Complete Story


Time Warner Cable, Fox Deal May Cost Cable Operators $5 Billion

By: Kelly Riddell, Business Week

Jan. 4 (Bloomberg) -- Time Warner Cable Inc.’s agreement to pay News Corp. for over-the-air television programming opens the door for broadcasters to demand as much as $5 billion a year from pay-TV providers and their subscribers, analysts said.

The companies agreed on a distribution deal Jan. 1, without disclosing the terms. Other broadcasters, such as CBS Corp., have also said they may seek payment for programming that’s currently free. CBS has a deal with Comcast Corp., the largest U.S. cable operator, that ends next year, and already collects fees from Time Warner Cable and Dish Network Corp.

News Corp. sought as much as $1 a month per Time Warner Cable subscriber for rights to Fox, home of “The Simpsons” and “American Idol,” two people with knowledge of the matter had said. If other networks seek similar terms, cable operators may have to fork out as much as $5 billion a year -- and would likely pass the cost on to subscribers, said Craig Moffett, an analyst at Sanford C. Bernstein in New York.

“The broadcast networks are really struggling to find a viable business model,” Moffett said. “They’re looking at the cable networks that make money both on advertising and the money that the cable operators pay them and saying, ‘We need a dual revenue stream to survive too.’”

Time Warner Cable dropped 44 cents, or 1.1 percent, to $41.39 on Dec. 31 in New York Stock Exchange composite trading. News Corp., controlled by Rupert Murdoch, fell 22 cents to $13.69 on the Nasdaq Stock Market. Both companies are based in New York.


TV Rights


Broadcasters have said stations deserve to be compensated for supplying TV’s most-watched shows, including “NCIS,” “Sunday Night Football” and “Desperate Housewives.” In the past, the networks traded those rights to gain distribution for new cable channels, like Walt Disney Co.’s ESPN2, or higher fees for their existing channels.

CBS, owner of the most-watched TV network, is aiming for $250 million a year in so-called retransmission fees, Chief Executive Officer Leslie Moonves said at a UBS AG conference in New York in December. New York-based CBS plans to band together with its affiliates to pressure pay-TV systems, said Moonves, 60.

If Fox received $1 a month per pay-TV subscriber, and NBC, ABC and CBS sought the same, that would lead to an extra $5 billion a year in fees, Moffett said.

CBS probably gets about 50 cents a month for each pay-TV subscriber in some markets, said Robin Flynn, a consultant with SNL Kagan in Monterey, California. CBS started seeking payment after breaking from Viacom Inc.

Walt Disney CEO Robert Iger, whose Burbank, California- based company owns the ABC network, also said at the UBS conference that he also expects to begin retransmission talks concerning ABC’s 10 stations next year. He declined to say what pay-TV distributors those negotiations are with.


Iger’s Take


“I think there is probably going to be more of a focus on deriving specific value from retransmission consent, and that seems to be a trend in the marketplace,” Iger, 58, said at the conference. Moonves and Disney have both made statements lending support to Fox’s efforts.

Comcast, which is taking control of Fairfield, Connecticut- based General Electric Co.’s NBC network, has said in regulatory filings that it also expects to pay retransmission fees, without detailing how much.

“It makes sense from a network standpoint that there should be some compensation for providing programming that creates a large audience,” said James Goss, an analyst at Barrington Research Associates in Chicago. “However, from the cable companies’ point of view, they don’t want to pay higher fees in a vacuum.”


Staggered Payments


Jennifer Khoury, a spokeswoman for Philadelphia-based Comcast, declined to comment. ABC spokesman Kevin Brockman said he had no immediate comment beyond Iger’s statements. CBS spokesman Dana McClintock also declined to comment.

It will take time before programmers all get paid based on the number of viewers, because content-contract expirations are staggered, Goss said. For example, News Corp.’s deal with Time Warner Cable to carry cable networks Fox News and Fox Business wasn’t negotiated in the Jan. 1 settlement.

Time Warner Cable CEO Glenn Britt has said that Fox wouldn’t have been able to start Fox Business without bundling it to Fox’s more successful channels.

“What we’re hearing from consumers, who ultimately pay the bills, not me, is that they’d like more choice, which is smaller packages,” Britt, 60, said in an interview on Dec. 21.

Although Time Warner Cable and News Corp. resolved their fee dispute, smaller battles continue. Mediacom Communications Corp., a Middletown, New York-based cable-television provider serving parts of Iowa and Wisconsin, and Hunt Valley, Maryland- based station owner Sinclair Broadcast Group Inc. agreed to extend their retransmission deal until Jan. 8 as they negotiate.

Scripps Networks Interactive Inc., based in Knoxville, Tennessee, pulled Food Network and HGTV from about 3.1 million Cablevision Systems Corp. customers on Jan. 1 after the two sides failed to reach a resolution on payments.

--With assistance from Andrew Fixmer in Los Angeles. Editors: Julie Alnwick, Anthony Palazzo



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