Verizon Wants to Change the Way it Pays to Acquire Channels for FiOS TV

Verizon wants to change the way it pays networks for carriage rights. Today, affiliate fees are paid based largely on the number of subscribers a video distributor has on its most popular and widely viewed tier of service. But Verizon wants to do something different, and tie affiliate fees to viewership.

There would be many winners and losers, if Verizon were to make headway with some of the programming networks and gain permission to pay affiliate fees based on actual viewership. Some networks, such as USA Networks, might actually wind up being paid much more. 

Other networks, such as TNT, might wind up being paid less. 

Tensions between programming networks, which always seek higher carriage fees (affiliate fees) from video distributors, and cable TV, satellite and telco TV providers, have been mounting in recent years as profit margins in the once-comfortable business have dropped from a routine 40 percent to today’s more typical 20 percent profit margins.

Add in the growing ability consumers have to cut the cord and substitute a range of online sources, and ever-growing subscriber prices, and distributors have reasons for concern.

Derek Blaine, SNL Kagan senior analyst, illustrates the cost of channels, using 2011 figures for annual affiliate revenue, divided by their average daily viewership.

That is one way of matching the cost of a network with the number of people watching those channels.

ESPN, the number one channel, earns more than five times as much per household as the Style Network at number 20.

1	ESPN	$7,368
2	NBC Sports Network	$5,956
3	NBA TV	$5,622
4	NFL Network	$5,540
5	MLB Network	$5,095
6	GolTV	$4,167
7	ESPNews	$3,489
8	FOX Soccer Channel	$3,366
9	Golf Channel	$3,348
10	ESPN2	$3,196
11	VH1 Classic	$2,971
12	CNBC	$2,217
13	Velocity	$2,029
14	SPEED	$1,788
15	CNN	$1,740
16	BBC America	$1,519
17	TNT	$1,468
18	Fuse	$1,460
19	Fox Deportes	$1,442
20	Style Network	$1,420