Network Deals Could Raise Cost to Cable Viewers

January 5, 2010

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 terms. Other broadcasters, such as CBS Corp., also have said they may seek payment for programming that is now 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 said. If other networks seek similar terms, cable operators may have to fork over 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.'"

Another dispute over a fee increase, this one between Cablevision Systems Corp. and Scripps Networks Interactive Inc., heated up Sunday with cable TV viewers in New York, New Jersey and Fairfield County in Connecticut still caught in the crossfire.

About 3.1 million subscribers lost access to HGTV and the Food Network on Friday after Scripps pulled its programming while negotiating a new contract with the cable provider.

In a statement Sunday, Cablevision said Scripps is demanding a 200 percent fee increase, which would drive up customer rates if accepted. For 2010, the average rate increase for subscribers is 3.7 percent, Cablevision spokesman Jim Maiella said.

In a separate statement late Sunday, Scripps said more than six months of negotiations haven't been able to produce an agreement, and its recent requests for discussions have been rejected. Scripps said Cablevision currently pays about 25 cents per subscriber for the combined networks, and described the fee increase it's asking for as "fair market rate" for popular networks.

Broadcasters have said thatstations deserve to be compensated for supplying TV's most-watched shows, including "NCIS," "Sunday Night Football" and "Desperate Housewives."

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 last month at a UBS AG conference in New York. CBS plans to band together with its affiliates to pressure pay-TV systems, said Moonves.

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.

Time Warner Cable may have agreed to pay Fox, on average, more than 50 cents a month per subscriber in cities where News Corp. owns the local TV station, wrote Rich Greenfield, an analyst at Pali Capital LLC in New York, in a note to clients today.

Fox likely will receive retransmission fees below 50 cents in 2010, with payments increasing annually over the contract's four- to six-year span to 75 cents, wrote Greenfield.

2010, The Hartford Courant