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Tue, Jan 05, 2010 - Page 10 News List

Fox deal opens door to as much as US$5bn a year

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 US$5 billion a year from pay-TV providers and their subscribers, analysts said.

The companies agreed on a distribution deal on Friday, 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 US cable operator, that ends next year and already collects fees from Time Warner Cable and Dish Network Corp.

News Corp sought as much as US$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 US$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.’”

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

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

CBS probably gets about US$0.50 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 chief executive Robert Iger, whose 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.

“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 the NBC network, has said in regulatory filings that it also expects to pay retransmission fees.

“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.”

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