A report from equity analysts at Berenberg Bank suggests that the upcoming UK Digital Economy Bill could see a change of heart as far as the British government is concerned over retransmission fees as far as ITV is concerned.
The all-important element within the Bill is covered by Section 73 in the document. The ban states: “Section 73 essentially says that public service broadcasters (PSB), such as ITV, must make their channels available to the cable networks. If those PSB channels must be provided, that means ITV (and the BBC, Channel 4 and Five) cannot claim payment for said channels. The repeal of Section 73 thus paves the way for the PSBs to threaten to withdraw their channels from the cable network (Virgin) unless they have a commercial carriage agreement in place. We note that the PSBs recently won a court case against TVCatchup in this regard, arguing that TVCatchup did not have the right to live-stream their broadcasts free of charge, and this legal dispute will likely be relevant in a post-Section 73 world.”
Berenberg explains why the UK’s rules are different to those in the US. “The reality is that the situation is still very different to the one in the US. For while that country does not really have a culture of free TV, and the vast majority of households receive their TV via either a cable or satellite subscription, in the UK, c45% of households only receive their TV via DTT, while many use DTT for reception on a second or third TV set. This means that the leverage that ITV can exert over Virgin (and in due course, Sky) is necessarily much less than would be the case in the US.”
“Obviously, the stronger the channel, the better the negotiating leverage. In the UK, by contrast, if Virgin Media refused to agree to ITV’s terms, customers of Virgin Media could watch via DTT on another TV set, or, in many cases, shift to the DTT broadcast on the main set.”
The bank says: “We have been historically negative on the potential for ITV to generate carriage fees for the main channel, given the government’s initial opposition to this. However, it appears that the Digital Economy bill, set to pass by the summer, will lift the “must offer” status of that channel, meaning that the way is clear for ITV to negotiate commercial terms with Virgin (to do so with Sky will require separate European legislative change, which is in any case up in the air, given the Brexit situation). We continue to believe that Virgin (and Sky) will push back strongly against paying, and that there are ways around it.”
The bank adds: “ITV is distributed unencrypted via satellite and via DTT, which means that a simple USB DTT connector could allow Virgin consumers to continue watching ITV even if the cable operator will not pay to redistribute the signal over its network.”