SBD/Issue 76/Sports Media

Bowl Game Blackouts Avoided As News Corp., TWC Reach New Deal

News Corp., TWC Deal Prevents Any
Disruption Of Service, Football Game Blackouts
News Corp. and Time Warner Cable (TWC) Friday agreed to terms for a new contract covering Fox stations in N.Y., L.A., Orlando and other markets, “averting a blackout of the weekend’s college football games in millions of homes,” according to Brian Stelter of the N.Y. TIMES. Analysts expected that the deal “would set a new high-water mark for local TV stations that want sizable subscriber fees in exchange for so-called retransmission rights.” Fox had “demanded about a dollar a subscriber per month, far more than other stations have received.” Sources said that TWC “thought 30 cents was more reasonable.” Both TWC and Fox “refused to comment” on the final figure (N.Y. TIMES, 1/2). Analysts suggested that the “compromise ultimately would fall to around 50 cents or thereabouts.” MULTICHANNEL NEWS’ Reynolds & Eggerton noted the deal prevents any “disruption of service,” and it covers all of TWC's nearly 13 million subs, as well as 2.4 million of Bright House Network’s customers. The two sides, led by TWC Exec VP & Chief Programming Officer Melinda Witmer and Fox President of Affiliate Sales & Marketing Mike Hopkins, “continued to negotiate throughout New Year’s Day." U.S. Sen. John Kerry (D-MA) said that members of Congress will “see if any legislation was needed to avoid a repeat of the impasse” (MULTICHANNEL.com, 1/2).

DEAL DETAILS: Pali Research's Rich Greenfield speculated that Fox and TWC reached an agreement when both sides compromised. He wrote Fox likely reduced "its demands for cable network distribution and sub fee growth at FX and the RSNs, in return for cash retrans for the Fox network that likely averages out to north of $0.50/sub/month over a 4-6 year term." Greenfield also suggested that TWC's payment could reach as much as $0.75 in the last year of the deal. While the cash retrans undoubtedly will help Fox, Greenfield also said that the underlying broadcast business model "remains challenged" (John Ourand, THE DAILY). DAILY VARIETY’s Cynthia Littleton notes the agreement is “believed to run for at least three years, and the fees Time Warner pays Fox will escalate over the term of the deal.” A source said that the fee structure will rise to the $0.50-0.60 range by the final year of the contract. Also wrapped up in the negotiations were “new carriage deals for a number of Fox-owned cablers including FX, Speed TV, Fuel and 10 regional sports cablers,” and sources said that some of the retrans money TWC will pay could also “incorporate compensation and other consideration (such as marketing and promo support) for those cable outlets.” Littleton writes what “broke the Fox-Time Warner impasse was the face-to-face huddle and the threat of a political firestorm erupting if they didn’t come to terms” (DAILY VARIETY, 1/4). Fox “granted extensions in three-hour increments” to keep the Fox-owned stations on the air while talks continued Friday (DAILY VARIETY, 1/2).

SETTING A BENCHMARK? In L.A., Joe Flint wrote the “bad news” for TWC customers is “their cable bill may go up.” Securing fees from TWC is “viewed as an important win” for Fox, but TWC can still “claim that it did its part for consumers by holding down the cost of monthly cable TV bills by not caving in to Fox’s demand for $1 per subscriber” (LATIMES.com, 1/1). The WALL STREET JOURNAL’s Ovide & Worden noted the deal ends a “fierce television-programming dispute that each side had characterized as a crossroads for the television business” (WALL STREET JOURNAL, 1/2). DAILY VARIETY’s Littleton noted the “high-public profile” of the Fox-TWC dispute put a “klieg light on the overall issue of retransmission consent, which is sure to spur more brawling between broadcasters and cable operators in the coming year.” Cable operators are “alarmed by the prospect of a triple-digit increase in programming costs and have every incentive to play hardball with station owners” (DAILY VARIETY, 1/2).

Moonves Aiming For $250M
Annually In Retransmission Fees
THE NEXT ISSUES: BLOOMBERG NEWS’ Kelly Riddell noted CBS’ deal with Comcast ends next year, and the net “already collects a fee” from TWC and Dish Network. CBS Corp. President & CEO Leslie Moonves said that the net is "aiming for $250[M] a year" in retransmission fees. Analysts said that the Fox-TWC deal “opens the door for broadcasters to demand as much as $5[B] a year from pay-TV providers and their subscribers" (BLOOMBERG NEWS, 1/4). In N.Y., Brian Stelter reports Disney is “expected to ask for sizable fees for its ABC stations in negotiations this year.” Disney’s ESPN “earns the most by far, $4.10 on average, and is forecast to receive more than $5 a month by 2012.” Fox Sports Net “gets $2.37 on average.” The next-highest paid channel is TNT, which gets $0.96. Disney Channel, NFL Network, Fox News, USA Network and ESPN2 each get more than $0.50. The price per month is “expected to rise each year” for every channel (N.Y. TIMES, 1/4).

SINCLAIR, MEDIACOM REACH SLIGHT EXTENSION: The AP’s Nigel Duara reported Sinclair Broadcasting Group and Mediacom have “agreed to extend by eight days their negotiations over fees,” allowing football fans to watch college bowl games. The deadline was extended to midnight on January 8, and during the extension, Mediacom “will pay Sinclair a higher rate than it was paying under the contract” that expired Thursday. About 700,000 Mediacom subs were “at risk of losing Sinclair programming.” Sinclair Exec VP & General Counsel Barry Faber: “We recognize that several of the impacted markets have college teams that will be playing in the BCS Bowl games” (AP, 1/1). 

MISSING THE GAME DESPITE SETTLEMENT: In K.C., Kellis Robinett reported with the Fox-TWC dispute settled, everyone who normally receives FS K.C. “was supposed to get” Sunday’s South Dakota-Kansas State men’s basketball game. But because of “technical difficulties, the game was never telecast.” FS K.C. Senior VP & GM Jack Donovan: “We were unable to show Sunday’s game live as planned because of a problem with the satellite uplink facilities provided by a third party” (K.C. STAR, 1/3).

 
RATES ON THE RISE: The cash retrans should not hurt cable operators' position on Wall Street, Bernstein's Craig Moffett said, since MSOs "are proceeding apace with annual video price increases, suggesting that competitive forces are not limiting the ability of operators to pass through programming increases." TWC, for example, is increasing its video costs by 7%. "This year's increases appear to be roughly in-line with those of prior years', notwithstanding the fact that the average consumer is inarguably in worse financial condition. Indeed, 2010 price increases seem to target the low end of the video market more onerously than the high end, perhaps in anticipation of higher broadcast TV costs (i.e. retrans), which comprise a disproportionate share of low-end packages," Moffett wrote. "In light of the combined price increases being taken in video and broadband, it is quite likely that cable operators will, at the very least, be economically better-off in 2010 than they were in 2009, and even if reported video margins are lower, total margins may be due for a positive surprise" (Ourand). In Charlotte, Kerry Hall Singe reported TWC “has raised the rates for some of its services by as much as 15[%], blaming sports programs and network television.” The rate hike, which went into effect yesterday, is the company’s “fourth consecutive annual increase.” Basic cable rates rose $4 to $58.95 per month, while the price of digital cable and unlimited digital phone service rose $1.05 to $117.95. The price of Road Runner High Spped Online bundled with the digital cable “will remain the same” at $44.95 per month (CHARLOTTE OBSERVER, 1/3).

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