Fox-Time Warner Cable deal could mean billions for broadcasters

By Kelly Riddell
Monday, January 4, 2010

Time Warner Cable's agreement to pay News Corp. for over-the-air television programming has opened 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 have also said they may seek payment for programming that's currently free. CBS has a deal with Comcast, the largest U.S. cable operator, that ends next year, and already collects fees from Time Warner Cable and Dish Network.

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 out as much as $5 billion a year -- and would probably 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.' "

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, such as Walt Disney'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 retransmission fees, chief executive Leslie Moonves said at a conference in New York in December. CBS plans to band together with its affiliates to pressure pay-TV systems, Moonves said.

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, Calif. CBS started seeking payment after breaking from Viacom.

Walt Disney chief executive Robert A. Iger, whose company owns the ABC network, also said at the conference that he expects to begin retransmission talks concerning ABC's stations next year. He declined to say what pay-TV distributors those negotiations are with.

"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 said at the conference. Moonves and Disney have both made statements lending support to Fox's efforts.

Comcast, which is taking control of General Electric'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."

-- Bloomberg News

© 2010 The Washington Post Company