This strong market position allows ESPN to negotiate favorable terms and fees in distribution agreements. Antitrust laws in many countries, including the United States, are designed to prevent monopolistic behavior and ensure fair competition. While ESPN’s dominance in the sports broadcasting market has been scrutinized, it has generally complied with antitrust regulations. Nevertheless, cable operators must still adhere to market-based negotiations when dealing with ESPN. What’s different about this dispute is that Charter is trying to change the dynamics of the relationship by demanding that Disney allow it to offer ESPN to fewer subscribers, which would allow it to provide cheaper programming packages to cord cutters. Disney is apparently trying to use its market power, and ESPN’s market power, to maintain the past arrangement, although the company claims it’s willing to be flexible.
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